What are the rising ESG implications for privately owned businesses? 

Small and medium-sized enterprises (SMEs) are yet to feel the full force of ESG reporting. Still, for those who haven’t yet begun to engage with creating a sustainable business model, obligations to comply may be closer than first expected.  

From a regulatory perspective, European Sustainability Reporting Standards (ESRS) create new demanding transparency obligations on sustainability commitments. Under the Corporate Sustainability Reporting Directive (CSRD), these standards prescribe both the content and format of sustainability-related information that companies must now report on. 

While requirements for the first ESRS-compliant sustainability statements begin in early 2025 for the largest public interest entities (PIEs), listed small and medium-sized enterprises (SMEs) have to report for the first time in early 2029. However, there are a number of situations where the need for SMEs to report on ESG impacts is imminent, if not here already. 

Supply chain requirements 

If your company is a supplier to large companies, then the ability to answer sustainability questionnaires is now a realistic part of any ongoing relationship or tender process. Current examples show that questionnaires can contain as many as 180 questions around ESG data collection points designed to show that suppliers are responsible businesses that take sustainability seriously. The depth of questions means any SME that hasn’t begun to measure and assess their net-zero journey put themselves in difficult to respond meaningfully. SMEs should expect questionnaires to become more frequent and, over time, will require data to be substantiated. 

Access to Government contracts and finance 

For SMEs aiming to secure a Government contract above £5m, you will already need a net-zero plan in place. In relation to finance, banks and private equity are now mandated to direct capital towards sustainable businesses. SMEs that have already begun their ESG reporting journey can take advantage of ESG-backed finance available at preferential rates. So if you’re looking to raise finance over the next two to three years, a smart move would be to put yourself in the best position to take advantage of new opportunities open to ESG-led businesses and improved finance products and rates.  

Dont overlook societal expectations 

Waiting for a regulatory nudge may not be the best course of action, particularly if you sell directly to consumers. Increasingly, consumers prefer to buy goods from companies that they know have ESG policies in place to reassure customers that human rights have been observed when goods have been produced. As well as good health and safety policies and paying a living wage, knowing that the materials used are sustainable is now a key factor for consumers when considering brands to buy. SMEs that can validate ESG statements made will be in the best position to manage expectations society now demands.  

Finally, while the post-Covid economic situation for many SMEs means that ESG may not yet be a top priority, it’s essential to bear in mind that future business will be inextricably linked with the ability to the ability to report on ESG impacts. While you may only be at start of your journey to becoming a more sustainable business, showing that steps are being taken to progress is a key part of the process.  

This blog is based on a webinar produced by Mazars entitled How to Begin your Sustainable Journey. Speakers included Chris Fuggle, Global Head of Sustainability, Mazars, Giles Bradford, Head of Sustainability at Bradfords Building Supplies and moderated by Helen Parker, Director, Management Consulting Team, Mazars.