by: Tony Featherstone, is a specialist writer on small companies and entrepreneurs

This article on www.smh.com.au particularly resonated with me as it is something I have integrated into my company over the past 10 years….although not in a documented way, as outlined below. While a little longer than the usual business tip it is well worth a read and action in your business. Please email me your thoughts, This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Here’s a big question to start the week: should a company’s sole purpose be to make money, or should it have a broader mandate to create financial and social wealth?

I suspect most readers would argue the second case. Some say being a good corporate citizen is absolutely about making money, that helping the environment and supporting charities builds sustainable competitive advantage, great brands and strong organisational culture.

And buying goods from suppliers who exploit workers overseas, or have toxic cultures where workers are harassed, can kill your business overnight. The environmental, social and governance (ESG) debate is as much about risk management as making money.

I could not agree more.

What’s your view on this issue?

The other side of the argument says a limited-liability company is not designed to create social wealth other than through creating jobs and paying taxes, and that asking companies to do more than make money blurs boundaries and makes them less effective. Ultimately, companies make all the right noises about being good corporate citizens, but always put money first when pressured.

Do you agree?

Consider a listed company that gives a small portion of its profits to charities through corporate philanthropy. Would it not be more equitable and efficient to keep that money and give it to shareholders in the form of higher dividends, and let them decide if they want to support charities, and which ones?

Would it not be better to let companies get on with the job of making money, within the law and their own moral ethics, and in theory pay more tax to a democratically elected government that has much more skill than companies in balancing competing social objectives?

Free-market economists might say a rational, smart company will always do the right thing by the community (with some exceptions) if it means making sustainably higher profits. When it does not, government can pass laws that go through a proper legislative process and represent the will of the people, rather than have companies buckling to the demands of a self-serving activist group elected by no one. Or having company directors who are elected by a small group of shareholders trying to guess what society wants.

My view is that it’s a question of balance. I have no doubt that doing the right thing by the environment and society, and having good governance, creates huge value. And stakeholders have a right to expect companies to identify their key risks and show how they are addressing them.

If anything, business has been lax in reporting ESG considerations in a clear, quantifiable and measurable way. Outside the top-100 listed companies (and even some of those are slack), not enough have reported progress in this area. It is no surprise that big super funds are all over this topic and forcing fund managers to assess a company’s ESG risks before they invest.

This debate might seem a world away for small business owners trying to make money and survive. Many small ventures help the community, although I doubt a large proportion have a clear, documented ESG strategy.

Few small businesses can produce anything like a sustainability report. Nor should they. They do not have the resources to engage in a range of corporate social responsibility activities. They want to make money and help the community when they can. Fair enough.

But it is possible for small enterprises to engage in basic ESG reporting that helps them make more money and create more social wealth.

A non-profit enterprise, Budgets of Care, does interesting work in this area. It encourages enterprises of all sizes to produce a basic plan each year about how they will help the environment and society. I suspect Budgets of Care’s work is especially useful for small business.

It is a simple idea. For example, a small business owner works with staff to draw up a one-page budget of care before each financial year. There are three columns: the ESG goal, the stakeholder it affects, and the action needed. Goals are put under headings, such as ecological and societal.

I do not agree with Budget of Care’s view that the plan should avoid references to finances. It is pointless listing ESG goals – many of which cost money – without considering how they affect the profit-and-loss statement. Such plans quickly die if done in isolation to company finances.

Budgets of Care’s website shows how a menswear shop with 12 employees could use this approach.

• The owners and staff agree the venture will reduce lighting by 10 per cent and,
• Increase the stock of clothes containing natural fibres by at least 10 per cent.
• They agree to give damaged stock to disadvantaged groups and,
• Employ a person from such a group, part-time for six months each year.

The plan is measured at the end of the year and published on the company’s website. Over time, more small fashion outlets publish a similar budget of care and get ideas from each other. It is different to a statement of values; this incredibly simple ESG plan has clear, measurable goals that can make a real difference to the community and help small businesses become more productive.

A local sports club could draw up a budget of care that says it will only use ground markings that are ecologically benign. A bakery’s budget of care might agree to give unused food to shelters each night, and three months work experience to a long-term unemployed person each year. A home-based business owner might look at ways to use less energy, or serve on a charity board.

I like the idea on several fronts: it is simple, comparable and potentially powerful. And it need not get in the way of making money. Imagine if tens of thousands of small enterprises developed a culture of very basic, no-cost ESG reporting by producing a one-page budget of care. Imagine if a small menswear shop in Perth could see what another in Brisbane was doing by reading its budget of care online. Imagine if their customers could read the report on the website or in-store.

It is one thing to talk about helping the community; quite another for small enterprises to develop a culture of reporting and publishing a mini-ESG strategy each year. And it is an even bigger step for small business to show they too can engage in the ESG drive and create financial and social wealth.

We have now posted our ESG Program for 2011 on the PINNACLE Business Solutions web site, to view go to 'About Us' and click on ESG Program.

Source: www.smh.com.au June 27, 2011