In business mythology, ESG/sustainability is a discretionary endeavor primarily for large companies that can afford to spend money on something with little, no or soft-dollar returns. In today’s world, that myth has been busted due to changes in regulatory mandates, more disciplined efforts at identifying and responding to customer key buying criteria and investor pressure. Even so, middle market companies lag in making the most out of ESG/sustainability according to The RSM Middle Market Sustainability Survey 2024: US and Canada. While the final report won’t be available until next month, the company has released a few findings but these two stood out to me:
- Not looking for the ROI: “When asked what considerations motivated their organization to embrace sustainability initiatives, the most popular survey responses were reducing environmental impact (38%), complying with government or regulatory requirements (35%) and being consistent with the organization’s commitment to sustainability (32%). Following those top three, 31% said supporting their local community or communities was a motivating factor, and 31% also said that supporting sustainability initiatives was the right thing to do as an organization.
Twenty-eight percent of respondents said attracting or retaining customers or clients was a consideration that motivated the organization to embrace sustainability. A notable divergence between the two countries emerged on this issue: U.S. respondents were significantly more likely (32%) to cite business retention as a consideration compared to Canadian respondents (18%).”
- The waiting game: “As we await final rulings on some sustainability regulations, it’s unsurprising that 84% of respondents agree they are monitoring developments before acting on them. Additionally, 56% agree their organization is waiting until after the U.S. presidential election before taking further action in this area.”
The survey targeted organizations with an annual revenue of $40 million to $10 billion. These companies are leaving money, cost savings and risk reduction opportunities on the table by limiting their view of ESG/sustainability to compliance. Moreover, playing the compliance waiting game based on US election results is myopic because many US companies are snared in the EU CSRD net if they have a subsidiary or branch in the EU that is either:
- A subsidiary with more than 250 employees, or €40 million in net turnover, or €20 million in total assets; or
- A branch EU with net turnover exceeding €40 million.
The longer middle market companies wait, the more business benefits and market position they lose and the harder it will be to achieve compliance by regulatory deadlines.
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