Why Your Business Can No Longer Ignore Sustainability
Today’s business world can be seen as a chain of dominoes, where every company is a tile. At the end of the chain stands the biggest tile—a large company. Soon, these large companies will have to comply with regulatory ESG (Environmental, Social, Governance) requirements and publicly report on these topics. What happens next? A domino effect spreads throughout the supply chain, and your company could be in the middle.
But it’s not just large companies driving this. Banks are also playing a crucial role, increasingly required to collect sustainability information from all their clients, regardless of size. What may sound like a distant future scenario is becoming a reality over the next few years: large companies and banks will soon require ESG data from all companies in their network—big or small.
The Domino Effect
he ESG domino effect has already begun. Large companies subject to the EU’s Corporate Sustainability Reporting Directive (CSRD) will soon have to report on the sustainability performance of their entire value chain. This means SMEs will soon face:
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Information requests: SMEs will increasingly be asked for detailed ESG data, from CO2 emissions to labor conditions.
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Contractual obligations: ESG criteria will enter supplier contracts, requiring SMEs to meet specific sustainability standards to maintain business relationships.
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Financial impacts: Banks and investors are integrating ESG factors into financing decisions, potentially offering better credit terms for strong ESG practices.
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Competitiveness: ESG criteria will play a more significant role in procurement and contracts, giving SMEs a competitive edge.
These requirements may seem challenging but offer proactive businesses the chance to position themselves as responsible partners.
The Risks of Ignoring ESG
We often hear business owners say that ESG isn’t as pressing as it seems. However, this ignores the future competitiveness of their company. Why?
- Loss of business partners: Large companies could exclude suppliers without sustainable practices from their supply chains.
- Rising operating costs: Inefficient resource use and outdated technologies lead to higher energy and material costs.
- Reputational damage: In an increasingly eco-conscious society, companies without clear sustainability strategies could lose customers.
- Talent loss: Younger employees value sustainability. Companies lacking ESG focus may struggle to attract and retain talent.
The Benefits of Embracing ESG
On the other hand, proactive ESG engagement offers many opportunities:
- Cost savings and efficiency gains: Sustainable practices like energy efficiency measures or waste reduction can significantly lower operating costs.
- Innovation: Tackling sustainability challenges goes hand in hand with product and service innovation.
- Improved employee attraction and retention: Strong sustainability commitments make SMEs attractive employers. According to a Deloitte study, 49% of Millennials prefer companies with solid sustainability practices.
- Competitive advantage and customer loyalty: Companies can position themselves as responsible partners, winning new customers and strengthening existing relationships.
- Better access to capital: SMEs with strong ESG practices can benefit from more favorable credit terms and a wider range of financing options.
The Message Is Clear: Proactive action in this area can make the difference between being a market follower or a leader.
The Growing Relevance of ESG in Business
Recent studies and data highlight this trend:
A study by BDO Austria and the Vienna University of Economics found that over 75% of surveyed SMEs lacked a sustainability strategy, and more than half were not yet disclosing any qualitative or quantitative sustainability data (as of 2023).
An analysis of Italian listed SMEs (August 2024) showed that only 45% adequately disclose their ESG information, with the governance area performing the worst at just 27%. These shortcomings pose risks, such as regulatory penalties or loss of business partners. However, improving reporting early presents an opportunity to gain competitive advantages.
Moving Forward: How SMEs Can Become Sustainable
Given these risks and opportunities, how can SMEs make concrete steps toward sustainability?
- Assessment: Assess your current ESG status. Where do you stand on issues like energy consumption, waste management, or labor conditions?
- Develop a strategy: Set clear, achievable goals that fit your business model and create real value.
- Involve employees: Sustainability is a team effort. Train your employees and make them ambassadors of your ESG initiative.
- Gradual implementation: Start with “low-hanging fruits” – actions that can be quickly implemented and deliver visible results.
- Measure and report: Establish a system to measure progress. Transparent reporting builds trust with customers and partners.
- Continuous improvement: ESG is an ongoing process. Stay committed and regularly adjust your strategy.
Wondering How to Finance This?
The good news is that there are many funding opportunities and innovative financing models available to support SMEs on their sustainability journey.
To help you navigate these options, we invite you to our webinar “Green Money for SMEs: The Most Attractive Funding for Sustainability.” In this free webinar, we will:
- Introduce the most important funding programs for sustainable investments
- Explain how to access low-interest “green loans”
- Present case studies of other SMEs that have financed their sustainability projects
- Offer tips on how to maximize your chances of securing funding
The webinar takes place on September 11th. This is your chance to learn more about financing your sustainability goals while benefiting from the economic advantages.
Register for the Webinar (free of charge)
We look forward to welcoming you and answering your questions at the webinar!
