ESG Action downgraded by SMEs

• 71% of SMEs are not acting to reduce their carbon emissions
• 85% of SMEs are not measuring their carbon footprint

Almost three quarters (71%) of SME businesses have downgraded the importance of Environmental, Social, and Governance (ESG) performance and the reduction of carbon emissions, and instead are prioritising digitalisation, employee wellbeing, cost inflation, and recruitment, according to the latest Azets SME Barometer.

The Azets Barometer, which surveyed over 1000 SMEs from in the UK and Nordics reveals that whilst ESG is on most company radars the focus is on people, technology, and cost.

Over half of SMEs have a good understanding of what ESG means (57%) and have the skills and competencies in the business to address it (52%) however 53% do not believe that ESG will have a major impact on their business in the next two years.

SME investment is instead targeting digitalisation with employee wellbeing becoming the 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%) of SMEs are struggling to recruit talent with the right skills.

Donald Boyd, Head of Growth at Azets, said: “The SME Barometer shows that many businesses want to focus on ESG and sustainability to a far greater extent than before but also highlights an alarming number that do not keep climate accounts. There is a clear focus on digitalisation, cybersecurity, wellbeing, and costs, with ESG downgraded, reflecting instability in the market forcing companies to prioritise differently than just a year ago.

“For some SMEs rooted in their local community, ESG appears as common sense. For others it poses challenges in terms of cost and the expertise and resources required to implement it. Given current pressures on SMEs, a basic challenge can simply be finding the time to bring ESG to the fore when there are more pressing matters.

“However, 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, ESG is set to become an increasingly important theme. Businesses should be thinking ahead and taking specialist advice.”