As the world pursues its climate change goals, small and mid-sized businesses have a critical role to play; indeed, without them, we have no hope of turning its ambitions into reality. But while SMBs themselves recognise the imperative, many feel ill-equipped and poorly supported to respond.
We explain how SMBs can overcome the challenges standing in the way of sustainability by building the business case for change – and harnessing some of the new technologies that enable a green transformation
By David Prosser
Small and mid-sized businesses sometimes assume the sustainability agenda isn't one they need to grapple with – or that it's too difficult for them to tackle. But the business benefits of enhanced sustainability are too valuable to ignore.
As an SMB owner, you may have thought that sustainability is the playground of governments, policy tanks and big business – not SMBs. You may have also found it too difficult or complex to navigate. If so, you're certainly not alone. But becoming sustainable is for everyone – and it's not just a nice-to-have, it can have transformative business benefits for SMBs.
"Small firms can adapt much more nimbly than large corporates, and many are finding opportunities within the climate change agenda, turning something which can feel regulatory and imposed into wholly new business activity," says Martin McTague, national chair of the UK Business Climate Hub. "Others are seeing how early action is reducing their bills, as well as their energy use."
One recent survey found that 67% of SMBs have begun to build environmental and social considerations into their business strategies – but 90% of large corporations have made the leap. Still, there are good reasons for this. It's not that SMB owners and managers are less committed to sustainability; rather, they're struggling to put it into practice in their businesses. A study from the SME Climate Hub found lack of skills and knowledge (cited by 63%), funding concerns (48%) and time pressures (40%) were the main reasons why SMBs have been slower to act.
The good news is there is plenty of help available for SMBs looking to close talent gaps and augment their resources. The SME Climate Hub provides a range of free support aimed at helping businesses to cut carbon emissions and take climate action. The Carbon Trust offers certification standards, resources, and support for sustainability initiatives. Organisations such as Energy Saving Trust, Investors in the Environment and Green Mark offer other types of assistance. Many of SMBs' existing partners – including Sage – can also help in different ways.
Industry peers also offer valuable insight, suggests Alex Veitch, director of policy at the British Chambers of Commerce. "Many SMBs value peer-to-peer learning and we'd encourage more businesses to share best practice," he says.
The commercial case for change
The bigger issue might be finding the impetus to act. The list of challenges facing SMBs continues to grow – from rising costs to the need for digital transformation. Why should SMBs prioritise sustainability above any of their other concerns?
The short answer is because doing so will be good for your business in multiple ways. The benefits of sustainability for SMBs go well beyond a feeling that you're doing the right thing.
Start with the potential to attract more customers. For consumer-facing businesses, research from PwC makes instructive reading – last year, it found people in the UK were prepared to pay a 9.7% premium for sustainable goods, despite the pressures of the cost of living crisis. "Consumers are prioritising products that are sustainably produced and sourced," says Sabine Durand-Hayes, global consumer markets leader at PwC.
For SMBs that sell to other businesses, meanwhile, it is becoming increasingly difficult to clinch sales unless you can provide evidence of your track record on environmental, social and governance (ESG) performance. Many public sector organisations now mandate this. If your business doesn't hold environmental standards, such as ISO 14001, for example, there's a good chance it will fall foul of regulatory or contractual requirements. You won't even get the opportunity to tender for work.
Next, think about your workforce. Growing numbers of people want to work for organisations that share their values. More than a quarter of job applicants now check on an organisation's sustainability practices before submitting their applications, one recent study found; among millennial applicants, the figure was 39%. Greener businesses not only find it easier to recruit; they are also more likely to keep staff – research from Lloyds Bank suggests strong sustainability practices boost employee spirit and engagement, supporting staff retention.
As for the cost of sustainability, it's very possible you'll make positive returns on your investment from reduced waste and lower operating costs alone. The Energy Savings Trust has calculated that the typical SMB could reduce their energy bills by up to 30% by making simple changes such as switching off equipment not in use and keeping windows closed. Investment in energy efficiency technologies from LED lighting to heat pumps could lower bills further. More efficient manufacturing processes can reduce waste – cutting your waste management costs – and drive improved productivity.
In addition, investing in sustainability will potentially reduce your cost of capital. Many lenders, for example, are willing to offer more competitive terms to businesses that meet environmental criteria. The green bond market is growing at pace. Equity investors are also increasingly favouring responsible business practices.
Nor should SMBs overlook the growing regulation linked to sustainability. Businesses not set up to avoid energy taxes, transport levies and pollution duties, for example, will pay increasing penalties. And slowly but surely, governments are extending sustainability disclosure rules to require more smaller businesses to publish detailed information on their carbon footprints.
More broadly, these changes can also boost SMBs' ability to manage disruption. The insurer Generali, which has just completed a study of 1,260 businesses across Europe, says its research suggests a strong link between sustainability and resilience. "[The research] underscores the importance of integrating sustainability considerations into the business activities of European small and medium-sized companies," says Generali general manger Marco Sesana.
Another plus point is that sustainability also often goes hand in hand with innovation. The need to reduce your carbon emission can prompt thinking about new ways of operating, new processes and new products – all with the potential to drive efficiencies, open up new markets and attract new customers.
The role of technology
A broad range of new technologies can help your SMB to reduce its carbon emissions – and to secure many of the business benefits of enhanced sustainability already discussed. "SMB are increasingly use digital tools to enhance sustainability," say Marco Bianchini and Marta Lasheras Sancho, authors of a new OECD report on SMB digitalisation.
Simply updating office equipment – including both software and hardware – could help. It is likely to be much less power-hungry than outdated equipment.
In addition, green kit such as smart meters and sensors can help you monitor your physical environment and automatically manage your building controls to minimise wasted and reduce energy consumption. Energy efficient equipment, including lighting and heating, will provide a further boost.
Moving to become a paperless office – through greater use of digital files and data storage, for example – will also make a significant difference. The World Counts says as much as 50% of business waste is connected to the unnecessary use of paper.
Cloud computing could also offer additional gains. While concern about the environmental impact of data centres is increasing, this infrastructure uses less energy than on-premises set-ups – and technology companies are beginning to take positive action to reduce impact further. Microsoft claims cloud-based systems can be up to 93% more energy efficient and up to 98% more carbon efficient than on-premises IT.
Another possibility is to make greater use of technology to embrace hybrid working and other forms of flexible employment – this may enable you to reduce the carbon footprint of your buildings.
None of these solutions are mutually exclusive, but nor do SMBs have to move forward with them all at once. Even small initiatives will have paybacks – and that may help build the business case for further advances.
