BRONDWYN DOUGLAS: SMMEs need resource-aligned ESG solutions

Customers, investors and regulators are increasingly expecting companies of all sizes to demonstrate responsible business practices.

For SMMEs, integrating environmental, social and governance (ESG) awareness into their operations can lead to enhanced brand reputation, access to new markets, and even cost savings through more efficient resource management.

In addition, access to finance for SMMEs is being linked to their ESG performance as investors, banks, and other financial institutions (such as trade finance) prioritise sustainability in their lending and investment decisions. As the global focus on responsible business practices intensifies, financiers are more inclined to support companies that demonstrate strong ESG credentials, viewing them as lower-risk and better positioned for long-term success.

SMMEs with robust ESG practices are often able to secure more favourable loan terms, attract investment and access green financing options that are specifically designed to reward sustainable practices. Moreover, as supply chains become more interconnected, larger companies are demanding that their suppliers — many of which are SMMEs — adhere to ESG standards. Failure to do so can result in lost business opportunities. Therefore, ESG is not just a matter of compliance or public relations; it is becoming a competitive necessity for SMMEs.

In the African setting, SMMEs are the heartbeat of the economy, driving growth, innovation and job creation across the continent. These businesses form the backbone of many African economies, contributing substantially to GDP and employing most of the labour force. SMMEs are often the primary source of income and livelihood in both urban and rural areas, fostering economic inclusion and reducing poverty.

Their agility and adaptability enable them to respond to local needs, fill market gaps and stimulate economic activity in ways larger enterprises often cannot. In addition, SMMEs in Africa play a crucial role in promoting entrepreneurship and empowering communities, helping to build a resilient and dynamic economy that is essential for the continent’s sustainable development.

SMMEs typically allocate their budgets carefully to ensure sustainability and growth, with spending often prioritised across several key areas. A large portion of the budget is usually directed towards operational costs, raw materials, technology and equipment to keep their offerings aligned with customer demand. As ESG considerations become more prominent, some SMMEs are beginning to budget for sustainability initiatives, ensuring they remain compliant with regulations and meet the expectations of stakeholders.

Resource solutions

In today’s rapidly evolving business environment, ESG considerations have become crucial for companies of all sizes. While large corporations have the resources to invest heavily in comprehensive ESG initiatives, SMMEs often face challenges in adopting these practices. However, they can benefit from ESG integration, and the key to success lies in finding solutions that align with their resource constraints. 

To overcome these challenges, SMMEs need ESG solutions that are designed to align with their unique needs and budget constraints. To achieve this, let’s unpack some strategies that can help. Start small and scale gradually. SMMEs don’t need to implement comprehensive ESG strategies overnight. Instead, they can start with small, manageable projects that align with their core business operations.

They should undertake a materiality assessment at the outset of their ESG journey to ensure that their efforts are strategically focused, and resources are used efficiently. By identifying the ESG issues that are most relevant to their industry, stakeholders and long-term business goals, SMMEs can prioritise actions that will have the greatest effect. This targeted approach prevents the dispersion of limited resources on less critical areas, ensuring that time, effort and budget are allocated where they matter most.

SMMEs should develop an action plan that aligns their ESG initiatives with the resources they have available. This plan should prioritise the most critical ESG issues identified during the assessment and outline clear, achievable goals for addressing them. The action plan should also include timelines, responsible parties and key performance indicators to track progress.

SMMEs can enhance their ESG capabilities by leveraging the abundance of free online training courses available through various providers. By encouraging employees to participate in these training programmes, SMMEs can build internal expertise without the need for expensive training interventions. This approach not only empowers teams with the knowledge and skills necessary to implement effective ESG strategies, but fosters a culture of sustainability within the organisation.

Finding the right adviser to support their ESG integration journey can be a game-changer for SMMEs, streamlining the process and optimising resource use. A knowledgeable consultant brings specialised expertise and experience, helping SMMEs navigate the complexities of ESG implementation efficiently. By understanding the needs and constraints of smaller businesses, the right consultant can tailor strategies that align with the SMME’s goals, industry requirement and budget.

In addition, a consultant can provide valuable insights into best practices, regulatory compliance and reporting standards, enabling SMEs to achieve progress without wasting resources on trial and error. 

Integrating ESG into business operations is no longer optional for SMMEs — it is essential for long-term success. However, this journey does not have to be overwhelming or prohibitively expensive. By starting small, focusing on materiality, taking advantage of available resources and finding a trusted adviser, SMMEs can successfully embark on their ESG journey in a way that aligns with their resource constraints.

• Douglas is MD at Vireo Partners.