ESG misconceptions of small cap executives

Multinationals and the large ASX 200 companies know that ESG reporting is a must these days. But when it comes to small caps a number of common misconceptions still exist. Some executives discount the value of ESG entirely, while some feel the pressure and urgency around ESG but are unsure how to action affordable solutions.

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As the leading ESG solution for small and mid caps, Socialsuite speaks daily to executives in Australia, New Zealand, and the U.S. about ESG reporting. Here are the most common misconceptions about ESG held by executives that we speak to and some takeaway actions for executives to consider:

Misconception: “ESG is only for sustainable businesses”

There is a view that ESG is only for sustainable business — things like wind/solar farm operators, or organic farmers.

But ESG is business-model and industry agnostic; every business ought to report ESG disclosures and can derive a multitude of benefits from doing so. It doesn't matter whether you operate a wind farm or if you are fracking for oil and gas, you should still report your non-financial disclosures, including ESG metrics.

When getting started with Socialsuite, Neil Young, the CEO of coal seam gas explorer Elixir Energy, said “Working with Socialsuite enabled us to quickly and easily identify where there are gaps in our ESG strategy and how we can improve our position. [We are] actively seeking out decarbonisation projects to reduce our carbon intensity and deliver social value. We also have a clear roadmap for achieving ESG goals that will take more time.”

It’s understandable that business may not want to draw attention to a less than perfect ESG scorecard — especially those in industries not typically known for their green credentials (i.e. coal seam gas). But the reality is that partial ESG disclosures trump no ESG at all. 

And that brings us to the second misconception…

Misconception: “ESG perfection is required to start reporting”

Simply starting to report and disclose ESG metrics today demonstrates a commitment to ESG transparency. Perfection is not required and metrics can be improved over time — there’s no reason to wait.

Investors do not look for perfection, rather a long-term commitment to doing good business. Having an ESG report that reflects your ESG credentials as is, demonstrates a level of transparency and long term commitment. 

Many small caps are already doing things that would rate them well on an ESG screen, but by not recording and reporting on them they are missing out on the benefits.

Misconception: “My investors don’t care about ESG”

Another commonly held misconception is that a small or mid cap company’s investors don’t place any value on ESG. 

However, over two-thirds of investors already screen for ESG. And if they don’t already care, they will soon as ESG metrics are being increasingly valued by investors alongside a company’s financials. 

Some CEOs have said, “no investors have asked me yet about ESG, clearly they don't care”.  The issue is that investors may have already negative-screened you out due to you having no ESG disclosures. You would never know whether a large segment of investors have already crossed you off the list.

By just disclosing what existing ESG information you have, investors won’t screen you out at the outset. They will see that you have at least some ESG information, providing an opportunity to start the dialogue and possibly ask for more disclosures.

Misconception: “ESG does not align with our core priorities”

While you may not think of ESG a priority, a strong ESG proposition can safeguard a company’s long-term success. Simply, ESG equates to ‘doing good business’.

ESG is a global priority, so if ESG is not a priority for your business, ask yourself why?

Research by McKinsey found that ESG links to cash flow in five important ways: facilitating top-line growth, reducing costs, minimising regulatory and legal interventions, increasing employee productivity, and optimising investment and capital expenditures.

Misconception: “ESG is expensive, difficult, and time consuming”

ESG is complex, that is true. But solutions are available and they don’t have to be expensive. 

Navigating ESG can be hard but to hire an ESG consultant can cost in the $200k to $300k range. With Socialsuite, however, you can get started with a simple “fit-for-purpose” solution for your business and grow from there. 

Socialsuite helps companies report on their progress against the World Economic Forum’s (WEF) Stakeholder Capitalism Metrics, a universal standard for ESG reporting. This widely adopted framework is an industry-agnostic ESG Framework. Developed in conjunction with Deloitte, EY, KPMG and PwC, it has 21 core and 34 expanded metrics.

This broad-based ESG framework is a comprehensive system of corporate ESG disclosures built for small caps. It serves as a solid starting point for your ESG journey and includes the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD).

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Find out how Socialsuite’s ESG solution helps small and medium sized businesses establish corporate ESG reporting and demonstrate ongoing disclosure of their ESG progress.

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