It is now crucial for SMEs to be able to access their ESG data easily and affordably. Ongoing research reveals that 63% of SMEs have received requests for ESG data in the last six months. Whether it is from a large customer who needs to include SME data in their
mandatory ESG disclosures, an investor seeking lower risk, or a lender that is offering loans to help you reduce CO2 emissions, SMEs need to be able to produce accurate and reliable non-financial data to remain competitive.

There are three main barriers to the implementation of ESG reporting. These are the time it takes to collect, refine, and disclose a company’s data for disclosure; the added cost that might be incurred; and the complexity of the work itself.

Below, I break down these barriers with tips for SMEs to supply ESG data and reap the benefits of non-financial data disclosure.

Too time-consuming

A recent EU Commission report into the disclosure of sustainability data by SMEs found the time-consuming nature of the task to be a major barrier to ESG integration. The truth is that many small businesses simply do not have the time to get to grips with their non-financial data.

Thankfully, data collection for businesses has been a growth area in the fintech space and a fertile market of digital platforms now exist to minimise the burden on SMEs of ESG data collection and reporting.

Too expensive

Another concern to SMEs is the cost of disclosure, alongside a lack of capacity to manage their reporting obligations to lenders, investors, and customers. And while manual data tracking is an onerous and expensive task, technological development and automation is making it cheaper than ever to assess your company’s impact on the environment and society.

And the market suggests that investment into accurate ESG reporting is economically beneficial, as ESG data assured by a certified professional accountant will make your business more valuable to investors and customers.

By finding economic value in ESG reporting, businesses can square the circle of stakeholder and shareholder capitalism. Looked at this way, ESG reporting is a sound business investment, instead of being seen as a financial burden.

Too complex

Although the acronym ‘ESG’ is becoming a well-known shorthand for corporate responsibility, many business leaders are still uncertain as to how they are to improve environmental, social, and governance standards in their business.

In fact, KEY ESG recently conducted a study of 100 private companies across the UK, EU, and US and found that 90% were confused about ESG reporting. Thankfully, a wealth of new resources is available to help financial professionals understand the constantly developing and sometimes knotty world of sustainable non-financial reporting.

For example, The Institute of Chartered Accountants in England and Wales (ICAEW) offer a sustainability certificate through their online academy. The 5-module course is set up to equip accountants and financial professionals with the knowledge and skills required to understand and integrate sustainable reporting into their organisations.

And this year, King’s Business School are running a number of in-person courses as part of their ESG and sustainable business programme. One course, titled ‘ESG: Moving Beyond Compliance to Creating Value and Opportunity’, offers an in-depth review of ESG reporting and sustainable finance for business leaders.

An easier way forward

In the past, the ESG reporting market was opaque, unregulated, and difficult to understand. Worst of all, SMEs, the lifeforce of our economy, were largely excluded from its remit.

Thankfully, the dark ages of ESG 1.0, when reporting was voluntary and unregulated, have evolved into the era of ESG 2.0, where reporting is mandatory and has the same rigour as financial accounting.

Helping SMEs to navigate the attendant pressures of ESG 2.0 are new data providers and sustainability consultants, from fintechs to automation-driven digital platforms, who can make the process of data disclosure faster, cheaper, and simpler.

Non-financial reporting is no longer slow, expensive, and difficult. And it offers a great opportunity to businesses who are committed to working towards a more equitable and sustainable future. Done well, ESG can strengthen business models, mitigate risk, and drive innovation and value.