Disclaimer: This guide is republished with permission from the authors. The guide was developed through The Ethics Centre‘s Young Ambassador Program, which encourages and supports final year students, graduates and young professionals to adopt a strong ethical foundation as they begin their careers in the banking and financial services industry. This project was developed by the 2024 Young Ambassadors. Any views expressed in this article are those of the original authors and do not necessarily reflect the views of Altiorem.

Purpose of this guidance

This guide is aimed at small to medium enterprises to inform and assist these companies in improving their ESG policies and processes. It provides context on the status and importance of ESG in Australia, emphasising the high value in starting somewhere, instead of neglecting the concept. Whether you’re a financial or investment professional supporting SMEs, or part of a SME yourself, this guide offers simplified and practical advice to help these companies better manage risk and put in place strategies for long-term business success.

Why ESG feels like a burden for SMEs

Small and medium-sized enterprises (SMEs) are the backbone of the Australian economy, making up 98% of all businesses and contributing a third of the nation’s GDP (Australian Small Business and Family Enterprise Ombudsman, 2024). Yet, the environment for SMEs is tough: in the 12 months to June 2023, 406 thousand SMEs started up, while 386 thousand closed their doors – a net gain of just 20 thousand (Australian Bureau of Statistics, 2024).

With survival as the priority, it’s no wonder that Environmental, Social, and Governance (ESG) policies can seem like yet another confusing, ambiguous, and costly burden. For many, ESG feels like a box to tick – something imposed from the outside, rather than an opportunity for growth and resilience.

As regulations tighten and market expectations shift, SMEs cannot afford to ignore ESG. The good news? Small, values-aligned actions can deliver real benefits, far beyond compliance.

The regulatory landscape: What’s changing for SMEs

Australia is moving rapidly towards mandatory ESG and climate-related disclosures. The Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 divides entities into three groups based on revenue, assets, and employee numbers, and mandates climate-related financial disclosures over the next 2–3 years (Australian Treasury, 2024).

• Direct impact: From July 2027, businesses with 100+ employees must include climate risk and opportunity disclosures in their annual reports.
• Indirect impact: SMEs in the supply chains of larger companies may be asked to provide ESG data, as those larger entities work to meet their own obligations.

Further to this, in March 2025 ASIC released Regulatory Guide 280 for sustainability reporting under the financial disclosure legislation. The guide explains ASIC’s approach under the legislation and provides practical guidance about complying with reporting obligations (RG 280, 2025*).

Why ESG matters for SMEs: More than just compliance

Improved Access to Capital

Banks and investors are increasingly factoring ESG into lending and investment decisions. Transparent ESG reporting makes SMEs more attractive to lenders, who see strong ESG risk management as reducing credit and reputational risk (KPMG, 2024). Many banks now require ESG disclosures before approving loans.

What are lenders looking for?

From the viewpoint of a bank or potential financial lender, effective ESG risk management involves thoroughly evaluating ESG factors that could influence the risk and return profile of a SME’s operations and investments. Poor management of ESG risks can elevate the perceived credit risk of the SME and pose a reputational risk to the bank. By gaining a deep understanding of your business and identifying risks that pose a financial or reputational impact to your longevity, you can take proactive steps to mitigate and manage these risks, thereby enhancing the long-term sustainability of your business.

Some key factors a financial lender may consider:

Risk Management

ESG policies help SMEs identify and mitigate risks – from climate change to labour practices and governance. Proactively addressing these risks reduces the chance of legal liabilities and reputational damage (McKinsey, 2022).

Enhanced Reputation & Attracting Talent

Consumers and employees increasingly favour ethical and sustainable brands. Adopting ESG practices helps SMEs stand out, attract eco-conscious customers, and recruit top talent, especially younger workers who value purpose-driven employers (Deloitte, 2023).

Cost Savings

Simple ESG initiatives, like energy efficiency upgrades or waste reduction, can lower operational costs. Climateworks Australia found that improving energy efficiency can deliver significant profit increases, where energy productivity investments can boost profits by 2–10% annually (Climateworks, 2016).

Alignment With Supply Chains

Large companies are enforcing ESG standards across their supply chains to ensure sustainability, risk management, and compliance with increasing regulations as outlined above. SMEs that can’t meet these requirements risk losing business.

Alignment With Purpose, Values, and Principles

Building ESG policies around your business’s core values ensures they remain relevant, even as regulations change. This approach makes ESG more meaningful and less vulnerable to shifting legislation. This alignment helps businesses build trust and credibility among customers, employees, and investors, as stakeholders increasingly seek out organisations that demonstrate genuine commitment to ethical and responsible practices.

