The United Nations created the Sustainable Development Goals (SDGs) to end poverty, protect the planet, and ensure peace and prosperity for humanity by 2030. But these goals are broad and numerous, so it can be difficult to see how businesses need to react. This piece will share experiences from Pakistan to help small businesses identify how they can take action and how they can start their own sustainability journey supported by a free resource IFAC has developed.
Looking at sustainability through the lens of an ESG (environmental, social, and governance) framework can make action more practical by providing three areas of focus:
- Environmental: How resources are utilized and the impact of operations on all aspects of the environment, including carbon emissions, pollution, waste, and biodiversity.
- Social: How employees, customers, suppliers, and the broader communities in which business operate are cared for.
- Governance: Whether the system of direction and control ensures that business practices are ethical and comply with all legal, regulatory, and other relevant requirements.
Globally, the need to take steps towards sustainability is becoming increasingly clear to businesses of all sizes. Growing awareness of environmental issues is being created through newsworthy topics such as the impact of climate change in increasing extreme weather incidents and natural disasters, and through renewed focus on tackling pollution, waste, and resource depletion. Unsurprisingly, stakeholders are becoming increasingly conscious of the long-term risks associated with business practices that fail to prioritize sustainability. Employment issues are also pressing, with widespread attention on modern slavery, abuses of human and labor rights, and income inequality. Apart from the clear moral stakes, issues in these areas can also erode investor confidence and drive conscious customers away. Finally, inadequate transparency, accountability, and ethical decision-making can discourage stakeholders from doing business with, or investing in, a company.
Small Business Sustainability Checklist
For small businesses, in particular, it can be difficult to identify where to begin pursuing a sustainable future. The International Federation of Accountants (IFAC) has released the “Small Business Sustainability Checklist” as a diagnostic tool to help SMEs identify sustainability risks and opportunities. This checklist is centered around ESG initiatives and will help businesses become aware of different sustainability practices. The checklist can be tailored by organizations to suit their sustainability aims and to help them get started on the path towards sustainability.
Professional Accountancy Organizations (PAOs) have an important role to play, too. The Institute of Chartered Accountants of Pakistan, for example, is raising awareness about sustainability standards. The Institute is holding webinars and circulating guidance and other relevant materials to provide timely and appropriate support. IFAC’s sustainability checklist has also been shared with members in recognition of its utility for both practitioners in small- and medium-sized practices (SMPs) advising their SME clients, and for professional accountants in business (PAIBs) who can use the checklist directly within their organizations.
Environmental Initiatives
For SMEs to consider the environmental aspect of their business operations, an important starting point is to assess the associated business risks around factors such as climate change, extreme weather, and carbon emissions. It is important to quantify the likelihood and potential impact of adverse outcomes arising from these risks. The business can then develop an appropriate environmental policy that incorporates an environmental commitment into its goals and strategy. Finally, businesses can revise systems and procedures in ways that improve environmental management by reducing waste of energy and other resources.
Example: TrashIt, an initiative of young entrepreneurs, encourages more conscious consumer and producer decision making. In addition to their consumer-focused offerings, TrashIt also operates a robust business to business model. They provide onsite composting consultations, employee awareness programs, and alternative solutions to incineration. This multifaceted approach ensures that businesses, as well as individuals, can make more sustainable choices. This initiative empowers communities to reduce their carbon footprint and fosters ecological consciousness in a system that has not yet prioritized sustainability.
The IFAC Small Business Sustainability Checklist can help businesses identify the environmental initiatives that are best suited to their own sustainability goals so they can implement steps towards improvement—while balancing this with economic realities.
Social Responsibility Initiatives
Social responsibility can help SMEs promote positive brand recognition, increase customer loyalty, and attract employees. Implementing appropriate labor practices—such as ensuring the health, safety, and welfare of their employees—is paramount. Embracing diversity, equity, and inclusion can have similar benefits. Unethical practices such as data tracking and providing misleading information must be avoided. Businesses must also examine their value chains to identify risks around things like modern slavery or child labor and take decisive action where issues are uncovered. Donations to local community initiatives and charities can also show a commitment to social responsibility.
Example: Adorn is a women-led social enterprise supporting artisans by providing them with an outlet for their skills to help them support their families and communities. These artisans are based in rural areas which largely depend on farming income. Access to economic opportunities outside of agriculture are usually limited, but the enterprise offers access to new avenues for engagement and a potential pathway to economic independence.
The IFAC Small Business Sustainability Checklist can help small businesses get ahead of the curve to create inclusive and enabling work environments.
Governance Initiatives
It is difficult for SMEs to begin a sustainability journey unless they have a robust underlying governance environment. Assessing the governance environment is a necessary part of creating an effective sustainability culture; only then can sustainability objectives successfully be planned internally and communicated to suppliers and clients. An effective risk management system should enable decision makers to analyze and evaluate the risks and opportunities that may arise from sustainability-focused changes.
Example: Path Education, a non-profit organization operating the Rahnuma Public School, has a mission to champion and deliver effective education to children from underprivileged backgrounds. Strong governance and transparent financial reporting has allowed Path Education to expand its donor base to include large donor organizations. This has significantly enhanced their ability to raise funds, allowing them to expand the size and scope of their project and widen the community that benefits from their efforts.
The IFAC Small Business Sustainability Checklist can help businesses identify initiatives to enhance their governance structure. It is also a valuable resource in other important areas, such as the development of a succession plan by management to ensure future viability.
Conclusion
Overall, it is essential for businesses—including SMEs—to position sustainability as a central component of their strategy and objectives. Organizations that fail to address ESG risks could be putting their own existence at risk. Deliberately and comprehensively championing an integrated mindset and integrating financial and sustainability information will enable better-informed decisions that deliver long-term value creation to investors while taking account of value to customers, employees, suppliers, and societal interests.
