Embracing Sustainability: Actions for SMEs
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.
Sustainable development: The ability to satisfy the needs of the present generation without adversely affecting the conditions for future generations.1
Climate change: Climate change refers to a change in the state of the climate that can be identified (eg by using statistical tests) by changes in the mean and/or the variability of its properties and that persists for an extended period, typically decades or longer.2
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.3 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%4 of industrial pollution in Europe and produce 29.7 million tCO2 of emissions across Southeast Asia annually.5 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”.6
In the current challenging economic environment, finding ways to reduce use of energy and other resources will deliver both essential financial and environmental savings.
What does this guidance aim to do?
This guidance aims to introduce the sustainability agenda to those SME owners, employees and advisors who want a deeper understanding of how it relates to their businesses and how they might seize short- and long-term opportunities from this agenda. This guidance focuses on SMEs and the specific issue of climate change and also shows how support can be provided to SMEs from professional accountants and other external experts. Further resources are identified where more detailed information can be found for any of these issues.
Governments are now committing to changing how the world does business in order to address social and environmental issues. Consumers are increasingly demanding these revisions. Businesses of all sizes need to be aware of the laws and regulations that are progressively reflecting this new direction. While many regulations are directed towards large businesses and those consuming high energy, SMEs will still be affected by this movement. SMEs are an enormous component of the global economy, and their engagement with the changes is seen as crucial if governments are to succeed in their aims.
SMEs that want to do business with large companies and public bodies need to be aware of the obligations that those organizations now have, as they could result in conditions being imposed on their suppliers. SMEs also need to be aware that some larger companies are now choosing to impose their own value conditions on businesses that wish to work with them. Therefore, the SMEs that are part of supply chains need to be prepared to make necessary changes to their practices that will enable them to retain their customers.
In order to encourage the business community to adapt to new and sustainable ways of working, governments and banks are now offering new streams of financial support to SMEs that involve committing to social and environmental improvements. Businesses – including SMEs – that are prepared to address these issues in their working practices are more likely to gain access to potential new sources of finance.
Professional accountants have always played key roles in helping SMEs to achieve profitability, expand and grow, and they are equipped to help their clients cope with the challenges presented by regulatory changes of all kinds. They can help their clients deal with many of the specific measures inherent in the sustainability agenda. As well as helping to manage compliance, professional accountants working in the SME sector are always particularly alert to market conditions and are in a perfect position to advise their clients on how to take advantage of the opportunities of the sustainability agenda.