Grant Thornton report shows ESG seen as barrier to international expansion for SMEs
A special edition of the Grant Thornton International Business Report (IBR), polling 10,000 mid-market businesses across 28 economies, has found that just over half of medium sized Irish firms believe that environmental, social and governance (ESG) requirements are a barrier to their ability to expand overseas due to different regulations across jurisdictions.
The research also found that the time and resource involved with compliance around ESG regulation was seen as a major challenge for medium sized Irish firms as they navigate increasingly stringent sustainability regulations and standards. Approximately two in five (38%) companies cited the resource required in terms of staff and time as their chief concern about ESG compliance, followed closely by the speed at which requirements change (33%), and the capital investment needed (29%).
As sustainability requirements are thrust upon medium-sized companies due to larger corporates’ supply chain requirements under regulations such as the EU’s Corporate Sustainability Reporting Directive, many mid-market firms had no blueprint to follow. Furthermore, 41% of respondents had not developed any sustainability plans or processes such as policy, reporting and data gathering. This stood in stark contrast to their European and global peers where only 8% of companies had no strategy in place.
For Irish firms that had ESG strategies in place, the main benefit they see, according to the research, was an improved ability to access finance such as low-cost loans to fund green initiatives, for example, retrofitting their office or adding electric vehicles to their fleet. Just over a fifth (22%) of companies singled it out as the most important factor encouraging businesses to focus on sustainability.
Approximately 10% of firms also see it as an advantage in terms of competing with rival firms (13%) and a similar amount (11%) see green credentials as a means of boosting their brand reputation.
Janice Daly, Partner and Sustainability Lead, Grant Thornton, said: “Sustainability is moving very quickly from a nice-to-do to a must-do for many Irish businesses as firms quickly realise how ESG regulations are tied to their future business success. We are increasingly hearing from companies struggling with challenges of being compliant with sustainability requirements. It is important, however, that Irish businesses see sustainability as an opportunity rather than a burden as it can be leveraged as a competitive advantage for those firms who get it right.”
Catherine Duggan, head of sustainability in advisory consulting at Grant Thornton, added: “The cost associated with building internal capacity, both human resources and data collection, increases significantly when there is a condensed timeline. Building up knowledge and process gradually will facilitate a smoother transition and allow for implementation challenges to be minimised.”
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