Why We Replaced ESG With CARE-PROFIT: What Changed and Why It Matters for Your SME
ESG was designed by asset managers to evaluate listed companies. A 50-person engineering firm in Liège was never part of the design brief.
That gap matters more than it sounds. When a retiring SME owner asks us how WAD Capital approaches responsible ownership, the honest answer is that we do not run standard ESG assessments on our portfolio companies. Not because we lack interest in how our businesses treat their people and communities, but because standard ESG frameworks produce compliance theatre when applied at this scale and generate meaningful signal almost nowhere.
The problem is structural. ESG as commonly practised bundles three distinct concerns (environmental impact, social conduct, and governance structure) into a single audit instrument developed for listed companies with dedicated compliance teams, sustainability departments, and the reporting infrastructure to feed them. According to the European Commission's own legislative documentation, the Corporate Sustainability Reporting Directive initially applied to large companies precisely because the reporting burden was acknowledged to be disproportionate at SME scale. The contested extension of CSRD scope to smaller businesses reflects that ongoing tension: the instrument keeps trying to fit places it was not built for.
What this produces in practice is predictable. An owner-managed business with 35 employees does not have a Head of Sustainability. Asking that business to produce a materiality assessment, a Scope 3 emissions inventory, and a taxonomy-aligned disclosure is not responsible investing. It is paperwork delegated downward to people whose actual job is running the factory floor.
The second problem is greenwashing risk, which cuts in the opposite direction. When frameworks are too complex to operationalise honestly, companies respond by operationalising them dishonestly. Boxes get ticked. Indicators get selected for their tractability, not their relevance. The resulting report signals compliance while measuring almost nothing about whether the business actually treats its workforce well, manages environmental risk sensibly, or governs itself with integrity. Large-cap investors navigating the ESG ratings industry know this. The correlation between different rating agencies' ESG scores for the same company routinely falls below 0.5, a figure that would end the career of any analyst applying it to financial metrics.
None of this means the underlying concerns are wrong. Community relationships, environmental responsibility, workforce quality, and sound governance are real drivers of SME value, particularly across a 7 to 10-year hold. A packaging business that pollutes its local waterway will eventually face regulatory action. A family-run services firm that treats staff as interchangeable will lose its best technicians to competitors who do not. These things compound. They just do not compress cleanly into a standard ESG scorecard.
CARE-PROFIT is WAD Capital's attempt to build something that works at the scale of the businesses we actually acquire.
What CARE-PROFIT Is
The framework splits into two components. CARE captures the ethical and community dimensions of how a business operates. PROFIT captures the financial discipline required to make those commitments sustainable over time. Neither side functions without the other: ethical commitments funded by a deteriorating balance sheet are not ethical commitments, they are deferred problems; and financial returns extracted at the expense of the workforce or local community are not returns we are willing to defend.
The eight pillars, presented without elaboration because they are intended to be operational checkpoints rather than a philosophy lecture:
CARE
Community: Building a reciprocal relationship with local stakeholders for long-term benefits
Adaptability: Proactively responding to change to maintain competitive edge
Responsibility: Committing to social and environmental excellence in all endeavours
Ethics: Ensuring integrity in every aspect of corporate behaviour
PROFIT
Purpose: Concentrating on what the business excels at and its strategic objectives
Return: Generating solid financial outcomes for stakeholders
On Financial: Keeping an unwavering focus on profitability and fiscal health
Intangible Tangibles: Recognising the value of brand reputation and workforce excellence
The last pillar deserves a sentence. "Intangible Tangibles" is an intentional paradox: the assets that do not appear on the balance sheet (the founder's reputation in their sector, the loyalty of a senior technician who has been with the business for eighteen years, the supplier relationships that survive a change of ownership because the transition was handled honestly) are frequently the most important determinants of whether the acquisition holds its value. We try to name and track them rather than pretend they do not exist because they resist quantification.
For more about CARE-PROFIT visit: wadcap.com/care-profit
What It Looks Like in a WAD Portfolio Company
Theory is cheap. The more useful question is what CARE-PROFIT actually changes in the first twelve months after an acquisition.
Start with the observation phase. WAD's post-acquisition philosophy begins with deliberate restraint: no restructuring, no immediate process overhauls, no announcements about the new direction. The incoming CEO spends the first weeks understanding what the business is before deciding what it should become. This is directly connected to Community and Ethics as operating principles. A founder who built a 30-person business over two decades has a relationship with their staff, their clients, and their local suppliers that cannot be read off a due diligence data room. Walking in on day one with a transformation agenda signals that you did not actually care what you were buying, only what you could turn it into.
In practice this means things like: attending the weekly operations meeting as a listener before taking the chair. Reviewing the last three years of staff turnover by department before drawing conclusions about management quality. Mapping supplier relationships by duration before deciding which contracts to renegotiate. These are not CARE-PROFIT checklist items in any formal sense: they are what operating with genuine regard for the business's existing community looks like when translated into a Monday morning.
The Intangible Tangibles pillar shows up in how we handle the founder handover specifically. According to European Commission data, roughly half of European entrepreneurs are expected to retire within the next decade, and across the EU, SMEs represent 99% of all businesses and roughly two-thirds of total employment. Most of those handovers will be managed by people who have never managed one before. The risks are well documented: client relationships anchored to the founder's personal network, institutional knowledge that exists only in one person's head, staff loyalty that was personal rather than organisational. CARE-PROFIT does not solve these problems by naming them. It solves them by keeping them visible as tracked risks with named owners rather than letting them dissolve into a generic integration checklist.
On the financial side, Purpose and Return as pillars mean something specific in a Belgian SME context. These are not businesses being acquired for multiple expansion or roll-up arbitrage. WAD targets companies in the €1–5M EBITDA band with stable cash flows, genuine market positions, and a succession problem as the primary challenge. The financial discipline CARE-PROFIT enforces is about maintaining and compounding what already exists: protecting margin, investing in digitisation as an enabler rather than a disruption, and building governance structures that allow the business to function without the founder's daily presence. Annual ESG reporting with tailored KPIs and active board participation follow from this: not as compliance, but as accountability infrastructure for the commitments we made at acquisition.
Why This Matters If You Are Considering a Sale
A Belgian founder evaluating buyers will be offered a range of acquirers whose commitments to responsible ownership exist at varying levels of specificity. Some will mention ESG in passing. Some will cite SFDR classifications. Very few will be able to explain, in operational terms, what their ownership philosophy produces in the first year of management.
CARE-PROFIT is our attempt to make that answer concrete enough to hold us to. Not because it is a better acronym than ESG, but because the businesses we acquire deserve a framework designed for their scale, their community relationships, and their actual complexity. Not one borrowed from a context where the primary audience is a Bloomberg terminal.
If you are working through what a responsible succession looks like for your business, the /care-profit page on our site sets out the full framework. Our disclosure documentation covers the regulatory layer (SFDR compliance, investment practices, and data governance) for those who need that level of detail.
