By Larry Simcox, Senior Director of Product Marketing – GROW with SAP
Rapidly changing environmental, social, and governance (ESG) factors are no longer just a global concern—they’re also challenging how businesses run locally and regionally. And finance leaders from growing companies are paying attention.
But there is a silver lining: companies with agile processes are particularly well-positioned to adapt quickly to these evolving ESG requirements. Instead of seeing ESG as a hindrance, they consider it an opportunity to innovate and strengthen their market position. This mindset delivers ESG initiatives that drive the business agility and resilience to stay ahead of the competition.
Research conducted by Oxford Economics reveals that surveyed finance leaders from midsize companies are stressing ESG’s importance as it becomes increasingly integral to business operations. They understand a successful balance between sustainability and business growth helps meet broader stakeholder expectations and regulatory demands and creates long-term financial value and viability.
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Not just a financial priority
While finance plays a pivotal role in managing ESG compliance, every department from HR to operations must participate in driving ESG goals forward. Any failure in getting all executive stakeholders, employees, and suppliers aligned with ESG initiatives can expose the entire business to risks where it hurts most: the bottom line.
“Fines, sanctions, and a loss of stakeholder trust could damage profitability metrics—and avoiding these missteps may be the difference between competing with larger organizations or ceasing operations,” warns the Oxford Economics report.
Among top-performing midsize companies surveyed, Oxford Economics uncovered a preference toward not only pursuing sustainability as a best practice but also emphasizing the potential benefits only an increased focus could yield. Particularly successful initiatives include benchmarking operations for cost and value drivers, collecting ESG data, and integrating business information to build dashboards and generate predictive insights.
Based on these findings, Oxford Economics concludes that “embracing ESG and adopting emerging technology go hand in hand, and the best-performing organizations prioritize that union.”
Transitioning ESG challenges into opportunities
For companies operating locally, managing ESG standards may seem straightforward. However, in most midsize businesses, there is still a considerable disconnect in priorities. Oxford Economics reports: “While respondents cite ESG disclosures as a major issue to their organization, they are not prioritizing sustainability to the same extent. Over the next two years, improving sustainability is ranked the least critical strategic priority.”
As companies expand regionally or globally and ESG standards evolve, this challenge presents considerable operational complexity. Organizations must be able to anticipate future regulatory changes and prepare accordingly with flexible and responsive systems that can handle existing requirements while adapting as new ones emerge.
Take, for example, the European Union’s Corporate Sustainability Reporting Directive (CSRD), which will take effect in 2025. The new accounting standard requires companies of all sizes doing business in the region to place their ESG reporting on the same level as their financial reporting. The penalty for noncompliance runs deeper than financial fines; it can significantly restrict access to the market for the long term.
Such daunting challenges can become opportunities for greater operational efficiency and financial growth when companies get their ESG compliance record and sustainability performance right. Many B2B customers now prefer to work with suppliers that align with their core ESG values, making it vital for manufacturers and suppliers to have comprehensive environmental and social pledges in place. This interdependency reflects the growing demand for accountability across every business area.
Some midsize companies are already taking action by rethinking their business systems. For example, the Netherlands’ fast-growing scale-up manufacturer Wefabricate B.V. is laying a solid foundation for growth and innovation by modernizing its ERP environment in the cloud. This step allows the rising leader to further expand and shape its sustainability ambitions in ways that meet customer expectations.
The intersection of ESG and AI also brings another layer of advantage. With proper data management and security protocols, AI models can be trained to expose gaps in finance and governance processes. Companies can use this moment to streamline operations. But more important, they gain a centralized view of ESG data to guide faster decision-making and better resource allocation, helping businesses grow, enter new markets, and bring products to market more quickly.
Advantages arise from true ESG leadership
ESG is no longer just a priority for large enterprises—it also affects businesses of all sizes. Compliance can become a financial burden that hampers growth without proper planning and investment.
By embedding sustainability and governance into their core operations, businesses can mitigate financial risks while positioning themselves for long-term success in an increasingly sustainability-driven market. In this way, ESG becomes an opportunity for growth rather than a compliance challenge.
Midsize companies are counting on their finance leaders to drive digital transformation and growth. Explore their journey by reading the Oxford Economics report, “CFO Insights: Adapting the Role of Finance to Unlock Business Value,” cosponsored by SAP.
