Role of SMBs in global sustainability goals Globally SMBs are defined by annual revenue as small (less than $50 million) and medium (more than $50 million but less than $1 billion). As per the Ministry of Micro, Small & Medium Enterprises, GOI, Indian SMBs are defined as small (turnover less than 50 crores or approx. $6 million) and medium (turnover less than 250 crores or approx. $30 million).
SMBs typically have fewer employees and limited budgets to operate with. However, whether big or small, companies should aspire to build a reputation based on responsible business values aligned with important stakeholders, just being profitable no longer cuts it.
With a smaller carbon footprint compared to large global enterprises, individual SMBs are often considered small players in the ecosystem of commerce and sustainability. So, then the question arises why should SMBs bother with sustainability and compliance? There are many reasons for SMBs to focus on sustainability, primarily as a segment. As per the World Bank, SMBs represent about 90% of businesses and more than 50% of employment worldwide. And SMBs are typically suppliers to large global enterprises.
SMBs: Their Role in Sustainable and Inclusive Growth
SMBs form a sizable chunk of any economy. For India, the largest SMB market in the world, SMBs currently contribute to 1/3rd of India’s GDP and are expected to grow further by 2024.
● SMBs play a primary role in the value chain of large global companies that typically source raw materials, products and services and in some cases outsource parts of their operations to them. This essentially means SMBs have the power to meaningfully contribute to the achievement of sustainability goals of large enterprises, as well as global sustainability goals
● Responsible businesses become an important part of the ecosystem. When seeking inorganic growth or investment opportunities, big companies, VCs, and PE firms seek to invest in SMBs, and start-ups, increasingly, sustainability and ESG benchmarking is being used as a tool to pick the SMBs to invest in, acquire, and take private/public etc.
● While this already happening to a smaller extent, it’s safe to assume that in the future be it for awarding contracts or mergers & acquisitions sustainability and ESG performance will be important evaluation criteria.
Although climate change action and investments need to be increased rapidly to achieve the goals of the Paris Agreement, the years since it's been ratified have already sparked low-carbon products and services and new markets. More and more countries, regions, cities and companies are establishing carbon neutrality targets. Zero-carbon solutions are becoming competitive across economic sectors representing 25% of emissions. This trend is most noticeable in the power and transport sectors and has created many new business opportunities for early movers. By 2030, zero-carbon solutions could be competitive in sectors representing over 70% of global emissions.
By taking strategic decisions and proactive data-driven actions SMBs can make a significant impact on the achievement of these goals. SMBs are an important player in the ecosystem enabling the green economy.
SMBs and Sustainability: The impact across business, industry and community
Stakeholders, especially consumers, are increasingly seeking companies that are mindful of the impact that their practices, products and services have on the environment, society and local communities.
Let's look at the potential benefits of SMBs joining the sustainability bandwagon.
● Path to profitability: Consumers perceive companies as accountable when they follow compliance. It attracts customer loyalty leading to wider acceptability in the market. The higher revenue volumes can offset the costs associated with sustainability
● Optimum energy utilization: Energy efficiency provides cost benefits. Additionally, clean and renewable energy sources help reduce emissions.
● Setting industry standards: Many SMBs are also start-ups that are closer to the customer in the value chain. Progressive SMBs and startups are quick reading and responding to customer, consumer and community sentiments and are also able to influence decision-making in big corporate customers. SMBs are thus influencers and can be trendsetters and harbingers of innovation and transformation
● Brand & reputation: Leading with sustainability helps strengthen the brand & reputation with all key stakeholders, not just customers but young employees increasingly want to work for sustainability-focused high performers, it creates a sense of belonging and pride in being associated with brands that believe in making a difference and that exist for a larger purpose. As per the results from the National Technology Readiness Survey 2022, done by Responsible Business Coalition, Fordham University, nearly 50.4% of consumers evaluate the product's lifetime impact on the environment, including recyclability.
Challenges for SMBs in adopting sustainability and compliance goals?
● Limited Funding: SMBs usually work under constant margin pressures and see sustainability and related compliance as a cost and not a revenue driver. SMBs need to recognize that Sustainability initiatives increase profitability, and force SMBs to be more efficient, use less energy, and produce less waste
● Time & skills constraints: Managing sustainability data and addressing the reporting needs of stakeholders such as large customers exposes the dual limitations of bandwidth and subject matter expertise. Data automation, integration, transformation, performance management and templatized reporting at an affordable price form the solution for these challenges
● Greenwashing: Greenwashing is a rapidly growing challenge, especially since today a lot of the sustainability reporting is driven by trust rather than regulatory compliance. SMBs should anticipate stricter global regulatory regimes and proactively engage in creating a culture and value system that is based on integrity, transparency and the use of technology to provide auditable, verifiable data and reporting performance against goals & targets
Progressive customers and early adopters can be an inspiration for SMBs to view progress around sustainability as a competitive differentiator and less as a bothersome challenge. Step one in the process is to use technology to manage data, make decisions, improve performance and become transparent in engaging with stakeholders with KPIs that reflect excellence in sustainability performance.
How Treeni Can Help
An affordable technology platform, automation and templates, combined with advisory services will help SMBs take their first step in their journey to sustainability excellence. Treeni offers a consulting-led approach to help small brands reimagine their sustainability strategies and minimize ESG risks. With Treeni’s resustain™ SMB platform, small firms can transform their data, customize workflows and create a sound roadmap to achieve their goals and targets and enhance their brand & reputation with all stakeholders.