ESG Demystified: How SMEs Can Incorporate ESG Principles into their Business

In today’s age, businesses are increasingly expected to think not only about the bottom line, but also about creating value for their stakeholders like employees, suppliers, customers and communities. The value of social capital can no longer be underestimated. This serves as an impetus for adopting Environmental and Social Governance (ESG). 

The recent acceleration in ESG has been driven by a number of factors, namely the heightened social, and governmental focus on the broader impact of businesses, beyond their financial implications. There is now a clear link between the recognition of ESG factors and a business’s long-term success. Research shows that businesses concerned with ESG experience fewer downside risks and increased value creation. 

McKinsey reported that ESG frameworks can help create value for your business in the following ways: 

  • Reducing costs; 
  • Minimising regulatory intervention; 
  • Increasing productivity and attracting top talent; 
  • Enhanced reputation and trust; 
  • Mitigating risks; and 
  • Providing a competitive advantage.  

ESG Explained 

ESG is a useful framework that is now being increasingly used to evaluate the sustainable and ethical impacts of the business. The advantages of utilising ESG frameworks should not be limited to large corporations alone, SMEs should begin exploring ways of incorporating ESG to drive their businesses forward. In this article, we provide a simplified guide to understanding and integrating ESG into your business’s operations. Firstly, we will break down the individual components of ESG. 


Environmental: This involves practices that contribute to environmental sustainability and evaluating the relationship between a business and the natural environment. This is a broad umbrella that covers everything from the energy a business consumes and waste it discharges. For SMEs, this could mean reducing waste, improving energy efficiency, mapping out carbon emissions or sourcing materials sustainably. 

Social: This concerns the relationship a business fosters with the stakeholders in the communities it does business in. This includes a business’s relationships with employees, suppliers, customers, and communities. For SMEs, this may involve fostering a positive workplace culture, ensuring fair labour practices, and engaging in local community outreach. 

Governance: This encompasses all matters pertaining to the internal system of practices, policies, controls, and procedures of a business. For SMEs, this should involve transparency, effective leadership, compliance, risk management and ensuring policies are in place to ensure good governance.  

Steps for SMEs to Incorporate ESG 

SMEs looking to stay ahead of the curve, should consider adopting ESG principles into their day-to-day operations. Below are six simple steps that businesses can take to incorporate ESG. 

  1. Conduct an Assessment of Current Practices: Start by evaluating the current environmental footprint, social, and governance practices and identify areas for improvement. For example, taking into consideration the business’ energy usage, how it interacts with the community it functions in, and establishing its internal governance structure and compliance levels. 
  2. Engage Stakeholders: Involve employees, customers, suppliers, and community members in your ESG journey. Their input can provide valuable insights that could help improve your business and foster a sense of ownership. 
  3. Set Clear Objectives: Define specific, measurable, achievable, relevant, and time-bound (SMART) ESG goals. This might include improving resource efficiency, improving employee welfare, or enhancing governance policies. 
  4. Implement Changes: Start with small, manageable initiatives. For example, switch to energy-efficient lighting, implement a flexible working policy, or establish an advisory board. 
  5. Monitor and Report: Regularly track progress towards ESG goals. Transparency is key, so consider publishing an annual ESG report to communicate achievements and ongoing efforts to stakeholders. This will also make your business more attractive to potential investors in the long term and serve as evidence to stakeholders. 
  6. Continuous Improvement: ESG is an ongoing commitment. Regularly review and update your ESG practices to adapt to new challenges and opportunities as the world and climate evolves. For example, turning to sustainable financing opportunities where investors specifically seek companies that place sustainability at their forefront. 

Practical ways SME’s can implement ESG Practices  

Environmental Practices 

  • Upgrade to energy-efficient lighting and appliances. 
  • Source materials from suppliers that follow sustainable practices. 
  • Use recycled or eco-friendly materials where possible. 
  • Implement a recycling program in the workplace. 
  • Reduce paper usage by digitizing documents and processes. 
  • Implement water recycling systems in production processes. 

Social Practices 

  • Promote diversity in hiring and create an inclusive workplace culture. 
  • Offer competitive wages and benefits. 
  • Provide opportunities for professional development and training. 
  • Ensure a safe and healthy work environment. 
  • Support community projects and charity organisations. 
  • Provide high-quality, safe, and sustainable products and services. 

Governance Practices 


SMEs can reap substantial benefits from adopting sustainable and ethical practices. By starting small and focusing on continuous improvement, SMEs can build a resilient business that contributes positively to society and the environment while enhancing their competitive edge. The ESG Pillars serve as a useful framework that if utilised effectively can add value. For further insight on how your business can embrace ESG, consult us at

Useful Resources: 

UN Global Impact: The SME Guide to Corporate Sustainability 

ESG, An Employment Perspective 

Small Business, Big Impact 

Contact Persons & Contributors 

Cherono Barno


Related blogs & news

What is a Power of Attorney (POA)?

