WHO IS THIS GUIDANCE FOR?
This guidance is for those who own or work in Small and Medium-sized Enterprises (SMEs), and for those small and medium-sized practitioners who advise them. We have heard a lot about sustainability and climate change in recent years, but how do these issues relate to running a small business in difficult times, and how familiar are you with what they mean in practice? The aim of this guidance is to help you – as an SME owner, employee or advisor – to see how you can embed sustainability in your business and understand its benefits.
WHY IS THIS IMPORTANT?
The active involvement of SMEs in response to the environmental and social challenges we are currently facing is crucial if national policy goals of sustainable development are to be achieved.
In most countries, the majority of businesses are SMEs which contribute to the creation of jobs and overall economic wellbeing. They represent about 90% of businesses and more than 50% of employment worldwide. SMEs, by virtue of their prevalence and collective economic importance, are every bit as relevant to the issue of sustainable development as larger organizations. SMEs account for an estimated 70% of industrial pollution in Europe and produce 29.7 million tCO2 of emissions across Southeast Asia annually. Governments are establishing ambitious targets and policies to reduce greenhouse gas (GHG) emissions and achieve more sustainable economies that are less reliant on fossil fuels. The SME sector is appreciated as key to making real progress in this area.
Sustainability issues are already affecting SMEs. As an SME, if you do business with large companies or public bodies, you are part of an extended supply chain. As a result, you may be expected to follow prescribed procedures and practices in a number of areas, including sustainability. Raising finance may be dependent upon addressing conditions laid down by the lender regarding sustainability issues. Further, there may be opportunities for you as a business to help tackle a range of social and environmental issues.
Research suggests that there is real potential for SMEs to expand their activities in the area of sustainable business and benefit the wider economy. Research by E.ON in 2020 found that the pandemic had caused a big shift in consumer behaviour – more than one third (36%) of UK citizens surveyed stated they were buying products from companies with strong environmental credentials, and 80% said they were planning to purchase goods and services from businesses that they knew had made a concerted effort to be “environmentally friendly”.
In the current challenging economic environment, finding ways to reduce use of energy and other resources will deliver both essential financial and environmental savings.
Opportunities for SMEs
Increasing numbers of stakeholders are seeking more sustainable lifestyles and are selecting products or business practices that are more environmentally conscious and sustainable.7 Customers, employees and local communities are now pursuing higher standards and commitments to sustainability from all businesses, including those in the SME sector.
If your SME does business with larger companies and public bodies – or aims to – you will likely find you are expected to demonstrate the steps you are taking to incorporate sustainability measures into your business practices. This is typically formally assessed during the procurement process. Such commitments may also be sought in the process of raising finance and accessing loans.
SMEs may not have the economies of scale experienced by larger businesses, but they have the advantage of being agile and responsive to changing consumer trends, market demands and regulations that dictate changes to business practices. This agility is especially useful in areas such as branding, marketing and product development. The planning and implementation of sustainable business practices presents an opportunity for smaller businesses to reposition themselves creatively within this changing business landscape – a challenge that larger businesses may find more difficult to manage.
Embedding sustainability into your core business practices can add value in many ways, such as through:
- Enhancing your opportunities to conduct business with the increasing number of companies and public bodies that are either required by law to comply with specified standards of sustainability management or have chosen to adopt them.
- Saving on outgoings by focusing on how to improve resource efficiencies in your operations and production processes.
- Gaining a competitive advantage by attracting customers who appreciate businesses with environmentally and socially responsible practices.
- Involving your employees in decisions about how to become more sustainable as a business, which in turn boosts morale and improves job satisfaction.
- Preparing for regulatory changes that may impact SMEs.
- Accessing sources of finance only available to businesses with sustainable practices.
The impetus to integrate sustainability throughout your business model can come from a number of sources that will vary dependent on the structure of your business and the industry it is situated in.