Dr Marlon Cruz
  • UK Chartered Scientist (CSci)

  • UK Chartered Engineer (CEng)

By - Marlon

This really matter: ESG materiality and SMEs

Environmental, social and governance (ESG) issues are becoming increasingly important for businesses of all sizes and sectors. Investors, customers, regulators and other stakeholders are demanding more transparency and accountability from companies on how they manage their ESG impacts and risks.

But what does ESG mean for small and medium-sized enterprises (SMEs)? How can they identify and prioritise the most relevant ESG topics for their business and stakeholders? And how can they communicate their ESG performance effectively?

One of the key steps to answer these questions is to conduct a materiality assessment, which is simply a regular evaluation of the company’s sustainability risks and opportunities according to ESG criteria. To this end, the significant economic, environmental and social impacts of the organisation, as well as those that have a particular influence on stakeholder decisions, must be considered .

A materiality assessment can help SMEs to:

  • Align their business strategy with their ESG goals and values
  • Focus their resources and efforts on the most critical ESG issues
  • Enhance their stakeholder engagement and trust
  • Improve their risk management and resilience
  • Increase their access to capital and markets
  • Demonstrate their ESG commitments and achievements

However, conducting a materiality assessment can also pose some challenges for SMEs, such as:

  • Lack of data availability and quality on ESG topics
  • Lack of standardisation and comparability of ESG reporting frameworks
  • Lack of expertise and capacity to conduct and communicate a materiality assessment
  • Lack of awareness and understanding of the benefits of a materiality assessment

To overcome these challenges, SMEs can follow some practical steps to design and implement a materiality assessment that suits their needs and context:

  • Define the scope and objectives of the materiality assessment
  • Identify the relevant internal and external stakeholders to involve in the process
  • Select the appropriate ESG topics to assess based on existing frameworks or sources
  • Collect and analyse data on the impacts and importance of each ESG topic
  • Plot the results on a materiality matrix to visualise the priority ESG topics
  • Validate and review the results with stakeholders and experts
  • Report and disclose the results and actions taken on the priority ESG topics

By following these steps, SMEs can create a robust and credible materiality assessment that can inform their ESG strategy and reporting. A materiality assessment can also help SMEs to adapt their finance function , unlock their full strategic potential , gain a competitive advantage  and create value with ESG .