Small caps need to focus on three areas to meet growing ESG demands, suggests broker finnCap

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Small companies should focus on three key areas to make sure their environmental, social and governance (ESG) credentials are up to scratch, according to broker finnCap Group PLC (LON:FCAP).


Ensuring ESG compliance is vital says the broker as 90% of millennials want to invest on an ESG compliant basis, while 84% already do, and there is an estimated GBP5.5trn set to pass from ‘baby boomer’ parents to millennials over the next 30 years in just the UK alone,


Large companies are devoting resources and time to meeting the rising ESG demands of investors, but for smaller companies with lower budgets, the broker recommends a tighter focus.


FinnCap said it has drawn up a fifteen-point guide for small caps to help meet tougher ESG requirements from investors.


SMEs can use the toolkit and scorecard to show how investable they are from an ESG standpoint, it added.


Raymond Greaves, Head of Research for the broker, added: “The pace with which environmental and ethical factors are being factored into investments globally has meant that small and medium-sized companies will increasingly be analyzed through an ESG lens.


“Using our scorecard will help small and medium-sized firms remain attractive to investors and fund managers in a post COVID environment.


FinnCap highlights three areas in particular where firms should concentrate: Obtaining key environmental data points (e.g. energy, CO2 and waste figures); applying the most important policies ( environmental, discrimination, ethical practices) and promoting more board equality.


The broker said it had collated data from more than 100 companies and also surveyed small cap-focused fund managers in compiling its checklist.


A significant majority of fund managers also actively pressure their investee companies to be more “ESG compliant”, its survey found.


Sam Smith, finnCap’s CEO said: “Companies now recognise that ESG concerns are no longer simply a way to signal a company’s caring credentials – they are a fundamental part of sustainable business success.


“As we look to recover from the pandemic and restore economic growth, ESG should be a hallmark of our approach – ensuring that the growth that is delivered is more responsible, sustainable and for the benefit of all.”

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