How to Measure Impact and Drive Growth Through ESG Impact Reporting
Small businesses today must adapt to the heightened focus on sustainability and social responsibility. Impact monitoring and reporting are critical components for growth and no longer optional. This summary outlines why small businesses should focus on impact assessment, the scenarios where it can be beneficial, and steps to effectively implement impact reporting.
Why impact monitoring and reporting matters
Market expectations and regulatory requirements are increasingly mandating businesses to report on their environmental, social, and governance (ESG) performance. Incorporating ESG practices into your business can offer significant benefits:
Access to contracts: From 2024, almost all large companies (about 92%) will ask their small business suppliers to share information about their environmental, social, and governance (ESG) efforts.
Access to finance: According to the CBI, two-thirds of investors consider ESG factors when investing in a business, meaning ESG has the potential to grow your business while benefiting the environment and society.
Operations - According to a study by the Business Development Bank of Canada, adopting ESG practices can create new business opportunities for half of small businesses, help 32% find and keep employees, and make it easier for 31% to access financing or investment.
Regulation & compliance - Governments, especially in the EU, are introducing new rules like the EU Corporate Sustainability Reporting Directive (CSRD). The CSRD requires large businesses to be transparent about their impact and the impact of the small businesses they work with. Small businesses need to understand the impact of what they do to stay competitive and do business with larger corporations
Scenarios where demonstrating impact can be beneficial for small businesses:
Access to Finance:
Pitching to Investors: Investors increasingly focus on ESG criteria when making investment decisions, with some required to report to regulators on the impact of businesses they invest in. Demonstrating a positive impact can attract more investors looking to fund businesses that contribute to the UN Sustainable Development Goals (SDGs).
Loan Decisioning by Banks: Banks are starting to consider ESG performance when assessing loan applications. A strong impact report can improve the likelihood of securing loans by showcasing the business's commitment to sustainability and responsible practices, as well as awareness and management of ESG and impact risks.
Insurance: Insurers may offer better terms and lower premiums to businesses that can demonstrate reduced risks through sustainable practices. Impact reporting can highlight these practices, making the business more attractive to insurers.
Access to contracts and clients: Increasingly, large businesses require their vendors to provide ESG data as part of procurement processes. By conducting a robust impact assessment, small businesses can enhance their chances of being selected and onboarded as suppliers, thus accessing new markets and customers.
Steps to Meet Impact Reporting Requirements
Governments, especially in the EU, are introducing new rules like the EU Corporate Sustainability Reporting Directive (CSRD). The CSRD requires large businesses to be transparent about their impact and the impact of the small businesses they work with. Small businesses need to understand the impact of what they do to stay competitive and do business with larger corporations.
Understand Regulatory Requirements:
Research and understand the specific ESG and sustainability reporting requirements relevant to your industry and region, including global standards such as the UN SDGs, Global Reporting Initiative (GRI), and EU CSRD. Although small businesses are rarely legally required to follow these standards, it is best practice to align with them as closely as possible.
Conduct a Science-Based Impact Assessment:
Use platforms like Vested Impact, which leverages over 300 million science-based data points to automatically assess and quantify the impact of your business activities. Vested Impact’s methodology offers a comprehensive, independent analysis of both positive and negative impacts on people and the planet, backed by data and science. This approach helps identify risks, opportunities, and impacts that might otherwise go unnoticed.
Engage with Stakeholders:
Businesses should engage a diverse range of stakeholders in their assessments and reviews to ensure that sustainability issues considered are not only relevant to the business but also reflect the concerns of those directly impacted by its operations, such as employees, customers, and communities. By listening to stakeholders, companies can more effectively identify and prioritise what really matters to both their business and society.
Implement and Document Sustainable Practices:
Integrate sustainable practices into your business operations. These could include reducing waste, optimising resource use, and enhancing social contributions. Document these practices meticulously to include in your impact reports.
Report and communicate your impact:
Create data-backed reports that outline your business’s impact across various dimensions, such as environmental sustainability, social responsibility, and governance. Ensure the reports are clear, transparent, and aligned with recognised frameworks and standards. Communicate your impact efforts and results to stakeholders (see tips on how to communicate your impact here)
By leveraging impact monitoring and reporting, small businesses can not only meet regulatory and market demands but also unlock significant growth opportunities.
Through platforms like Vested Impact, small businesses can conduct accessible, accurate, science-based impact assessments, positioning themselves favourably in the eyes of investors, banks, insurers, and large corporate buyers.
Download the PDF Guide here:
Get started at www.vestedimpact.co.uk/sme
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This guide is supported by Mastercard Strive, a portfolio of philanthropic programs – supported by the Mastercard Center for Inclusive Growth – which supports small businesses around the world to thrive in the digital economy.
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