When I (Conor Forde) came to EFM, it was in the sure and certain knowledge that my passion for putting Finance at the heart of the business to drive the best possible outcomes would be championed there – and it has been.

EFM takes the Finance function further – and that’s just as well, because with the environmental challenges facing the planet, how your business success is viewed will not only be through the lens of traditional financial statements but under the ever-expanding microscope of sustainability and the environmental footprint of your business.

Why sustainability needs to be a hot topic for SMEs

Contrary to what you might think, this is not just a big company issue. Larger businesses and corporations are of course the obvious and initial focus of the Dáil’s net zero legislation, and this, coupled with shareholder and customer demand, is driving the focus on ESG on their part – but the point is that this is creating a ripple effect across businesses of all sizes.

Forthcoming EU regulations such as the Corporate Sustainability Reporting Directive (CSRD) and the EU Taxonomy Regulation, for example, will expand in scope to include all SMEs by 2026.

SMEs that supply larger businesses are coming under scrutiny too because those larger businesses must validate the ESG credentials of their supply chain to ensure their own ESG compliance. This is already underway in the UK, with the Scope 3 emissions requirement of the Taskforce on Climate-Related Financial Disclosures (TCFD), and Ireland is likely to adopt a similar approach.

Likewise, we are seeing increasingly that SMEs’ access to finance and funding is becoming more and more dependent on ESG credentials – but can also benefit more from them.

According to the most recent Pitchbook Sustainable Investment Survey, for example, 81% of fund partners are now either already evaluating companies’ ESG risk factors or will be turning their focus more to ESG risk factors in the near term. Chartered Accountants Ireland, for its part, lists no fewer than ten different financial ESG incentives, including tax incentives to decarbonise, and bank loans.

And just to recap on the importance of ESG to customers, stakeholders, and indeed current and prospective employees, consider this:

• 92% of consumers are now more likely to trust a company that supports social or environmental issues.
• 58% of employees now consider a company’s social and environmental commitments when deciding where to work.

In short, there can no longer be any doubt that to be successful, businesses of all sizes – including SMEs – need to have clear and measurable ESG credentials, strategies, and reporting processes.

ESG is no longer a “for discussion” item, but rather a standing ‘how are we doing?’ item on the Board’s standing agenda.

And Finance is in the frame to drive and support it. Why? And how must it get involved?

How Finance must drive the ESG transition

First and foremost, let me state that I strongly believe – and all the moves towards integrated reporting indicate – that financial and ESG reporting cannot remain separate. You cannot have financial success without ESG goals being met (or, to put it another way, financial success that is costly in terms of ESG criteria will no longer be acceptable as success at all).

SMEs need to incorporate ESG reporting and practices now, not just for moral or ethical reasons, but for business success and even survival, and it’s the Finance Director’s role to help the organisation bridge this gap.

But it’s about much more than just cost. It’s a fundamental transformation of the way businesses need to operate, and in how the supporting data is obtained, analysed, and turned into transparent metrics. Accuracy and timeliness are still king, but ESG done properly also involves significant changes to how the areas being measured are managed.

Finance Directors must now engage with green energy providers and collaborate with Electric fleet suppliers, for example.

The Finance function must also measure the contribution that recycling products and raw materials (including packaging) – or indeed that simply using recycled supplies within the business – can make to reducing a business’s carbon footprint.

These initiatives are not “fluff”; they must be quantified.

Many initiatives that form part of an ESG strategy will require CapEx investment and the Finance department needs an understanding of the risk/return ratio, probable payback periods, and the less tangible (but equally decisive) value these initiatives will bring to the business through customer loyalty, staff retention, brand, and reputation – to name but a few.

We are seeing Finance Directors’ roles coming to the fore here in decision-making. The Finance department is sourcing necessary funding, or indeed securing strategic partnerships, to enable businesses to become more sustainable in the way they operate.

At the same time, one can argue that Finance’s role has, consequently, become more complex, undoubtedly requiring a new mindset – and those changes can often be difficult to surmount without outside help.

Embrace what sustainability delivers

The adoption of a sustainability strategy can certainly be reputation-enhancing, but companies with demonstrable ESG practice emerge from it with much more than just a creative and inexpensive marketing tool.

Rather, they build sustainability into the corporate narrative to attain hard financial gains, such as securing green grants and saving money – all of which speak to the bottom line.

But equally, investors, stakeholders, and employees – designate and existing – are saying they want to be associated with a company that cares about sustainability and enacts its concerns – a company that collectively and consistently looks after climate and community, as well as a corporation.

When done properly, this also reportedly reduces employee turnover, and pushes staff engagement and loyalty higher – another measure for the Finance department to consider and evaluate!

How I (and EFM) can help

How, then, does an SME – with smaller teams and often limited resources – engage productively with a new way of doing things that, despite its undoubted necessity and relevance, effectively makes both the doing and reporting of Finance more burdensome?

This is where I come in – on three fronts.

Firstly, I ensure there is a Finance voice at the table to inform the business’s fortunes, because Finance teams deserve a say, particularly when they’re too busy managing the finances to get one.

Secondly, I use my many years of experience in leading smaller Finance teams within much larger organisations to innovate more efficient working approaches, test them, and prove their worth. If it saves time, effort, or expense, and delivers better results, we run with it.

Lastly, I approach environmental, social, and corporate governance not only as a Finance expert assessing new risks and new opportunities but as a concerned stakeholder who judges your business the way I know others will.

Finance can be at the cutting edge of conscientious, high-performing, sustainable businesses. All it takes is someone to champion its objectives and lighten the load a little.

Email [email protected] for more information.

(Statistical references in this article have been taken from www.alcumus.com and www.gov.ie)