Power of Attorney (POA) is a formal instrument by which one person empowers another to represent him or act in his behalf in many matters including transactions for sale of land, registration of intellectual property, filing of lawsuits, signing off on documents, and opening of a bank account among many others. ...

Employee Consultation Before Redundancy

The requirement of consultation is not expressly provided in section 40 of the Employment Act, 2007. However, by dint of Article 2(6) of the Constitution, treaties and conventions ratified by Kenya form part of the law of Kenya. Kenya is a state party to the International Labour Organization (ILO) since 1964 and is therefore bound by the ILO conventions....

Employees Right To Information

The Employment Act, 2007, does not have an express provision on the employees’ right to information. However, Article 33(1)(a) of the Constitution of Kenya, 2010, provides that every person has the right to freedom of expression, which includes freedom to seek, receive or impart information or ideas. Article 35 (1)(b) of the Constitution 2010, further provides that every Citizen has the right to access information held by another person and required for the exercise or protection of any right or fundamental freedom. What information do employees have a right to? 1. Organizational goals and objectives Organizational goals and objectives are easily overlooked in the day-to-day business of getting the job done, but they should be provided, not just to new employees at induction, but to everyone regularly. Reinforcing an understanding of organizational goals and strategy helps employees feel like they are part of the business, which in return leads to improved job performance and engagement. Apart from the emphasis being made by the human resource manager, the line manager too should regularly remind his/her team of the goal and objective of the firm. The line manager together with his/her team may develop their department goals that align with the overall goal of the company. When a department has established its departmental goal, then it means they understand the goal and objective of the company. This in return leads to improved output and increased production. 2. Organizational policies and procedures Most organizations have rules, policies, and procedures that guide how they do things which is important for employees to know and understand. Depending on the company, the policies and procedures may be incorporated in the employee handbook or the human resource manual. How you collate this information is a matter of considering what works for you and the team, but the key is that you must make sure employees are aware of and understand all rules, procedures, practices, or policies with which they are expected to comply. This means they need to be written down somewhere and easily accessible. 3. Organization structure An organizational structure is the way that a company, organization, or team is set up. Every company and team has an organizational structure, even if it’s not formally defined. Organizational structures are important because they help businesses implement efficient decision-making processes and provide a clear org chart that helps businesses keep track of their human resources. Thus, the employees need to understand the organizational structure of the company because it guides all employees by laying out the official reporting relationships that govern the workflow of the company. A formal outline of a company's structure makes it easier to add new positions in the company, as well, as providing a flexible and ready means for growth. An employee who understands the organizational structure will be motivated to know that the company has a growth plan. 4. Feedback on performance Employees need to understand how well they are doing in their roles and what they can improve on. Regular constructive feedback is essential here, and the temptation to only pick them up on things they are doing wrong should be avoided. It is hard for you to do your best without information, and the same is true for your employees. If you withhold information unnecessarily, you will lose your talent. Maybe not today; but eventually those with choices will leave you. What information can be withheld from employees? Never use information withholding as power. If you are given 'secret' information, don't tell people you have it unless they ask you. If people ask you if you have information, be honest. Don't tell them you don't have information if you do. Tell them that you are not at liberty to share, and tell them why, e.g. "I've been asked to keep it confidential and I need to honor that request." If you establish a track record of early, honest information sharing, you will have more room to occasionally withhold information when the situation dictates. Information that should be kept confidential includes any information that could damage a company's reputation or ability to do business if that information becomes public. Such information is proprietary or sensitive. This information includes information whose disclosure is likely to: a. Impede the due process of law and procedures of the company; b. Endanger the safety, health, or life of any person; c. Involve the unwarranted invasion of the privacy of an individual; and/or d. Substantially prejudice the commercial interests, including intellectual property rights, of the company or third party from whom information was obtained. In the words of Sam Walton, Wal-Mart Founder: I guess our greatest technique and our greatest accomplishment is the commitment to communicating with employees in every way that we possibly can and listening to them constantly…you've got to put their interest first, and eventually, it will come back to the company....

The legality of Non-Compete Clauses in Kenya

A non-compete clause is a contractual agreement between two parties, typically an employer and employee, where the employee agrees not to engage in certain business activities that would be considered competitive with the employer's business. The purpose of a non-compete clause is to prevent the employee from working for or starting a business that would compete with the employer during and after their employment....

Why SMEs should use documents drafted by an Advocate for their Businesses

Here are some reasons why SMEs should use documents drafted by an Advocate: 1. Compliance with the Law. SMEs are subject to various laws and regulations. An Advocate can help SMEs navigate the complex legal landscape and ensure that they comply with all relevant laws and regulations. Non-compliance can lead to significant penalties, which can be detrimental to the business....

section separator logo

Talk to us.

+254 716 209673

Skip to contentHomeAbout UsInsightsServicesContactAccessibility