Smaller businesses are too overwhelmed by coping with day-to-day business demands to focus on sustainability issues, the UK accountancy body ICAEW said. 

Research by the organisation showed that net zero, for instance, had “massively dropped down the priority list” because businesses in that category were concerned about the costs of preparing for it. A transition plan can help enterprises with the future sustainability of their own businesses but without the kind of mandatory regulations that larger organisations face, action is unlikely.

Risk challenges

“Admittedly, it’s not easy to focus on long-term sustainability amid this period of tough economic challenges, but there are commercial benefits to be gained if SMEs confront the challenge early on,” ICAEW said.

Providing advice to the SME sector is not easy because of the wide range of sizes and industries it represents. But there are three key factors they can focus on in risk assessments: economic value; energy, climate and environmental value; and governance and societal value.

“We advise businesses to have their own independent environmental, social and governance risk register, which has its own calculation of materiality within it,” Mark Lumsdon-Taylor, partner at MHA, an independent member of Baker Tilly International told ICAEW. “This can be broken down into the areas of business it is most relevant to. It’s a live document.” 

Mandating change

By 2026, many larger SMEs may need to comply with EU regulations, such as the Corporate Sustainability Reporting Directive and the EU Taxonomy Regulation. One area that experts expect pressure to build in is supply chain management. A recent poll of CDP Supply Chain programme members found three in four companies expected to deselect suppliers with an inadequate environmental performance, according to the website Business Plus. 

Lenders are also paying more attention to the issue. “When it comes to attracting capital, ESG is crucial,” RussellSmyth, Head of Sustainable Futures KPMG said in the article. “At a minimum, private companies need to have developed a sturdy ESG narrative. That will not suffice on its own, however. To gain lender favour, companies must now have ESG as a genuine strand of their values, culture, and operations.”