Small businesses and ESG: turning sentiment into action

For many big businesses, mandatory sustainability reporting will roll out from 1 January 2025.

While small businesses don’t face the same formal requirements, the new reporting regime’s focus on Scope 3 emissions means many small businesses operating as suppliers to larger businesses will still be impacted.

Boosting sustainability among small businesses is also crucial to achieving larger climate goals.

What barriers do small businesses face when pursuing sustainability?

A scarcity of resources is often the biggest challenge.

“Many small businesses don’t have access to capital,” says Miyabi Bradley, ESG Business Partner at technology provider Orro.

“They might need to prioritise immediate financial stability over long-term goals.”

Alternatively, if a business is performing well, then turning attention to sustainability might not seem important.

“From a commercial perspective, if you’re profiting, then there might not be any consumer demand to change.

“You might also think, ‘We’re so small; we won’t make any impact,’ or that ESG isn’t relevant to you.

“For example, say you’re hiring a cleaner, you might think you know all your suppliers, and that modern slavery isn’t an issue. But how do you know the staff are legitimately employed and paid properly?”

These barriers may be strengthened by a lack of legal pressure.

“Some small businesses might feel that, because they’re non-reporting entities [for the purpose of mandatory climate reporting], it’s irrelevant, and, on the face of it, you don’t need to comply,” says Paula Kensington, CFO and founder of business consultancy PK Advisory.

“But, if you deal with big businesses at all, then, at some point, you’ll become someone else’s problem. 

“They’ll have to report on their supply chains, so they’ll ask you about your sustainability measures, [and, if you can’t answer], then you’ll become too difficult to deal with, and risk obsolescence.

“Small businesses should be thinking of sustainability as a risk mitigation strategy, rather than as a cost strategy.”

How can small businesses, despite these challenges, bring sustainability into their operations?

Getting started can be daunting.

“It’s a huge area, so businesses often feel overwhelmed as to where to start,” says Kensington.

“A useful strategy is working out what you care about the most, or where you can have the biggest impact.”

One option could be focusing on just one or two of the 17 United Nations Sustainable Development Goals, which range from defeating poverty and hunger, to delivering affordable clean energy and building sustainable communities, to taking climate action and ensuring responsible consumption and production.

“Then, work out what you can do in the next two months, five years, 10 years.” 

Small businesses without the resources to make major changes should start with low-budget strategies and achievable goals.

“The first thing to do is to educate just one staff member, who can then educate other staff,” says Bradley.

“Once they understand how to reduce your carbon footprint, or what modern slavery is about, sustainability becomes less daunting.”

To begin, small businesses can implement strategies that individuals can implement at home.

“[Small businesses] don’t necessarily think that way, but [sustainability] starts at home and staff can bring it to work,” says Bradley.

“Use energy-saving settings in equipment, replace bulbs with energy-efficient lighting, use blinds in summer instead of raising the thermostat, use renewable energy to reduce your energy bill, go paperless, improve your recycling, make sure your resources are reusable, buy local and eco-friendly products, car pool, encourage remote working. You don’t need to invent anything new.”

Another opportunity could be engaging with the community.

“Choose one organisation, and share whatever expertise, time or resources you have,” says Bradley.

“You don’t need tens of thousands of dollars, or loads of time. You might contribute $1,000 a year, so a teenager starting university can afford a laptop, or hold an annual drive in your neighbourhood, where you collect food, clothing and bedding, and give it to charity.”

Kensington adds, “It’s important to look at the upstream and downstream implications of your operations.

“Upstream, what are your raw materials? How are you consuming energy? Are there greener options? How could you reduce water use? Downstream, what is the longevity of your product? What is its repairability? What is its recyclability? 

“If you don’t have internal capability, then a cost-effective strategy might be using an online tool, which can help you think about your footprint, and track and measure your performance.”

How can accountants and finance teams contribute?

Accountants and finance teams are vital to the pursuit of sustainability, because they “deal with the numbers,” says Bradley.

“They get all the bills – water, energy, waste – and collect all the data. They already do a costs-benefits analysis; so, it makes sense for them to help spot ways to improve sustainability – and save money.”

In addition, accountants can research relevant tax incentives and grants.

Plus, when it comes to community engagement, they might play a hands-on role. 

“For example, if a business partners with a shelter for women, accountants could visit and provide tuition in finance,” says Bradley.

To optimise their contribution, accountants should educate themselves in sustainability, says Kensington.

“It’s on us to do that. It’s a bit like ethics; accountants must sign up to a code of ethics.

“Now, it’s almost a given that they should sign up to a code of sustainability.” 

Case study: True Green Hosting

True Green Hosting, which provides green web hosting to Australian businesses, began as a passion project in 2000.

“I didn’t realise at first that the internet has a carbon footprint,” says founder Ray Pastoors.

“But, when I put the energy usage and data centres into the mix, it [became] obvious. 2-3% of global carbon emissions come from the internet, and are expected to grow to 20% or more in the next few years, [overtaking] the aviation sector.”

Once Pastoors made this discovery, he wanted to make a difference; however, getting started required some hard graft.

The first challenge was getting hold of information.

“We had to fund research ourselves, and spend countless hours finding and interviewing the right people,” he says.

“The tech industry is not keen on sharing the details behind their C02 levels, especially upstream providers. So, we had to do a lot of hard digging and negotiation to get where we are today – and we constantly aim higher.

The second was resourcing.

“Operational and marketing costs have been challenging,” says Pastoors.

“We have had to wind down our promotional plans during tougher [economic times], and get smarter on how we attract leads and control expenditure.”

To that end, the business’s accountant has been indispensable.

“Our accountant helps us keep our goals in check and makes sure we meet our ATO obligations, while also making donations and purchases to offset our footprint and that of our clients.”

Despite the challenges, the business has successfully developed a multi-pronged approach to sustainability.

“We back suppliers who use renewable energy and offset the rest of our emissions by planting trees in Australia with Carbon Neutral,” says Pastoors.

“We [also] measure the estimated carbon footprint of our hosting clients and give them an annual carbon report card, [then offset it through] an accredited project.”

In addition, the business donates 1% of profits to Planet to the Solar for Schools program, which helps remote Pacific Island communities swap fossil fuel generators for clean solar energy.

“We haven’t [yet] been able to do all the fun things we hoped for, but we’re still doing our best to spread the word as best we can.”