KPMG in Thailand introduces a four-step environment, social and governance (ESG) value creation approach for small and medium-sized enterprises (SMEs) to drive business success as ESG factors become increasingly important to the success and resilience of businesses across all sectors.
As stakeholder expectations continue to evolve, customers, employees, shareholders, creditors, suppliers, and public authorities are demanding that businesses consider their impact on society and the environment. Investing in environmentally responsible business practices can provide a host of benefits such as lower operational costs, higher customer satisfaction, better access to capital sources on favorable conditions, access to top talent, and improved reputation.
KPMG has outlined a four-step value creation approach for SMEs to integrate ESG into their organization:
Step 1: ESG Discovery
Ensure your teams understand the motivations, benefits, and specifics of an ESG approach and secure management buy-in. Engage the leadership of various functions to create a seamless ESG vision for all staff.
Step 2: Development of an ESG framework
Gather and analyze market, peer, and stakeholder information to help prioritize the ESG topics important to your organization. Getting a handle on ESG can be challenging, as it embraces a wide range of topics, such as biodiversity, climate change, diversity, equity, inclusion, employee health and safety, and cybersecurity. To ensure your ESG?action plan is feasible, it is critical to narrow down your ESG?topics to what is most relevant to your business and your stakeholders.??
Organizations need to conduct market and peer reviews, a diagnostic of their "current state" or "target state" internal practices, and an in-depth consultation of internal and external stakeholders to home in on their strategic ESG?priorities.?
Step 3: Design and implementation of ESG programs
Develop an enterprise-wide ESG action plan and implement initiatives tied to material ESG topics to effectively mitigate risks and leverage opportunities.
3 trends guiding the 2023 ESG agenda:?
Climate change:? SMEs should gauge their climate footprint to facilitate adopting climate targets, such as net zero, and cut down greenhouse gas (GHG) emissions, particularly with climate change posing financial risks to operations: increased physical impacts, potentially involving assets and/or the supply chain, and regulatory compliance costs. Climate expectations of regulators, clients, creditors, employees and other stakeholders continue to evolve, such that GHG?disclosure and management are becoming mandatory for some SMEs.??
Circular economy: In an environment in which resources are limited and supply chains are under strain, the circular economy offers many advantages such as cutting down on residual waste, improving the environmental balance, finding potential new income streams and growing profitability. At the same time, the circular economy is an effective tool to combat climate change, particularly for achieving GHG?emission reduction targets.?
Diversity and inclusion: In a full-employment market, a business's employer brand is a key differentiator. Businesses with inclusive, equitable, and diversity-minded workplaces enjoy a competitive edge not only in driving innovation, operational efficiency and growth, but also in attracting new talent, while keeping their teams engaged.?
Step 4: Measure and disclose ESG
Measure outcomes for each material ESG topic and monitor and disclose performance.
"You can't manage what you do not measure." Implementing an ESG?performance monitoring system will help identify improvement opportunities, address effective solutions and demonstrate continuous progress in your ESG?program rollout. Disclosing your ESG?performance externally garners the opportunity to gain credibility and recognition for your ESG?initiatives with internal and external stakeholders.??
"SMEs are a vital component of Thailand's economy and have a significant role to play in creating a more sustainable future. By integrating ESG factors into their business strategies, SMEs can not only focus on their long-term business goals but also need to contribute to society and the environment," said Tanate Kasemsarn, Head of ESG, KPMG in Thailand.
"ESG factors can affect a company's reputation, brand image, customer loyalty, employee satisfaction, and investor confidence, which ultimately impact the bottom line. Thus, integrating ESG into the core business strategy can help SMEs mitigate risks, capture opportunities, and create value for all stakeholders," said Tanate.