The Deal is Only as Sweet as Your ESG Credentials (Part 2 of 3)

May 13, 2021

In our last blog, we looked at the demands placed on small-to-medium sized enterprises (SMEs) from consumers, the general public and employees.

 

The bottom line is *spoiler alert* SMEs have a lot to think about if they are to keep all three stakeholders – consumers, the public and employees – happy when it comes to ESG.

 

However, there is a fourth stakeholder group– investors – that SMEs also need to keep sweet and so much so that we have dedicated this post to them.

 

In the second of our three-part blog series on why Environmental, Social and Governance (ESG) credentials are no longer ‘nice to have’, we look at the investor perspective and why ESG is becoming synonymous with ROI.

 

New money, same mindset

 

Investors call to mind sharp, savvy individuals with a beady eye on the bottom line. While this has not changed, what has evolved is our understanding of the bottom line from being purely about financial value to include environmental and social value too.

 

This is reflected within the investment community with ESG funds capturing $51.1 billion of new money from investors in 2020 – more than double the previous year.

 

However, ‘environmental and social value’ have had a shaky run over the past few years, with companies coming under fire regularly for greenwashing or making claims that do not stand up to scrutiny. The implications of this are far-reaching as we explored in our last piece[1] .

 

Fortunately, investors are not at risk of falling for the talk. These newer ‘value-add’ elements are being treated with the same scrutiny as financial metrics – and that means measurement is key.

 

Measurement matters

 

Investors new and old, have one main priority and that is balancing risk and reward.

 

Looking beyond the uncertain economic climate, one of the biggest risks facing SMEs is the power that the public now has over their success and reputation, particularly when it comes to sustainability and broader social issues.

 

No company is perfect, but it is becoming increasingly difficult for businesses to pretend or adopt an ‘ignorance is bliss’ mindset regarding ESG, which has raised the stakes for investors.

 

This means that the SMEs who can demonstrate their ESG commitments in hard numbers will be in a favourable position, as this capability not only significantly de-risks the opportunity, but also promises higher returns, access to new capital and preferable credit ratings and lending terms.

 

The pandemic and ESG  

 

The pandemic has had a particularly seismic impact on ESG. While many of the previously intangible measures of success – for example, how companies treat their stakeholders – were already attracting more attention, this stepped up a gear in 2020.

 

It became obvious which companies had the policies, processes and people power in place to weather the storm and which stayed true to their long-term ESG commitments.

 

Those that shone not only proved their resilience, but also their capability to attract capital. The proof is in the numbers, with a recent survey of 2,600 companies revealing that during the first nine months of 2020, stocks with higher ESG ratings outperformed those with weaker ESG credentials.

 

Tools like DiginexESG can help companies truly future-proof their businesses.

 

The new currency

 

The world has had a moment to pause during the pandemic and as we slowly ease out of lockdown, we are starting to seewhich ‘pandemic trends’ are here to stay.

 

ESG looks to be at the top of the list for the smartest business brains.

 

Whether thinking about climate change, human rights or compliance, there are ways that you can measure your business’ performance – through tools like DiginexESG – and reap the benefits of doing so from every stakeholder, including investors.

 

There used to be a time when money made the world go round – today that currency seems to be ESG.

 

Learn how DiginexESG can help you future-proof your business model and accelerate growth. Click here to find out more.

 

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