Two weeks ago, we participated in the World Economic Forum’s Sustainable Development Impact Summit 2021, where various sustainability topics were discussed. This week we would like to share some thoughts we heard on one topic in particular: ESG implementation for SMEs.
Almost 90% of businesses worldwide are small and medium-sized. They account for approximately 70% of job positions. In Mexico, as of 2019 the INEGI reported the existence of 4.9 million businesses, of which 99.8 percent were micro, small, and medium-sized. It is expected that many of them do not really know how to implement an ESG strategy (or even if they should). We have actually had this conversation even with somewhat larger organizations that are planning to eventually IPO in the future.
During the conference, various CEOs from SMEs from different parts of the world shared their thoughts on this topic, and we think there are 3 key points that are worth sharing:
- It is true that large multinationals have greater access to resources, technologies, and know-how. However, SMEs have advantages for reaching potential ESG commitments:
a. Smaller companies are more agile (both in terms of decision-making and/or shifting their operations). This translates into a quicker implementation.
b. SMEs usually have greater interest and flexibility to use new platforms and adopt disruptive solutions that are low cost. This makes them more comfortable with adopting things they are unfamiliar with.
- It is not true that SMEs can’t balance short-term survival with long-term ESG goals. As these small companies tackle short-term issues, many companies that were represented in the panel talked about how during past crises they have adopted new strategies that have moved them towards a more sustainable direction.
- Two interesting topics some of these SMEs have focused on as part of their initial ESG journey have been:
a. Circularity: taking advantage of their smaller scale to eliminate waste and pollution more efficiently than bigger companies, by keeping products and materials in use and regenerating natural systems.
b. Digitalization: using technology to be smart about what resources are needed and how they should be used, disposed of, and kept in circulation, as well as more efficient processes and data storing will be key to cutting costs and time.
The present responsible investment trend will only pressure larger enterprises further to deepen their efforts on ESG topics. It is likely that SMEs at some point could even become a reference point for things like circularity if they find a way to truly optimize their results on it, and partnerships between start-ups, SMEs, and large caps can become necessary. These parties can learn from each other and work together towards a more sustainable corporate ecosystem.
We would definitely recommend that any organization, no matter its size, thinks about ESG as something that will both add value over time (opening the door to investors who are starting to use ESG as a screening tool) and make your company more resilient. As we have said in the past, companies do not need to deliver the same level of ESG strategies than larger or more experienced companies at first. ESG strategies can be tailored to different budgets and different goals, but the size of a company should not immediately imply it can or cannot work towards its sustainability outcomes.
I hope you found this interesting. As usual, if there is anything we can help you with, or if there is an ESG topic you would like to know more about, please let us know.
CEO, Miranda ESG
Contacts at Miranda Partners