Some costs don’t show up on the face of the balance sheet. They hide in the footnotes, tucked behind acronyms management files under “deal with later”: ESG. The problem? Reality doesn’t read board papers. It shows up as an audit, a lost client, a quiet exit, or more expensive financing. And the bill — it always comes due.
For years, ESG was treated as corporate courtesy: a few friendly metrics, a green chapter in the report, and a photo of a forest. But the world has changed. Regulators have moved from warnings to obligations. Investors have shifted from intentions to rules. Value chains now demand data and plans, not slogans. And talent — that stubborn indicator — no longer accepts “purpose” without proof of life.
The issue is simple: ignoring ESG means accepting operational, legal, and financial risk — and paying for it, with interest.
Let’s start with money, the language of business. Poor ESG integration translates into a higher cost of capital. Why? Because perceived risk increases: weak processes, regulatory uncertainty, exposure to fines, products at risk of being excluded from “clean” portfolios. In the European market, any fund using words like “green” or “sustainable” now has to meet clear criteria; fund managers aren’t buying stories, they’re buying consistency. If your company doesn’t have it, the door narrows. And when the door narrows, the rate rises.
Then comes operations. ESG isn’t a set of meeting minutes — it’s the factory floor. One environmental compliance failure can halt a production line by mid-morning. Two missing reports are enough for an international client to drop you from their vendor list. Due diligence in the supply chain is no longer a “best practice” — it’s a contractual requirement. The question is no longer “if” it will be demanded, but “when” and “by whom.” SMEs included.
Reputation is the third pillar — and the most volatile. Built over years, destroyed in days. In a world of timelines, where everyone is media, one social or environmental lapse shatters trust and destroys value. “License to operate” is a polite way of saying something hard: communities, customers, and regulators tolerate your presence — until they don’t.
Lastly, talent. The difference between a company that attracts excellent people and one stuck in endless recruitment is coherence. Purpose with proof: clear policies, public goals, auditable reporting. When words don’t match actions, the best people don’t join — or don’t stay. And every exit is a repeated cost: loss of knowledge, replacement, training, time. ESG is also people management.
“So, is this a cost?” you might ask. No. This is management — of risk and opportunity. Done right, ESG is not a tax on competitiveness; it’s the opposite. It’s energy efficiency that improves margins. It’s circularity that reduces dependencies and hidden waste. It’s product innovation that opens markets where price isn’t the only criterion. It’s regulatory predictability that gives investors confidence. It’s data discipline that lets you decide, not guess.
But there’s a condition: it has to be done with the rigor of someone managing cash — not the poetry of a campaign. Instead of collecting pretty indicators, start by answering the hard questions: Where are our material impacts and dependencies? What risks — physical, legal, market — might knock on our door in the next three years? What metrics let us steer the transition without flying blind?
Practically speaking, I suggest three moves — not a forever program, but a Monday-morning plan:
- Double materiality, without romanticism. Identify, prioritize, and link ESG themes to the business: risk, cost, revenue. Does the energy transition affect OPEX and CAPEX? Do resource constraints impact timelines and quality? Can human rights issues in the supply chain close markets? Put it on a map — and in numbers.
- Govern and measure like you’re preparing for an audit. Focus on what matters: climate, water, waste, safety, diversity, suppliers — with trackable data. No loose files: processes must be audit-ready, because verification is no longer optional.
- Execute for ROI. Transition plans that pay off: energy efficiency, product redesign for circularity, responsible procurement with clear criteria, and contracts that demand from suppliers what we promise to clients. And yes — seek financing sources that reward consistency and penalize greenwashing.
Portugal’s economy is made up of SMEs that depend on exports and demanding value chains. There’s no room for vague talk. If your company sells to a European OEM, seeks institutional capital, or wants to retain qualified engineers and operators, this is serious: either you professionalize ESG, or the market will professionalize your absence.
At the end of the day, this is about choices. We can keep treating ESG as decoration — and accept the price when the tide rises. Or we can treat it for what it is: a strategic lever to reduce uncertainty, improve efficiency, and earn preference. The difference between those options shows up in contracts won, in people who stay, in cost of capital, in regulatory peace of mind. In short: in the competitiveness that survives the next five years.
At Plan4Sustain, we don’t sell “green”; we work for impact with ROI.
If you want, we’ll start with the hardest question:
What’s still in the footnotes of your business — that should already be on the face of your balance sheet?
Excerpt written by Vítor Ferreira
