Almost three quarters (71%) of SMEs are not currently taking action to reduce their carbon emissions, as digitalisation, employee wellbeing, cost inflation, and recruitment take priority, according to Azets spring 2022 SME Barometer.

While Azets’ report found ESG is on most company radars, specific action lacks urgency, as focus lies on people, technology, and cost amid economic turbulence.

Over half of SMEs agree they have a good understanding of what ESG means (57%) and have the skills and competencies in the business to address it (52%).

However, 53% do not think ESG will have a big impact on their business in the next two years.

On reducing carbon emissions specifically, 71% are not currently acting and 85% are not currently measuring the carbon footprint of their business.

Meanwhile, over half (54%) of SMEs say they will increase digitalisation in the year ahead, whilst employee wellbeing has risen to be SMEs’ second highest priority, after securing their financial health.

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Cost inflation and recruitment are SMEs’ biggest day-to-day challenges, with knock-on effects on cash flow and the time spent on administrative work.

Almost two-thirds (64%) of SMEs are struggling to recruit talent with the right skills.

Azets head of growth Donald Boyd said: “The SME Barometer shows that many businesses want to focus on ESG and sustainability to a far greater extent than before. But it also highlights an alarming number that do not keep climate accounts today. There is a clear focus on digitalisation, cyber security, wellbeing, and costs, leading to a downgrading of ESG as a priority. This is the result of instability in the market forcing companies to prioritise differently than just a year ago.

“For some SMEs rooted in their local community, ESG appears as common sense. For others it poses challenges in terms of cost and the expertise and resources required to implement it. Given current pressures on SMEs, a basic challenge can simply be finding the time to bring ESG to the fore when there are more pressing matters to deal with.

“However, ESG represents a great potential and opportunity for SMEs. With legislation coming down the track for EU SMEs on sustainable products, and funding likely to be harder to come by as banks increasingly look at sustainability and ESG policies as a condition of lending, ESG is set to become an increasingly important theme. Businesses should be thinking ahead and taking specialist advice.”