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Small and medium-sized businesses constitute the backbone of the North American economy. They make up a staggering 98% of all businesses and generate approximately 40% of total business revenue.
Of those, around 60 to 70% are supplying other businesses (B2B) - as opposed to serving an end customer directly (B2C). Therefore, most businesses are somewhere in the middle of a value chain - and like any chain, every link counts.
Individually, these companies may feel too small to have a significant impact in the realm of Environmental, Social, and Governance (ESG) practices. Collectively, sub groups, professions, or sectors etc can have some or even significant impact through shared learning, good or best practices, and advocacy (eg farming) - financial and legislative incentives certainly help here too.
Certainly, individual SMEs do face challenges in making a profound ESG difference, but by recognizing their position within the value chain, they can leverage their unique value, while contributing to the overall value or strength of the chain. Their value is not merely delivered to their immediate customer, but will transmit and reach far and wide to all of the end-users. Today, it's not just individual companies that compete; it's the entire value chain. And as these chains evolve to meet ever-increasing ESG requirements, SMEs can, and should, adapt to become an increasingly indispensable link and supplier to the ESG legislated company further down the line.
For smaller companies, embracing ESG practices and aligning with larger entities within the value chain is not just about making a positive contribution; it's also a survival strategy. As larger corporations strive to comply with increasingly stringent ESG requirements, they will be more inclined to do business with partners and suppliers who share their commitment to sustainability. They will be looking for suppliers that can assist with their Scope 3 requirements, even if that supplier has no formal reporting requirement. However, financing for any business, including the SME, is increasingly demanding evidence of sustainability practices.
In Canada, approximately 75% of the population is concerned about climate change, yet only about 40 are sufficiently concerned to make changes to their daily lives if that involves additional cost. Most people's primary concern right now is cost of living and affordability. We can assume that these are similar for business owners and hence the priorities of their businesses.
But recognising and seizing opportunities to continue to be an invaluable link in the chain in a rapidly changing business world is essential. Here are six actionable steps that can help:
1. Assess Your ESG Impact. Begin by evaluating your own ESG practices - this can be as subjective (to begin with anyway) or objective as you like. For Environment, what tweaks can you make to your 3 scopes? Where can you align with the ESG requirements of potential partners downstream in the value chain?
2. Collaborate. Seek out opportunities to collaborate (and learn) with trade or professional organizations. Seek out other businesses in your industry who may have robust ESG initiatives; if you are a larger company with maturing ESG practices, how can you collaborate with smaller companies to help them on their way? For potential customers, show them how your practices complement their goals and create a win-win partnership that addresses both Scope 1 and Scope 3 emissions.
3. Educate Your People. Educating (chat with) your team about ESG principles and the importance of sustainability. Your employees are an invaluable part of your company - just as your company is an invaluable part of the value chain. Your people can become powerful advocates for your ESG journey.
4. Innovate for Sustainability. Whenever it is time to improve processes, renew, replace or upgrade, do it with an ESG lens.
5. Pursue Certifications and Standards. Pursue relevant certifications and standards that demonstrate your commitment to ESG, making it easier for potential partners to recognize your dedication to sustainability. These can include safety certifications and quality certifications which indirectly have S and E impact.
6. Report and promote. Where there is opportunity, report your ESG efforts and accomplishments. Or, as a minimum let the world know what you are doing and achieving - put it on your website - celebrate achievements internally, and post it on your Social Media. This all builds trust and credibility, which is essential when engaging with larger companies with significant ESG requirements.
Just as the business world is evolving, the value chains of which it comprises will also be evolving. Each link in the chain will also need to evolve.
If you need more ideas or just ideas, then let's chat.
Graham
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