The overwhelming urgency of emissions reduction for every business should be enough to place environmental, social and governance (ESG) issues at the top of the agenda for every business in 2023, but it is far from the only reason to act, says Russell Smyth, Head of Sustainable Futures.

Supply chain insistence, regulatory demands, access to funding, market demand and talent management all point to ESG as a strategic priority that cannot be ignored. 

There is no doubt that ESG should be an absolute priority for family-owned and private companies, particularly as they are typically values-led. Infusing your business strategy with ESG is a hugely valuable way to embody the values of your business, enhance its reputation and protect its legacy for years to come. 

It’s time for transparency on emissions

As it turns out, however, privately held companies markedly lag their public counterparts. With family firms and other private companies not subject to the same quarterly reporting cycles as listed companies, there is a significant reporting gap. Why is there such a gap? Private firms pointed to resource constraints, capability gaps, and a lack of urgency from leadership as the main challenges they face in reporting. Five of the most pressing drivers are listed below. 

1. Your firm will need to comply with forthcoming regulations.

By 2026, many larger SMEs will have to comply with EU regulations such as the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation. There is no point ignoring the impending regulatory burden. Proactive companies that lay the groundwork now and prepare for these regulations will be at an advantage and avoid unnecessary pressure down the line. 

In Association with

• ESG is a must-have across the supply chain. 

Does your company do business with publicly listed clients or public sector organisations? Then you will already have seen requests for proposals and tenders seeking ESG credentials. Your firm may have to supply information on its emissions, for example, or otherwise show strong ESG credentials. A recent poll of CDP Supply Chain programme members found three in four companies expect to deselect suppliers with an inadequate environmental performance. To strengthen and secure relationships with business partners, your company needs to take ESG seriously.

• Lenders are increasingly adopting ESG screening policies.

When it comes to attracting capital, ESG is crucial. 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.

• ESG informs your customers’ buying habits. 

While your company may not have shareholders to placate, it certainly has customers, and ESG concerns are influencing consumer purchasing decisions. Post-pandemic, consumers are markedly more conscientious, with more people willing to pay more for healthier, safer, and more environmentally and socially conscious products and brands. Committing to ESG and integrating it throughout your operations and culture is a sure-fire way to distinguish your business with customers, and with other stakeholders too. 

• ESG is now vital to recruiting and retaining talent.

Millennials and Gen Z employees care deeply about sustainability and want to work for companies whose values align with theirs. Across the board, employees want to understand their employer’s ESG policy and how it relates to the organisation’s mission and values. In a competitive market, private companies need to focus on sustainability to ensure they are seen as employers of distinction.

It is time to take ESG reporting seriously. Private companies need to understand how ESG affects every part of their business by conducting a structured Materiality Assessment. This acts as an essential foundation for building and implementing a detailed ESG strategy.

Search ‘KPMG Sustainable Futures’ to visit our website and find out today how our ESG specialists team can help you excel when it comes to sustainability.

Photo: Russell Smyth, Head of Sustainable Futures KPMG