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While the ESG (Environment, Social and Governance) framework has to date been primarily a concern for larger enterprises, it is fast becoming an important consideration for SMEs as well.

The shift is driven by global business climates, as well as today’s consumers, especially the younger generations who tend to be more conscious of companies’ environmental and social impacts.

“In SA, 98% of all businesses are SMEs. Employing around 60% of the total private sector workforce, and responsible for 40% of national GDP, these companies are the essence of our economy,” says Tom Stuart, CMO at Lula.

“SMEs have a finger on the pulse of the unique concerns and challenges faced by the communities they serve, giving them a hyper-local understanding that can inform their ESG efforts. Given the critical role SMEs play in local communities, generating jobs and depending on the support of their customers, their reputation in local communities is crucial to success.”

“The potential impact of SMEs embracing ESG is enormous. They can tailor their initiatives to address the specific needs of their local communities, creating a more targeted and effective approach to sustainability,” he adds.

While ESG reporting is not yet mandatory for most SMEs, it’s nevertheless increasingly important. Currently, 70% of South African SMEs prioritise sustainability, but only 4% report on their impact.

“SMEs may also have an advantage over their larger counterparts in implementing meaningful ESG practices. With their greater flexibility, responsiveness, and close relationships with customers and stakeholders, savvy SMEs can leverage their agility to innovate around high-impact ESG strategies,” Stuart suggests.

“While reporting on quantitative ESG metrics is useful, the most valuable ESG benchmark for SMEs lies in open, honest conversations with the community members and customer base they serve. SMEs are uniquely positioned to engage directly with their local stakeholders, listening to their concerns and adapting their ESG strategies accordingly,” he observes.

“Embracing ESG doesn’t need to be expensive. Fostering a diverse workforce and a compassionate company culture with flexibility and targeted support is a low-cost way to make strides in the social pillar.”

“When it comes to the governance pillar, transparency goes a long way in demonstrating a commitment to ethical practices. In terms of environmental impact, don’t underestimate the power of day-to-day actions like recycling paperwork and reducing waste. These small steps can add up to significant progress in a company’s ESG journey, without needing additional funding for larger initiatives,” he advises.

That said, there are times when it makes strategic business sense to invest money in ESG initiatives. As with other business investments, access to capital can level the playing field between SMEs and larger competitors.

Many SMEs in SA lack the cash reserves to invest in ESG initiatives like solar power, and this is where a business funding partner can help bridge the financing gap.

“By providing access to the right credit lines a funding partner can help small businesses secure the necessary capital to overcome the financial hurdles along the road to a stronger ESG profile, helping them have a more positive impact on the world around them,” says Stuart.

“Disingenuous ESG practices that fail to get buy-in from communities will fall flat, undermining the business’s long-term success,” Stuart cautions.

“Ultimately, when it comes to ESG, culture trumps strategy any day of the week.”

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