In a world increasingly focused on sustainability, small and medium-sized enterprises (SMEs) are at the forefront of a transformative journey. The convergence of Environmental, Social, and Governance (ESG) practices with supply chain dynamics is reshaping how SMEs operate and succeed in the global market. This article delves into the critical aspects of ESG competency and supply chain considerations, drawing insights from experts and practitioners.
One pressing concern in the corporate world is ESG competence greenwashing. This term highlights a pervasive issue where organisations rush into sustainability without the necessary expertise, often for the sake of appearances. This issue has gained momentum with the rise of sustainability awareness, driven by global movements advocating for climate action.
Customers seeking ESG investments face the challenge of discerning between genuine ESG practices and greenwashing. Addressing ESG competence in an advisor requires a two-fold approach. First, advisors should create ESG teams that balance financial experts with non-financial specialists. A balanced ratio ensures that both financial and ESG perspectives are equally valued. Currently, the ESG landscape leans heavily toward finance, reflecting a bias toward traditional financial performance.
Peter Sinclair – Partner PKF
Second, there is a need to establish minimum criteria for ESG competence. Defining the knowledge required for specialists in ESG teams is essential to ensure that the right expertise is in place. However, integrating ESG experts into organisations primarily focused on finances remains a challenge, particularly in the financial sector.
The ESG competence journey holds valuable lessons for SMEs, especially in Australia, where ESG integration may still be in its infancy.
1. Create Awareness: Starting from scratch necessitates creating awareness throughout the organisation, fostering a culture of sustainability.
2. Build Diverse Teams: SMEs with resources can assemble teams comprising genuine ESG experts alongside individuals with non-financial subject matter expertise.
3. Verify Expertise: When hiring ESG professionals, look beyond self-labelling and certificates. Scrutinise their track records in ESG.
4. Collaborate with Research: For smaller organisations with limited resources, collaborating with the research sector can provide access to essential technical knowledge.
ESG in the Supply Chain
As SMEs embark on their ESG journey, they must also consider the evolving landscape of supply chain dynamics. Environmental, social and governance considerations have become paramount in global trade. Primary ESG considerations for supply chain participants include:
1. Understanding the Jurisdictions requirements: Comprehending the ESG criteria and expectations of the market is essential, as failure to meet these standards can create barriers to entry.
2. Scope 1, 2, and 3 Emissions: Many markets, particularly in Australia, are placing increased emphasis on climate-related factors, necessitating the measurement of emissions across scopes.
3. Modern Slavery and Workers' Conditions: Assessing risks associated with modern slavery and working conditions is crucial, both within the SME's operations and across its supply chain.
4. Cultural Understanding: Adapting to local cultures is vital for developing meaningful business relationships and trust, particularly in international trade.
Jim Allenby – Managing Director-Parvate ESG
The International Sustainability Standards Board (ISSB) is poised to revolutionise sustainability reporting. Companies, including SMEs, will be required to disclose climate-related risks and opportunities, with a particular focus on governance, strategy, risk management and metrics.
Understanding emissions is key for SMEs. Scope 1 emissions, generated directly by a company, like facility or vehicle emissions, can also become part of another company's Scope 3 emissions within the supply chain. This linkage highlights the importance of both Scope 1 and Scope 3 emissions as SMEs manage their environmental impact. As upstream and downstream partners' activities contribute to emissions, SMEs will likely favour suppliers that can demonstrate emission reduction efforts.
In the evolving landscape of ESG and supply chains, SMEs face both challenges and opportunities. Building ESG competence and aligning it with supply chain considerations is crucial for long-term success. By fostering expertise, forming diverse teams and understanding export markets, SMEs can navigate this transformative journey toward responsible and sustainable business practices. As ESG matures, it becomes increasingly apparent that it is not merely a trend but a fundamental expectation in the global business arena.
PKF has partnered with Parvate ESG to help simplify ESG for business, add value without complexity and offer services such as guidance, training, assessments, climate readiness, custom roadmaps and supply chain improvements. Our combined experience, leadership and dedication to ESG excellence make us a trusted partner in this transformative journey.
Key Takeaways:
• SMEs play a crucial role in the ESG landscape.
• Greenwashing is a significant concern in ESG.
• Building ESG competence is essential.
• Supply chain considerations are paramount for SMEs.
• The ISSB is set to change sustainability reporting so continue to monitor.
• SMEs must address Scope 1 and Scope 3 emissions.
• Collaboration and expertise are key to success in ESG.
To talk about we can help your ESG journey, feel free to reach out on (08) 9426 8999 or visit our website Perth - PKF.
