By Josefine Bin Jung, Chief Commercial Officer, Diginex.

 

The changing world

Climate protests, grassroots environmental movements and consumer activism were shaping up to be the defining moments of the century before the pandemic hit. Although at times it felt the pandemic would throw all of the hard-won progress in raising awareness of climate change – or perhaps more accurately, the climate emergency – into jeopardy, this was in fact not the case.

As the world was forced into national and international lockdowns, CO2 emissions dropped by 7% in May 2020. Meanwhile, over a third of shoppers surveyed after the pandemic said they were more conscious of the environmental impact of online shopping, while over 70% expected online retailers to use recyclable packaging or minimise their use of packaging. It’s clear that eco-conscious consumers are here to stay – and their numbers are increasing everyday.

The pandemic also put the focus back on the economy’s greatest asset: its people. Although many businesses had to make hard decisions to secure their futures post pandemic, there were plenty of anecdotes of employers putting their staff’s mental health and job security first, often at a personal cost to those at the top. Adaptation, flexibility and empathy were key and the businesses that translated words to action reaped the benefits – from employee loyalty to brand advocacy.

 

The proof is in the pandemic

To put it simply, the pandemic proved the business benefits of inclusive capitalism. It pays to care about your people and the environment you operate in – or to look at it another way, the costs of not doing so are high. The number of consumers buying from companies aligned to their personal values reached 71% in 2020, but more concerning is the 42% of consumers who said they would leave a brand if it did not act with speed, authenticity and sincerity on important social issues. I expect we will see this trend become more widespread in the B2B market before long too.

While seemingly disparate priorities, people and the planet neatly fit under the ‘E’ and ‘S’ in Environmental, Social and Governance (ESG). What at times felt like a meaningless acronym only applicable to global corporations has now become of huge importance to businesses of all sizes – and the ecosystem that serves them.

Covid-19 has set in stone a wave of emerging trends when it comes to purpose-driven business and proved they deliver long-term value, but what does all of this mean for the financial community and why should they care?

Supporting the SME community

Investors, from angels to institutional, have recognised the benefits of ESG in opening up new markets and revenue streams, mitigating risk and futureproofing their investments. The figures speak for themselves – 2020 saw record inflows of nearly £1 billion into ESG funds, while assets in ESG portfolios stood at £40 billion.

This trend is likely to continue but there is an important risk to be aware of. As with any major development, there are companies that are overlooked. But in this case the opportunity cost is particularly high as we are referring to the world’s largest employer: the thriving global SME (small to medium sized enterprises) community.

In recent years, we have seen more and more investors evolving their requests for informal ESG reporting, to the disclosure of structured and standardised non-financial information. At the same time, we are seeing countries such as Germany mandate ESG reporting. It is inevitable that other countries will follow suit and when they do, SMEs who have deprioritised ESG to date will be playing catch up to their larger competitors for years to come.

At present, too many time poor but high-growth SMEs see ESG reporting as expensive and resource intensive. Without the understanding or knowledge of the various reporting tools available and their specific functionality, thousands of SMEs are automatically excluding themselves – and investors – from potentially lucrative opportunities.

This opens up a particularly unique and interesting opportunity for the broader financial community as they are perfectly placed to help level the playing field for SMEs.

ESG reporting has come leaps and bounds in every way – from affordability and speed, to tools that consolidate material issues, to those that generate globally-compliant sustainability reports. SMEs should not – and need not – be left out of the benefits of ESG. The financial community, with its influence, advisory and knowledge, can make sure of it.

If ROI was once the language of the financial community, ESG is the language that everyone needs to be fluent in now. One thing we know for sure is that ESG is not a fad – it’s the currency driving economies around the world and it’s here to stay.