Trade for prosperity

By Tina McKenzie

The concept of embedding environmental, social and governance (ESG) metrics into investment decisions was targeted at the world’s leading financial institutions but can now be found across sectors. 

Being the heartbeat of our communities, small businesses have been remarkably generous in contributing their time and resources towards the greater good in our society, through their determination to combat climate change, volunteering activities, support for local schools and colleagues, and their willingness and ability to employ those furthest from the labour market (which is often greater than large corporations). 

With the acceleration to meet the 2050 net zero target set by the UK government, small businesses are playing a key role in helping companies reach net zero targets. According to Federation of Small Businesses’ (FSB) flagship research on net zero – “Accelerating Progress: Empowering small businesses on the journey to net zero”- the majority of small firms in the UK believe the planet is facing a climate crisis and more than a third have already taken active steps to combat climate change – ranging from increasing energy efficiency to resource efficiency.  

On the “S” front, despite their day-to-day pressures, small business community engagement is extensive across the UK, with 80 per cent of small firms stating they have volunteered and/or contributed to a local community organisation or charitable cause. The most common contributions are by donating their time, and providing skills, resources and mentoring.  

For small firms that aspire to work with the public sector and trade internationally, delivering social value means opportunity – investors, big corporations and consumers across the globe are increasingly looking to work with firms that are on a sustainable footing. This is significant to the 21% of small businesses which export directly from the UK, and the 16% which export indirectly as part of global supply chains, according to FSB data.   

Governments too are stepping up support for clean growth businesses, whilst toughening supply chain due diligence requirements. In 2018, the UK Government announced that it would introduce new measures to ensure central government bodies evaluate social value, rather than just consider it, when tendering new contracts.  

The intention is here, but we have to face facts: small businesses don’t have the resources, deep pockets or specialists enjoyed by big corporates to measure and promote their good work to external stakeholders. 

In its report entitled Small Business, Big Heart: Bringing communities together, FSB puts forward proposals to carry out a feasibility study for an online tool to promote better understanding of the Social Value Act, which requires people who commission public services to think about how they can also secure wider social, economic and environmental benefits in the UK. 

The online tool could be used to educate commissioners and smaller firms about what can constitute social value within the context of the Act (without being overly prescriptive) and help to create a level playing field across public procurement. It should also include a self-audit tool to support smaller businesses to understand their social value maturity within the context of the Act. 

In the current climate, small businesses are up against record-high inflation and a tightening labour market – 78% of small businesses say costs of doing businesses are rising, according to SBI Index in Q4 2021 released by FSB. Soaring input prices is most commonly cited as a primary cause, followed by fuel and utilities. Half of those surveyed flag the soaring costs as a main driver of higher outgoings. All figures are at their highest levels since the same period in 2014. 

To help build sustainable businesses, we need to ensure that all businesses have the means to continue to contribute to a more sustainable and inclusive economy. And this can only work with the necessary skills and tools. 

 That’s why FSB is encouraging UK Government to expand the scope of the lifetime skills guarantee in England to support green skills, allowing those who already have a Level 3 qualification to retrain for free. 

 Skills Bootcamps could also be used to retrain people in green skills, if they are rolled out widely enough across the country. 

 As a direct incentive, Government should roll out a Help To Green scheme – modelled on the existing Help to Grow Digital programme – which would allow small firms to invest in energy efficiencies and improvements. 

The voucher could, for example, be used to fund an audit to measure a company’s carbon footprint with relevant advice on how to reduce carbon emissions, or to enable small businesses to replace equipment and materials to become more energy efficient. 

Looking ahead, one of the biggest challenges facing small businesses this year is late and poor payments from big businesses, which falls within the “G” in ESG. An FSB study in January this year shows a third of small firms impacted by poor payment, and one in ten say late payment is now threatening the viability of their businesses. Only if big companies get their payment procedures right, small businesses will have the resources to formulate their own ESG goals. 

We small business owners care about our society and, with concerted efforts across all segments of the community, we stand ready to act as agents of social changes and make our planet a more sustainable one.  

Tina McKenzie is the Chair of Policy and Advocacy at the Federation of Small Businesses.

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