Address ESG or lose funding, warns SME accounting expert

An SME accounting expert with UK Top 10 firm Azets, the largest regional accountancy firm and business advisor to SMEs, with offices in London and across the South East, is urging businesses to address Environmental, Social, and Governance (ESG) policies or risk losing their funding line.

Nick Parrett, Partner, Accounts and Business Advisory Services, Azets, says climate change and ESG is already starting to have a significant impact on funding decisions and those too focused on the short-term could be putting the future of their businesses at risk.

He warns that lenders, suppliers, customers, and employees will demand a roadmap to a net zero strategy going forward and failure to address ESG could be catastrophic.

The warning follows a poll by Azets of 235 SME business leaders, which revealed a significant number of SMEs have not reviewed their business model in the past year, and just one in ten believe ESG will have an effect on their long-term plans.

According to the poll, 63% of businesses have reviewed their business model in the past 12 months, whilst almost a quarter of SMEs (23%) have not. Just 10% of businesses say climate change and ESG is most likely to have an effect on their business model moving forward, with staffing (34%), economic recovery (27%) and digitisation and technology (19%) currently understood to be the most important factors.

Nick Parrett said: “In the midst of a global pandemic, a quarter of businesses having not reviewed their business model for more than a year is an alarming figure. We would expect more frequent forecasting to make sure business models remain fit for purpose, particularly as the real impact of Brexit and Covid-19 may not yet have been felt, and with the growing awareness and importance of sustainability.

“A sharper focus on the short-term is perhaps to be expected as SMEs focus on immediate recovery and growth, with on-going concerns over staffing levels, economic instability, and digitisation an ever-present issue. However, with funding likely to be harder to come by and banks increasingly looking at sustainability and ESG policies as a condition of lending, businesses should also be thinking ahead.”

Nick Parrett is urging businesses to take more of a proactive approach to ESG as part of regular business model reviews. He concluded: “ESG will keep growing in significance and will impact decision making by lenders, suppliers, customers, and employees. We urge SME businesses to seek professional advice to ensure they are tackling short-term challenges and planning appropriately for long-term ESG requirements.”