What can SMEs do now? Practical steps to begin your ESG journey

Identify & Align Core Values to ESG Policy

Aligning a business’s purpose, values, and principles with its ESG policies ensures that sustainability efforts are authentic, strategic, and deeply embedded in the organisation’s identity.

Practically, this means understanding how your business creates value, not just in terms of profit, but in how it contributes to your customers, your community, and your industry. Reflect on how you want to operate as a business, the impact you want to have, and the kind of relationships you want to build. Ask: What kind of reputation do you want your business to have? While your brand is what you say about yourself, your reputation is what others say about you, and ESG policies rooted in your real values are a powerful way to shape both.

Start by defining your core purpose: why does your business exist beyond making money? Then clarify your values – the principles that guide your decisions and how you interact with others. This foundation will inform your priorities and help you choose initiatives that are not just compliant, but meaningful and enduring.

If you are not clear on what your business’s purpose, values, and principles are, a guide can be found here – Ethics.org.au, 2024.

Understand ESG

Environmental, Social, and Governance refers to a set of standards that help the businesses operate responsibly and sustainably. It involves managing your environmental impact, treating people fairly, and maintaining transparent, ethical leadership. For small businesses, ESG means adopting practices that support sustainability, fairness, and good governance to build trust, reduce risks, and grow sustainably.

Moreover, it is important to understand the distinction in ESG practices between product sustainability, operations, and supply chain. Product sustainability focuses on making products more eco-friendly and socially responsible, such as using sustainable materials or reducing packaging waste (Global Reporting Initiative, 2024*). Operations cover how the business runs internally, like minimising waste, managing resources, or improving workplace practices (Future-Fit Business Benchmark, 2024*). Supply chain sustainability ensures that suppliers and partners also follow ethical and sustainable standards, extending ESG impact beyond the business itself (United Nations Global Compact, 2024*). Together, these areas help SMEs address ESG across all aspects of their business.

Conduct a Baseline Assessment

Conducting a baseline assessment of your business’s ESG policies is a crucial first step in developing a meaningful and effective sustainability strategy. By establishing a clear understanding of your current strengths and weaknesses, you can ensure that future actions are targeted and impactful, rather than generic or misaligned with your business’s needs. A baseline assessment enables you to prioritise initiatives that will deliver the greatest value, set realistic and relevant goals, and track your progress over time.

There is no single framework or guideline for ESG as the topic is inherently broad and businesses operate in diverse industries and regulatory environments, each with unique priorities and challenges. However, there are a variety of standards, frameworks, and goals designed to help businesses measure and compare their ESG performance, providing valuable guidance throughout this process. Some leading examples include the BCorp by the nonprofit B Lab*, Future Fit Business Benchmark*, and the Global Reporting Initiative* (GRI). Each focuses on different issues or audiences, offering flexibility for companies to choose what best fits their context and goals. As an example, a BCorp, or Certified B Corporation, is a business that meets high standards of social and environmental performance, accountability, and transparency, verified through a rigorous assessment by the nonprofit B Lab.

This diversity in ESG frameworks and certifications allows organisations to tailor their ESG approach, but it also means there is no universal, one-size-fits-all standard. Further details on what standard or framework might be best for your business – A Guide to Choosing the Best ESG Framework for your Organization.

Finally, there are free assessment tools that can be found online to allow small businesses to get a snapshot of their current sustainability practices (Brownee).

Start Small

Set business-specific goals and policies that align with your strategies and values. To begin, focus on manageable actions that will add material value to your business. These items should build off the baseline assessment and understanding of your business (as outlined in earlier steps) and target the items that will bring the most value.

Some generic concepts and idea examples are:

• Upgrading to energy-efficient appliances;
• Promote employee wellbeing by offering flexible work arrangements or mental health support;
• Eliminating single-use plastics;
• Provide training on sustainability or diversity and inclusion for all employees;
• Offering eco-friendly products or services; and
• Support local communities through mentoring or offering work experience placements.

Additionally, consider assigning the ESG policies as responsibilities of employees. Having an employee (or employees) take responsibility for ESG policies allows dedicated oversight and ensures these initiatives are effectively implemented, tracked, and integrated into daily operations.

Collaborate & Engage

Engage with all the stakeholders of the business to understand their perspectives and develop policies that will have a greater impact; collaborating with employees, customers, suppliers and other businesses ensures these policies are relevant, effective and impactful.

Employee engagement is vital for developing your ESG policies because it transforms sustainability from a top-down compliance exercise into a shared organisational value, driving real impact and long-term results (From obligation to motivation: why employee engagement is the key to ESG success, 2024). Involve your team in sustainability initiatives, like volunteer days or recycling programs, to foster ownership and commitment. After all, it is your employees who are going to be at the forefront of the implementation of these policies. Creating spaces for ethical reflection and dialogue within businesses supports better decision-making and builds trust. This includes actively investing in the development of employees, particularly in ethical awareness, judgment, and critical thinking. Supporting initiatives like Altiorem and other education platforms can build a more ethically capable workforce. Continuous learning, not just compliance training, should be embedded at all levels of the organisation to help people navigate complexity with confidence.

