ESG (Environmental, Social, and Governance) and impact both help businesses assess and improve their effects on society and the environment. Though related, each focuses on different aspects of a business's risk management and influence.
In today’s rapidly changing business environment, understanding and integrating ESG principles into your operations is more crucial than ever. ESG stands for Environmental, Social, and Governance, and it reflects the three central factors in measuring the sustainability and societal impact of an organisation. For small businesses, embracing ESG is not just about compliance—it’s about driving growth, building trust, and staying competitive.
Why small businesses should care about ESG and Impact
Access to contracts - From 2024, almost all large businesses (approximately 92%) will require their small business suppliers to share information about their environmental, social, and governance (ESG) efforts.
Access to finance - According to the CBI, two-thirds of investors consider ESG factors when investing in a business, meaning ESG has the potential to grow your business while benefiting the environment and society.
Operations - According to a study conducted by the Business Development Bank of Canada, adopting ESG practices can create new business opportunities for half of small businesses, help 32% find and keep employees, and make it easier for 31% to access financing or investment.
Regulation & compliance - Governments, especially in the EU, are introducing new rules like the EU Corporate Sustainability Reporting Directive (CSRD). The CSRD requires large businesses to be transparent about their impact and the impact of the small businesses they work with. Small businesses need to understand the impact of what they do to stay competitive and do business with larger corporations.
Breaking down ESG and impact
Traditional ESG criteria have tended to focus on how a business's operations are affected by the environment, society, and the governance structure for managing its operations. It’s about the business’s internal policies and practices. Examples include:
Environmental: How does the business manage its operational environmental risks; such as the impact of increasing costs from climate change, or fines or public backlash from waste generation etc?
Social: How does the business manage relationships with employees, suppliers, customers, and communities?
Governance: How does the business’s leadership, executive pay, audits, internal controls, and shareholder rights look?
On the other hand, Impact goes beyond ESG by examining the actual outcomes of a business’s actions on the world. Impact measures the positive and negative changes caused by the business’s products and services on society and the environment. It’s about the external effects of the business’s activities.
What is “materiality”?
Regulations in Europe use the term “materiality” to describe the most significant risks, opportunities and impacts to a business. The idea with “materiality” is to focus on what matters most to your stakeholders, society and the environment.
Impact Materiality: This focuses on the significant impacts that a business has on the environment and society, regardless of their financial implications.
Double Materiality: This concept recognises that the financial performance of a business is affected by non-financial factors (like climate change) and that the operations of a business impact the environment and society. It is a two-way street, considering both how ESG factors influence the business and how the business influences ESG factors.
How Vested Impact Helps with Impact Assessments
Vested Impact makes impact assessments quick, easy, and affordable by automatically generating data-driven reports, leveraging over 300 million data points and science-based articles from sources like the World Bank and UN, our platform is one of the most advanced impact tools available.
Our automated system evaluates business impacts in minutes, using specific data for each market and location. This helps small businesses assess their impact, meet regulations, and communicate sustainability efforts to investors and clients—without the hassle of manual reporting.
Download the full PDF guide here:
Get started here: www.vestedimpact.co.uk/sme
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This guide is supported by Mastercard Strive, a portfolio of philanthropic programs – supported by the Mastercard Center for Inclusive Growth – which supports small businesses around the world to thrive in the digital economy.
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