ESG action downgraded as a priority by SMEs

Almost three quarters (71 per cent) of SME businesses are not currently acting to reduce their carbon emissions, as Environmental, Social, and Governance (ESG) performance is downgraded and digitalisation, employee wellbeing, cost inflation, and recruitment take priority.

The latest Azets SME Barometer Spring 2022, which surveyed 1,093 SMEs from all sectors in the UK, Denmark, Finland, Norway, and Sweden, reveals ESG is on most company radars but specific action lacks urgency, with sharper focus on people, technology, and cost amid economic turbulence.

Joann Regan, regional managing partner at Azets in the North East, said, “The SME Barometer shows that many businesses want to focus on ESG and sustainability to a far greater extent than before. But it also highlights an alarming number that do not keep climate accounts today.”

Over half of SMEs agree they have a good understanding of what ESG means (57 per cent) and have the skills and competencies in the business to address it (52 per cent).

However, 53 per cent do not think ESG will have a big impact on their business in the next two years. On reducing carbon emissions specifically, 71 per cent are not currently acting and 85 per cent are not currently measuring the carbon footprint of their business.

Meanwhile, over half (54 per cent) of SMEs say they will increase digitalisation in the year ahead, whilst employee wellbeing has risen to be SMEs’ second highest priority, after securing their financial health.

Cost inflation and recruitment are SMEs’ biggest day-to-day challenges, with knock-on effects on cash flow and the time spent on administrative work. Almost two-thirds (64 per cent) of SMEs are struggling to recruit talent with the right skills. All of this leaves little bandwidth and urgency for ESG.

Joann added that, “ESG represents a great potential and opportunity for SMEs. With legislation coming down the track for EU SMEs on sustainable products, and funding likely to be harder to come by as banks increasingly look at sustainability and ESG policies as a condition of lending.”