Customer and supplier feedback can also highlight key priorities, uncover areas for improvement, and build trust, while also strengthening relationships and improving supply chain practices for more impactful and credible ESG outcomes (Stakeholder Engagement Plan in ESG Strategies, 2024).

Partner with local organisations or other SMEs to share resources and ideas for cost-effective ESG implementation. A collaborative effort is crucial to achieving meaningful access to remedies and ensuring appropriate stakeholder consultation (Investors, ESG and human rights, 2024*).

Your ESG strategy could be further strengthened by engaging with industry groups and global initiatives such as the UN Global Compact, which provides frameworks, guidelines, and peer support for aligning your business with universally accepted ESG principles (UN Global Compact, 2024*). Additionally, many professional networks, like the Small Business Association of Australia (SBAA), the Australian Farm Institute (AFI), the Farming Forever National Summit (FCA) and the Council of Small Business Organisations Australia (COSBOA) offer ESG focussed forums where members can exchange best practices, discuss challenges and collaborate on sector-specific solutions. These platforms not only offer valuable insights but also broaden your network of like-minded professionals committed to responsible ESG practices within their businesses.

Communicate Progress

At this stage, you will have undertaken an in-depth review of your business’s core values, educated yourselves on what ESG is, and spent valuable resources collaborating both internally and through external channels. Whilst these processes may seem sufficient from an internal perspective, the outputs and achievements of these actions will not be viewable to the public eye.

Transparency builds trust (Ethics Centre, 2022). By communicating your ESG initiatives and the processes undertaken to reach those initiatives, you can build your brand and reward those in your organisation who contribute. Additionally, this will start a positive reinforcement loop, reaffirming the importance and value of ESG in your business. You can share these updates through reports, your website, or social media platforms.

References

ASIC (2025) Regulatory guide (RG) 280: Sustainability reporting Retrieved 11 May 2025. Altiorem: https://altiorem.org/research/regulatory-guide-rg-280-sustainability-reporting/

Australian Bureau of Statistics (2024) Counts of Australian Businesses, including Entries and Exits Retrieved 2024.

Australian Small Business and Family Enterprise Ombudsman (2024) Number of small businesses in Australia Retrieved 2024.

Australian Treasury (2024) Treasury Laws Amendment (Financial Market Infrastructure and Other Measures) Bill 2024 Retrieved 2024.

Climateworks (2016) Could boosting energy productivity improve your investment performance? A guide for investors Retrieved 2024.

Deloitte (2023) Deloitte 2023 Gen Z and Millennial Survey Gives Employers Actionable Insights into Climate, Sustainability and Work/Life Balance Retrieved 2024.

ESG Voices (2024) Stakeholder Engagement Plan in ESG Strategies Retrieved 2024.

Future-Fit Business (2024) Future-fit business benchmark: Methodology guide Retrieved 2024. Altiorem: https://altiorem.org/research/future-fit-business-benchmark-methodology-guide/

Futurize (2025) A Guide to Choosing the Best ESG Framework for your Organization Retrieved May 2025.

KPMG (2024) ESG assurance: Understand and increase confidence in ESG reporting and disclosures Retrieved 2024.

McKinsey (2022) How to make ESG real Retrieved 2024.

The Ethics Centre (2022) Let the sunshine in: The pitfalls of radical transparency Retrieved 2024.

The Ethics Centre (2024) A Guide to Purpose, Values, Principles Retrieved 2024.

UN (2024) Investors, ESG and human rights Retrieved 2024. Altiorem: https://altiorem.org/research/investors-esg-and-human-rights/

World Economic Forum (2024) From obligation to motivation: why employee engagement is the key to ESG success Retrieved 2024.

Appendix: ESG in action

Who Gives A Crap About Us | Who Gives A Crap

Who Gives A Crap is a purpose-driven social enterprise that sells ethically made toilet paper, tissues and paper towels, aiming to raise funds for sanitation projects in developing countries.

Policy: From the outset, Who Gives A Crap has aligned its ESG policies with its core values: environmental sustainability, social impact, and ethical governance. These policies include plastic-free packaging, carbon-neutral shipping, ethical supply chain management, and charitable giving as a fundamental business function – not a peripheral initiative.

Outcome: Its focus on ESG capability has positioned Who Gives A Crap to benefit from competitive differentiation. ESG credibility has made Who Gives A Crap a preferred partner in retail and B2B collaborations. Today’s consumers actively seek out authentic ESG action and messaging. SMEs that can commit to ESG action will unlock access to an even greater market demographic.

