SMEs and environmental/social impacts

aksaroya —  27 September 2012 — Leave a comment

By James Bonner, independent sustainability consultant

It is not surprising that the majority of initiatives devised to incorporate environmental and social issues into business processes, and indeed pressure to adopt such programmes, are predominately aimed at large corporations and multinationals. Such sizeable organisations clearly have significant impacts on the environment and wider society, and furthermore are motivated to protect their brand and reputation, which can be at risk if such issues are neglected.

However, it is important to consider that social and environmental impacts are interconnected, complex and cumulative, and the effects they have, whether positive or negative, are a result of how society and the natural environment are treated as a whole/and by everyone (consider the feedback loop of natural capital in the blogpost ‘Natural capital as a material issue’). As such, the impacts of all of society, and furthermore all types of commerce – from individual traders to the largest multinationals – impact and affect social and environmental issues, to some extent, through their activities.

The European Commission state that ‘SMEs [Small and Medium Enterprises] are the backbone of the European economy and their contribution is essential for pursuing the EU goals towards sustainable growth’. However, the Commission goes onto discuss that while SMEs have a significant environmental impact (responsible for 64% of pollution in Europe) they find it more difficult to comply with environmental legislation than large companies. Such a viewpoint is echoed in a number of other studies (including from an Australian paper which agrees that ‘SMEs lag behind their larger counterparts in terms of environmental activeness and performance, and therefore require assistance to improve this area of their business operations’).

Additionally, while not implying that large organisations have become ‘sustainable’, or cannot do much to reduce their impacts, it is fair to say that a number of large companies have progressively undertaken steps and measures to improve their social and environmental performance (from CSR reporting to stakeholder engagement, partnerships to environmental management systems). It could be argued that there are ‘diminishing returns’ from focusing on such bodies – that while continued pressure and improvements to their business operations will reduce their sustainability impacts, more effective and sweeping benefits could be achieved by targeting smaller business entities that do much less to tackle such issues.

Furthermore, as they are increasingly required/expected to disclose their wider sustainability impacts, the significant environmental and social impacts of large multinationals are not necessarily a result of their own operations or activities, but hidden in their supply chains. Whether unsustainable environmental activities of suppliers of raw materials (e.g. in electronics manufacturing) or the unethical labour practices of production which is outsourced (e.g. in retail and clothing) – the really damaging environmental and social impacts can be from the small and medium companies which perform these activities for them as part of their wider supply chain, but do not garner the same attention/scrutiny as the large multinationals themselves.

With a changing global economic landscape, and a focus on stimulating new growth and economic development in many national economies, there is potentially an opportunity to engage with SMEs and entrepreneurs who are attempting to start out to set in place business models and processes which incorporate and integrate social and environmental considerations from the outset.  By informing/providing guidance on the benefits of considering such sustainability issues (reduced costs, enhanced reputation, new markets), and the potential costs of ignoring them (legislation, taxes, loss of customers), SMEs can be, like their larger counterparts, encouraged to manage their environmental and social impacts.

This blog post intends to primarily support ACCA’s Accounting for the future session ‘Practical Workshop: methods for SMEs to consider- environmental and social issues’ on Tuesday the 9th of October by discussing the social and environmental impact of SMEs- issues that, along with initiatives available that are focused on SMEs, will be discussed in greater detail in the session.

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