SME ESG ambitions hindered by lack of management support

The environmental, social and governance goals of mid-market firms are being hamstrung by senior management, according to a new report. More than one-third noted that they had not calculated their carbon emissions in the last 18 months, and even more are yet to set a net-zero strategy as a result.

Speaking on his firm’s study, Dave Munton, Grant Thornton’s Head of UK Markets and Clients, noted, “Environmental, social and governance (ESG) reporting continues to increase in importance for all businesses as all stakeholders, from investors to employees, demand increased transparency around an organisations’ impact. But while the mid-market clearly recognises the critical nature of this agenda and are enthusiastic about their own efforts, these results show that many businesses lack direction and do not have a proper understanding of how and where to invest resources that will drive change.”

ESG-centricity is playing an increasingly important part in economic and wider societal debates – and consumers are more and more shunning companies with poor ESG track-records. With investors increasingly keen not to be caught out by backing companies that do not take these risks seriously, most companies have now come to the realisation and understanding that proactively improving upon ESG issues improves business outcomes by responding to social needs. But even as ESG has become such a key item on the agenda, many mid-market players seem unable to rise to the challenge.

At the heart of this problem, Grant Thornton found that a knowledge gap amongst senior management is reportedly causing a “lack of action” around ESG ambitions. Of 601 UK SMEs surveyed, 91% said ESG was a key factor in their overall value creation, and 92% said the same of being able to attract funding. But a lack of senior management support was found by the largest number of firms as preventing progress on ESG goals – ahead of a lack of understanding of what was required, or lack of resources.

At present, many of the businesses surveyed were not delivering on fundamental measurement and reporting, with 36% having not calculated their carbon emissions for the last year. At the same time, just half of the businesses surveyed were found to have set a net zero strategy, while 52% reported their carbon emissions externally. Considering the rate of errors recently found among emissions reporting across Europe, the accurate ESG action in SMEs may be even lower than that.

Looking ahead, Munton added, “ESG is a complex and evolving issue, and businesses have had much disruption and radical change to contend with over the last couple of years, but it’s an agenda that only going to grow in importance. With increased regulation and growing stakeholder expectations, activity needs to be led from the top.  It’s important that business leaders are supported in developing a deeper understanding of their responsibility and the practical actions that need to be taken to embed ESG into their overall business strategy."