How SMEs can contribute to the sustainability imperative — Lionesses of Africa

Impact Partner Content / Absa / by Vishay Rabbipal, Head: Renewable Energy, Retail and Business Banking

All-encompassing solutions for the green transition implies two intertwined policy objectives – inclusive growth and green growth. Put in a different way, it begs the question: How can we achieve environmental objectives and at the same time deliver inclusive and widely shared economic growth? 

Small and medium-sized enterprises (SMEs) are important stakeholders in the answer to this question, given their contribution to global economic activity, social wellbeing and the country’s environmental footprint. SMEs play a key role in South Africa’s economic growth and have been identified as productive drivers of inclusive growth, job creation and skills development in South Africa. In South Africa, it is estimated that SMEs make up 91% of formalised businesses, provide employment to about 60% of the labour force and account for roughly 34% of GDP in terms of total economic output. While contributing significantly to the economy, SMEs foster diversification through the development of new and unsaturated sectors of the economy. In addition, innovative and technology-based SMEs can provide a platform for local, regional and international growth.

SMEs’ participation in sustainability

Although SMEs comprise a large part of the local and global economies, their involvement in sustainable initiatives is lacking, because only a few of them have adopted and integrated sustainability principles in their business strategies and daily operations. Nowadays, in a complex, competitive and volatile business environment, the adoption of sustainability principles is of utmost importance for the steady and sustainable growth of SMEs and, to a large extent, their survival would depend on the adoption. Growth of SMEs and the success of the sustainability are interdependent, as the success of sustainable initiatives requires SMEs to adopt sustainable practices and they cannot achieve sustained growth without integrating sustainability principles into their business strategies. SMEs have the potential to become the foundation of the domestic and global sustainability agenda and ensure its success. To successfully integrate sustainability principles and practices within the SME business culture, SMEs should understand the emerging opportunities and their relevance, specifically to them. 

In many cases, the message of the sustainable development goals (SDGs) has not reached SMEs, and often they are not aware of the brave sustainability decisions that they are already implementing. SMEs often struggle to identify how they can use sustainability as a force for growth and to adapt to megatrends such as increased globalisation, digitalisation, the new industrial revolution, the changing nature of work and demographic changes. 

According to Global Reporting Initiative’s (GRI’s) Sustainability Disclosure Database, sustainability reporting by SMEs accounted for just 10.22% in 2017 and 15% in 2018 of the total number of sustainability reports captured during the year, and this figure has remained almost the same over the past seven years. So, why has sustainability not entrenched in SMEs? The reasons are numerous and vary by country and sector:

• A lack of awareness among employees about the importance of sustainability

• A lack of awareness of business owners about the benefits of sustainability practices

• Limited/No access to affordable financial resources

• Inadequate and insufficient skills and management developed practices

• A lack of information regarding how to implement sustainability practices

• The interference of intended sustainability initiatives with other business initiatives

• Integrating sustainability measures is a long journey.

If there are any doubts about how important sustainability is to SMEs, one needs to only look at how their customers are changing their attitudes. Increasingly, customers are looking at the environmental performance of companies from which they buy, and are often drawn to firms that emphasize sustainable business practices.

Key elements for implementing sustainable business practices in SMEs

Strategy and planning

1. Take a broad view of sustainability. Understand the key sustainability drivers and opportunities for your organisation. As important as they are, remember to look beyond environmental issues. Finding innovative ways in which your company can be a good corporate citizen to the benefit of employees, customers and suppliers will yield benefits to your business.

2. Define in detail what sustainability means to your company. With a clear definition to which everyone in the company can refer and with clear success measures, any efforts to invest in sustainability or change business practices will focus on the right goals.

3. Engage all stakeholders. Talk to customers, suppliers, investors and employees about sustainability, so that their voices can be heard, and the strategy that you develop will be able to address all their needs. Include them and get as much of their weight behind the strategy as possible.

Execution and alignment

1. Remember that you are not alone. International, national and industry-wide initiatives that help businesses become more sustainable, exist. Engage with these organisations and tap into their knowledge and experience. This way, implementing a sustainability strategy will be quicker and easier.

2. Establish responsibility and communicate widely. The delivery of any strategy is more successful if an organisation knows who is in charge. Have management drive the policy, appoint sustainability champions and communicate the importance of sustainability to every employee of the company.

3. Take it step by step. Becoming more sustainable is habitually a process of evolution, not revolution. By making small changes now, a company can effect significant changes in the future.

4. Walk the talk. Any company can talk about being more sustainable, but if it does not back up its words with meaningful actions, its claims will quickly be regarded as false. Customers and investors are wise to greenwashing, and hence, never make the mistake of seeing sustainability as a marketing exercise.

Performance and reporting

1. Tie sustainability to profit. Becoming more sustainable often means being more efficient. Resource efficiency, for instance, benefits the environment and reduces the cost of running a business. Make the link between consuming less water and electricity (or producing less waste), and improving profits clear within your business.

2. Measure, monitor and review. Tracking the progress towards the goals of a sustainability strategy is vital in justifying and in fully understanding the commercial benefit that the strategy brings. Develop clear metrics, review them regularly and, whether progress is fast or slow, keep setting realistic, attainable targets.

3. Invest in the future. Investing in sustainability does not always require huge capital expenditure. Many SMEs say the biggest investment is time.

There can be no doubt that sustainability has become an important priority for many businesses across the globe over the last decade. Leading companies have recognised that successful sustainability performance translates to successful business performance, but sustainability means so much more than reducing greenhouse gas emissions or improving energy efficiency. It also means that businesses are becoming more involved in their local communities and setting long-term goals that go beyond the next quarter’s financial results. Discussions about the benefits of a sustainability strategy to business have often been framed in the context of large, multinational companies, but smaller businesses are also making great efforts to become more sustainable. In many cases, SMEs can also lead the market and become champions of sustainable business practices. SMEs’ role is of tremendous importance to fulfill the sustainability agenda and the relationship between the success of SMEs and sustainability is irrevocably tied.