Mid-market businesses are increasingly prioritizing sustainability, driven by brand reputation and regulatory pressures.
Grant Thornton’s Sustainability Report “The journey to a sustainable future: Why the world needs a sustainable mid-market” explores the ESG and sustainability progress and actions of mid-market companies globally.
Interestingly, brand reputation is one of the main driving factors for mid-market businesses adopting sustainability strategies, with the report data showing 19 per cent of businesses globally, and 16 per cent of Australian businesses surveyed attributed brand reputation as the main factor for enacting their ESG and sustainability strategies.
This is in stark contrast to industry and government regulation as factors driving adoption of ESG and sustainability strategies, as Australia’s recent legislation mandating climate-related disclosures was passed by Parliament and the AASB issued new sustainability standards earlier this year.
According to the data, 7 per cent of businesses cited industry regulation as a factor, and only 2 per cent of businesses cited national regulation – or government regulation – as a factor, even with financial penalties and possible jail time for not complying.
Pleasingly, our research found that most mid-market businesses have already taken their first steps in sustainability. According to the data, 46 per cent of Australian businesses already have, or plan to introduce, ESG and sustainability reporting within the next 12 months. Net zero targets and sustainability strategies are close behind, with 45 per cent and 43 per cent of businesses respectively planning to implement these in the next 12 months.
The report also found there are significant barriers that Australian mid-size businesses face when developing ESG and sustainability initiatives, with the report finding that 16 per cent of businesses say that both cost and the complexity of regulations and standards are the most challenging. The volume of regulations and standards as a barrier was found to be 10 per cent, while a lack of skills and knowledge required followed at 9 per cent.
“Meeting regulatory reporting and sustainability standards can be complex, and there are a number of aspects businesses need to consider when implementing a ESG and sustainability strategy, along with the sheer volume of data gathering that needs to be undertaken,” said Andrew Rigele, National Managing Partner – ESG, Grant Thornton Australia.
“While it can be cumbersome, those that adapt by implementing a sustainability strategy that includes complying with regulations and standards will differentiate themselves in the marketplace, and experience better business outcomes.”
International requirements were also perceived as a barrier for international expansion, with the need to navigate different, and often more stringent, regulations across international jurisdictions. According to the data, 71 per cent of Australian mid-market businesses agree that ESG and sustainability requirements are a potential barrier to international business expansion. However, there is opportunity in the mid-market, as businesses are often more agile and able to adapt to reporting regulations faster than larger corporations.
Grant Thornton recommends mid-market businesses implement ESG and sustainability initiatives sooner rather than later, as regulatory requirements and consumer demand are only going to increase and get more complex. Adopting sustainability practices will not only offer businesses a competitive advantage, increase attractiveness to investors and ensure the long-term health of their business, but also protect brand reputation.
Grant Thornton International has released its report here: The journey to a sustainable future: Why the world needs a sustainable mid-market
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