Your customers and staff want more: Why ESG needs to be a part of your business narrative

Environmental, social and governance (ESG) considerations have always been inextricably linked to the way we do business. Now customers want greater transparency – and more meaningful action – from businesses of all sizes.

Research from KPMG Australia has found that 80 per cent of customers prefer to buy from brands that align with their values. So much so that most customers (54 per cent) say they have changed their purchasing decisions based on an organisation’s environmental and social responsibility goals.

“Stakeholders such as customers, employees and investors are looking at the impact a business has on the environment, but also its exposure to environmental factors, how they participate in social responsibility, and if they have the right governance structures in place,” says Kristina Kipper, Partner in Charge – Mid-Market at KPMG Australia. “So whether it is competing for market share, attracting talent, or securing capital, ESG needs to be part of your narrative.”

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Addressing expectations

The key challenge for small and medium businesses is understanding the expectations of their customers and implementing a strategy to meet them. This is no easy feat in an area that is layered with complexity and lacks regulation.

“People don’t really know what they need to do, but in the meantime, even small suppliers are coming under pressure from larger customers who are starting to report on ESG,” Kristina tells Kochie’s Business Builders.

So it’s no surprise that another KPMG survey of business leaders found that smaller businesses were significantly less confident that they will have mature ESG practices up and running in line with larger corporates, especially when it comes to capturing data and reporting to stakeholders.

Kristina says that some are focusing on carbon footprint, others on modern slavery or gender diversity. The fact is, businesses of varying shapes and sizes need to be ready to respond to any aspect of ESG in their supply chain.

In light of this, small and medium businesses can do plenty to set ESG strategies that work towards their goals. Doing so will result in a business that attracts and retains customers on a deeper, stickier level.

Understand what’s important to your stakeholders

In general, the value-action gap is narrowing and consumers are increasingly looking for environmental responsibility in their transactions. But what do your stakeholders want from you? Customers, investors, regulators, shareholders and employees will all have ESG considerations to learn and address. As noted above, ESG is a complex area, so starting to prioritise issues and build your ESG values based on your stakeholder values makes sense.

This is absolutely about meeting the needs of your stakeholders to improve satisfaction and retention, but it goes even further than that. KPMG’s business leader survey, 30 Voices on 2030: The ESG Revolution, found that small and middle-sized companies see a link between ESG and talent attraction.

“So they’re becoming very deliberate in aligning the strategy to the things that employees or potential employees and customers care about,” explains Kristina. “There’s also evidence that those who are authentic in building diverse teams and a truly inclusive culture perform better.”

While stakeholder research can be a time-consuming and complex operation, it can also be reassuringly simple: ask. Start where you can and build your knowledge as you go.

Set your ambitions

Once you have a clear understanding of what your stakeholders expect from you, it’s time to set some ESG goals and targets. The usual SMART framework applies here, plus an acknowledgement that often you don’t even have to ‘start from scratch’.

“People often discover they’re already doing great things, they’re just not labelling it as ESG,” says Kristina. “And in this way, they can actually unlock value before they even start to implement additional programmes and create a roadmap that they can communicate to the market.”

Take stock of where you are today and start to build your ambitions around where you want to be in future. Benchmark yourself against collaborators and competitors, plus take into account any industry benchmarks that are starting to emerge. For example, what’s your carbon footprint looking like today and how can you reduce it throughout your supply chain tomorrow?

Address the gaps

It will likely be obvious upfront which ESG areas you are lacking in the most. For smaller businesses, that’s often in capturing data and reporting to stakeholders. Or perhaps your diversity and inclusion policies need some work. Regardless of where your gaps are, remember to keep focusing on your strengths while you address your weaknesses.

“In essence, those who are successful don’t see ESG as a cost, but as an opportunity to create long-term value and competitive advantage,” notes Kristina. “It has to be genuine, authentic and intrinsic.”

One of the key benefits of being a small or medium-sized business is the ability to pivot quickly and collaborate widely. KPMG’s ESG report acknowledged that if business leaders can collaborate across their industry to keep costs down, small disruptors and innovators will take the lead on creating positive ESG change.

Need help turning your ESG commitments into action? KPMG Australia has a range of services, insights, advice and technologies to help businesses of varying sizes accelerate their ESG goals. Discover more here.

This article is brought to you by Kochie’s Business Builders in association with KPMG Australia.

Feature image: AdobeStock