Cape Byron Distillery About Us | Cape Byron Distillery

The Cape Byron Distillery is a craft spirits business located in the Byron Bay hinterland. The distillery is built on a deep respect for the land, community, and craft.

Policy: The distillery’s policies are grounded upon sustainability, localism and ethical governance. Key initiatives include regenerating rainforest to support biodiversity, sourcing botanicals locally and ethically, minimising waste and water use in production, and engaging with the community. The company is also B-Corp Certified, joining the global movement of organisations setting the benchmark for sustainable and ethical business practices.

Outcome: Cape Byron Distillery demonstrates that SMEs can lead in ESG by starting with their values, embracing their local context, and embedding sustainability into the fabric of the business. The distillery has expanded its infrastructure, received government grants, and has earned widespread industry recognition.

Maria Blanca About Us | Maria Blanca

Maria Blanca is a small retail business from Melbourne, Australia. Their garments are made locally by Ethical Clothing Australia accredited manufacturers and the fabric they use is woven with ECONYL® fibre, a 100% regenerated nylon yarn made from pre and post consumer nylon waste. This includes industrial fishing nets, carpet flooring and hard plastics that would otherwise pollute the earth.

Policy: The business emphasises reusing materials when developing all new garments. Raw industrial plastic waste that would otherwise pollute the earth, is recovered from all over the world and processed by Italian manufacturers to turn the nylon component into wearable fabrics, thereby contributing to the circular economy.

Outcome: Due to their sustainably sourced materials, ethical manufacturing, and local Australian identity, Maria Blanca has tapped into a market of customers that are willing to invest in durable, environmentally sound, and timeless designs – a small but dignified effort in changing habits around fast-fashion.

The Beautiful Bunch About Us | The Beautiful Bunch

The Beautiful Bunch is a floristry business launched in 2020. The Victorian not-for-profit works specifically with young women from refugee backgrounds who are experiencing barriers to employment.

Policy: Their ESG approach includes using locally grown flowers, biodegradable packaging, and recycling waste, while socially they focus on creating inclusive job pathways. Governance is supported through clear impact measurement and strategic planning.

Outcome: The Beautiful Bunch serves as a compelling example of how integrating ESG policies can lead to meaningful social impact and business success. Their model demonstrates that prioritising environmental sustainability, social responsibility, and strong governance can create a resilient and impactful enterprise.

HoMie About Us | HoMie

HoMie is a Melbourne-based streetwear label and social enterprise dedicated to supporting young people affected by homelessness or hardship. Established in 2015, HoMie channels 100% of its profits into programs like the HoMie Pathway Alliance, which offers accredited retail training and employment opportunities to individuals aged 18–25.

Policy: The business focuses heavily on social inclusion through job pathways and community support. Environmentally, HoMie runs a circular fashion initiative that reduces waste by upcycling old or unsold clothing. HoMie also works with external partners to measure its impact and maintain accountability.

Outcome: Implementation of these ESG policies has led to tangible outcomes: over 3,659 young people have participated in HoMie’s programs, more than 22,879 hours of paid employment have been provided, and annually, over 1,000 items of clothing are gifted to those facing hardship. Over the past two years, HoMie has seen a 60% increase in overall business performance – growth largely driven by high-profile collaborations with brands like Disney, Champion, and Mambo. These partnerships were made possible because of HoMie’s strong commitment to ESG principles, which positioned the brand as a credible and values-aligned partner for companies seeking to enhance their own social and environmental impact.

Ben & Jerry’s About Us | Ben & Jerry’s

Ben & Jerry’s is a globally recognised ice cream company known for its commitment to social responsibility and environmental sustainability. Originating as a small business, Ben & Jerry’s has grown into an international brand while maintaining its core values and dedication to ESG principles.

Policy: Ben & Jerry’s has long aligned its business practices with strong ESG policies focusing on environmental sustainability, social justice, and ethical governance. Their initiatives include sourcing Fairtrade-certified ingredients, reducing greenhouse gas emissions through energy-efficient practices, and advocating for climate justice. The company also emphasises ethical supply chain management and has a robust program for community engagement and charitable giving, supporting causes such as racial equity and LGBTQ+ rights.

Outcome: Ben & Jerry’s commitment to ESG principles has not only strengthened its brand loyalty but also positioned it as a leader in corporate social responsibility. Their proactive ESG stance has made them a preferred partner for collaborations and has attracted a consumer base that values ethical and sustainable practices. By embedding these values into their business model, Ben & Jerry’s has demonstrated that it is possible to achieve commercial success while making a positive impact on society and the environment. Their journey from a small enterprise to a globally recognised brand underscores the significant impact that strong ESG policies can have on business growth and reputation.