ESG not on SME horizon as many fail to see benefits

SMEs are struggling with a move towards Environmental, Social, and Corporate Governance (ESG), with many saying they are simply not interested as the battle to stay in business remains overarching.

Analysis by digital identity specialists, ID Crypt Global, reveals that only one-fifth of the UK’s SMEs are aware of what ESG is and that a significant majority of them have no interest in engaging with ESG practices in the future despite its proven benefits.

Previous research from the company has already shown that, among the world’s biggest businesses, those who are prioritising ESG are enjoying 6.3% stronger profit growth than those who are not.

However, ID Crypt’s new research shows that an overwhelming majority of the UK’s small-to-medium-sized enterprises (SMEs) are doing nothing whatsoever to engage with ESG.

A survey of 1,124 UK SME business owners reveals that just 19% are aware of what ESG is, while only 12% are actually implementing ESG practices.

Those that are implementing ESG practices are primarily doing so to reduce their environmental impact, to ensure their societal impact is positive, as well as ensuring they are compliant with all current and future regulation changes.

Among the SMEs who are actively implementing ESG practices, 73% state that it has improved their company for the better and the majority (87%) would like to see ESG practices made more widely available for all companies, of all sizes, across all sectors.

However, the varied scoring methodologies currently utilised within ESG practices is one area that has come under criticism and 86% of SMEs surveyed by ID Crypt Global would like to see one consistent scoring method introduced across the board.

71% also stated that there should be an independent regulatory body that is responsible for the provision of ESG scores on a global basis, further improving transparency when it comes to ESG practices.

For now though, the primary barrier seems to be attracting more businesses to commit to ESG. Of those that said they do not currently engage in ESG activities, 92% also stated they had no plans of doing so in the future.

The primary reason for this was that they felt it provided no real benefit to their business, while many also had a lack of knowledge or awareness around the topic, with the cost involved to obtain a score via a third party also a barrier for most.

CEO and Founder of ID Crypt Global, Lauren Wilson-Smith, commented: “The growing importance of ESG practices is, of course, positive. But it’s fair to say that while it is being increasingly adopted by big businesses, the implementation of ESG is being done for the wrong reasons with a focus on profits over positive impact.

“So it’s great to see that the nation’s smaller businesses are undertaking ESG activities for the right reasons, seeking to better their environmental and societal impact.

“However, there remains a number of issues when it comes to ESG implementation for smaller businesses. The cost of obtaining and improving a score is certainly one factor, as well as a lack of prior knowledge on the subject. But there is also a lack of transparency due to the numerous score providers operating within the space.

“As it stands, ESG is inaccessible for many smaller businesses and more certainly needs to be done to drive home the benefits of ESG for companies of all sizes in all sectors.”

Previous research from the company has already shown that, among the world’s biggest businesses, those who are prioritising ESG are enjoying 6.3% stronger profit growth than those who are not.

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