It was a bandwagon that every large business wanted to join, but passed most SMEs by. In 2007, before the stresses of the financial crash turned attentions elsewhere, a string of large companies vowed to make their operations more ethical and environmentally-friendly. Sustainability was the name of the game, championed by the likes of Marks & Spencer, which pledged to cut waste, reduce its carbon footprint and trade ethically as part of its ‘Plan A’ agenda. Even Tesco committed to change the packaging of all of its 50,000 own-label products, detailing the carbon footprint of each.
But fast forward to 2014, and many have dropped their grandiose ambitions. M&S stills maintains Plan A as a central plank of its marketing, but Tesco quietly ditched its carbon labeling initiative several years ago, saying it was too complicated. And, as sustainability has ebbed and flowed in the public consciousness, SMEs have remained strikingly quiet on the issue.
Over the coming weeks, expect the issue to come to the fore again – today marks the start of Fairtrade fortnight, promoting the idea that farmers and suppliers should be paid a reasonable price for their output. But the event is not just about supporting fruit growers in poorer countries, it also seeks to celebrate businesses in the UK that adopt fair-trade practices and operate on a sustainable basis.
But why are so few of them SMEs? When it comes to green and ethical practices, smaller companies are lagging behind their larger brethren. A study by the accountants’ body ACCA found that of small and medium firms in the European Union, only 29 per cent had introduced measures to save energy and materials, compared with 46 per cent of larger enterprises. And only four per cent of small businesses had a comprehensive energy efficiency system. In fact, the ACCA research concluded that SMEs “are simply not realising the strategic advantages of their current or potential sustainability activities.”
Now, many people running SMEs would probably ask why they should bother. Haven’t they got enough to worry about already? And, while all of this talk of sustainability sounds nice, what difference does it make to the bottom line?
In fact, there are plenty of good reasons for building issues under the broad heading of sustainability into your business strategy – not simply because it gives a comforting, fuzzy feeling of doing the right thing. It makes good financial sense. Adopting sustainable business practices can:
- Improve profitability by cutting costs;
- Give a competitive advantage in securing public sector contracts; and,
- Provide an important marketing tool in attracting consumers.
Unlike the big beasts of the business world, SMEs start out with the huge advantage of being nimble and unbureaucratic – smaller organisations can be fleet of foot in implementing change. And there could be comparatively simple things that you can do in the workplace that could result in cost savings and better working practices at the same time as improving your company’s green credentials. Encouraging staff to seek ways of reducing waste, for example, saves money as well as fitting with the sustainability agenda.
But how can you get started? Corporate social responsibility consultant Elaine Cohen has offered some tips to SMEs looking to become more sustainable in her book Sustainability Reporting for SMEs: Competitive Advantage Through Transparency. She advises:
- Make time to discuss with key people and employees how you might identify the social mission of your business. What do you want to achieve beyond making money? It could be energy efficiency, ensuring the quality or provenance of your products, or how you treat your staff. Consider how these might be communicated externally to the company’s advantage, and the impact such changes may have on profitability.
- Consider the expectations of key stakeholders, such as customers, employees, suppliers and investors. Take into account their priorities when you’re drafting your sustainability plan.
- Measure your performance in terms of sustainability over the course of 12 months. Choose the most relevant indicators to evaluate, be that energy consumption, staff turnover, or gender diversity.
- Make a plan of action, having chosen a realistic handful of goals to attain over the next couple of years. Are they in line with your business objectives? Identify an individual internally who will be responsible for measuring your progress.
- Communicate your sustainability achievements with the relevant people, such as suppliers or investors, and the wider world through your website, social media, and elsewhere. Cohen recommends that SMEs writing a report for the first time look to the Global Reporting Index Level C as a starting point.
Financial help is at hand for those on a sustainability mission. Investments in certain energy-saving plant and machinery qualify for enhanced capital allowances when calculating tax. The entire cost of the investment can be claimed against taxable income in the year when the cost is incurred, as the HMRC website explains. Plus, any reduction in energy costs will boost future profits.
But there are arguments for seeking external advice. An impartial outsider can help introduce a degree of rigour in trying to improve business practices. So where can businesses go for help?
- Accountants have been encouraged by their professional bodies, ACCA and ICAEW, to help clients develop sustainability strategies
- The Carbon Trust offers advice on cutting CO2 emissions
- There are a number of independent businesses, such as Sustainable Opportunity Solutions that provide consultancy services to SMEs seeking to implement better practices
A study carried out for the Department of Environment, Food and Rural Affairs suggested that SMEs who had adopted a recognised environmental management system (EMS) – a formal process for monitoring and improving environmental impact – saw a rapid payback for their efforts. The cost of the EMS was, on average, recouped within three months. Furthermore, more than a third of the companies studied reckoned they had achieved extra sales as a result of having an EMS in place.
Also, showing a commitment to environmental and social issues can give an advantage over rivals when bidding for contracts with central and local government. This principle has been enshrined in law since last year when the Public Services (Social Value) Act came into operation. Its stated aim is “to require public authorities to have regard to economic, social and environmental well-being in connection with public services contracts.”
Crucially, for companies selling directly to the public, showing concern for environmental impact and responsible sourcing of goods can sit at the heart of a marketing policy. Put simply, the public wants to know that the firms with which they engage are doing the right thing. Take the hospitality industry as an example. The Sustainable Restaurant Association (SRA) offers advice on how to raise standards in sourcing, the environment and engagement with the community. It points out that reducing waste often saves money, but that there is a marketing benefit, too. The SRA will measure an outlet’s performance against 14 different benchmarks, and the restaurant is awarded a number of stars, giving the public a measure of the restaurant’s commitment to the sustainability agenda.
So, while large companies have led the way, SMEs needn’t hold back from making a commitment to sustainability – and making that commitment public. Choose goals that are easy to communicate, that are achievable, and that you truly believe in. A cynical approach to these matters rarely fools anyone and could do your business’ image more damage than good. Being sustainable is a commitment any business – large or small – can make. And it is one that can reap financial rewards.
Image courtesy of Naypong / FreeDigitalPhotos.net