Sustainability Guide for SMEs
The coronavirus pandemic has played a huge role in publicly highlighting the impact business practices have on the natural environment and ecosystems across the globe. With many operations being temporarily halted, there have been reports that, at their peak, the average global carbon emission levels per country decreased by up to 26%.
As governments across the world look to become – more sustainable and set targets to reduce carbon emissions in the coming decades, there can be no understating the role SMEs have to play in this transition – including those right here in the UK.
In fact, SMEs could look to get excited by the new opportunities this environmental shift may bring. From unlocking new technologies within the electric vehicle space to exploring the new revenue streams that could be opened up through smarter waste management, businesses across the UK could stand to benefit from embracing a modern approach to sustainability.
That’s why this article will help to get SME owners up to speed on how sustainability impacts businesses, by:
- Defining sustainability for businesses.
- Explaining why sustainable initiatives are worth exploring for SMEs
- Outlining which sustainability laws are currently being discussed by the UK government.
- Recapping key findings from the global climate change conference COP26.
- Suggesting how you could start to implement sustainable practices.
What is sustainability in business?
Sustainability is about looking at your business’ operations holistically and assessing whether they’re having a net positive or negative impact on the environment. In an unsustainable business, natural resources are depleted at a faster rate than they can be replenished – and it’s this type of activity that world leaders want businesses to move away from.
Examples of bad sustainability practice within a business include:
- Excessive carbon emissions through poor operations management or within the supply chain.
- Overuse of unsustainable resources (e.g., fossil fuels vs. renewables, single-use plastics).
- Production of unrecyclable waste, which also increases business costs.
- Selling products that create sustainability issues for the end user (e.g., that have a high carbon footprint when in use, are non-recyclable at end of life, or are non-repairable leading to unnecessary disposal/replacement).
Conversely, good sustainable practice involves looking for opportunities to minimise any damaging activity, for example by sustainably sourcing goods and raw materials, and even working to improve the environment with carbon-negative products.
There’s also an education piece around sustainability; given that it’s a constantly evolving field, it’s important to learn about the latest innovations in the field and encourage team members to embrace a modern mindset. Let’s take a look, though, at some of the implications sustainable practice could have for an SME.
Why is sustainability important to businesses
Perhaps the most obvious reason is that the introduction of new types of legislation that push businesses towards carbon neutrality is actively being discussed, as well as potential taxes for SMEs with unsustainable practices. Some carbon laws already exist, such as low carbon emission zones which affect how hauliers operate, but the introduction of a new suite of laws that are likely to impact the majority of SMEs has been discussed at the UN Climate Change Conference (COP26). The conference was hosted in Scotland from October 31st, 2021.
In future, we may see SMEs paying a cost for their carbon emissions under new legislation, or an expansion of the Carbon Emissions Tax to include SMEs rather than only large corporations. That’s not all though. Beyond legislative impacts, here are three key reasons why sustainability is important in business.
We’ve also seen moves to make manufacturers ensure that their products become more sustainable for consumers, including the new ‘right to repair’ legislation and energy-efficiency regulations.
1. Sustainability can impact profitability
Sustainable thinking can unlock new revenue opportunities for SMEs and help them position competitively within their marketplaces. Some great examples of businesses with sustainable products that NatWest has partnered with include:
North Star Coffee Roasters
North Star founded their roastery on the grounds of there being a lack of options for sustainably sourced speciality coffee outside of London. Priding themselves as an ethically conscious brand, North Star developed a robust business model which sought to pay coffee producers a fair price for growing and processing coffee, while also paying baristas well to boost staff retention despite a high industry turnover.
Smart Group Scotland
Smart Group is a construction company from Scotland. Its founders spotted an opportunity to bring a sustainable ideology to the construction market, and so it embarked upon a journey of offering renewable technologies to customers as part of its construction, renovation, and maintenance services operation.
Some opportunities for UK SMEs could be found by exploring how their current offerings could be expanded, or how they could pivot to support the inevitable trend toward carbon neutrality. One great example of this is EV8 Technologies; a company which aims to simplify the process of going electric for UK businesses. It does this by offering an app and consulting service that helps businesses with company cars understand exactly how making the electric shift would affect their profitability – helping them spot the potential value in the electric vehicle market.
So, introducing a sustainable product could bode well for many UK SMEs. However, if this isn’t an option, it’s also worth considering how operations could be expanded to become more sustainable. For example, looking at how to best recycle business waste may create new revenue streams, and opportunities in general could become easier to spot when business owners:
- Embrace a sustainable mindset.
- Educate the business on the core principles of sustainability, including legislation.
- Keep an eye on how other SMEs innovate in this space.
Beyond profitability, though, SMEs may also want to consider how their customers feel about sustainable (and unsustainable) business practices.
2. Consumers are demanding to see green policies
A 2020 study by Circular revealed that 80% of consumers are ‘planning to purchase goods and services from businesses they know have made a concerted effort to be environmentally friendly’. If a consumer were to face a choice between two similar products at similar price points, knowing that one business sources their goods sustainably while the other does not – which one do you think they’d choose to buy from?
You could argue that greener products are typically slightly more expensive, which may be true at face value – however as we’ve identified already, sustainable thinking goes beyond sourcing products from the right companies. It can involve reassessing your business model, finding revenue opportunities, and connecting with your customer base through shared sentiments.
If you are able to source goods ethically, practical ways in which you can make the most out of your efforts include showcasing them in your marketing activity and publishing an environmental policy on your website.
3. SMEs have an important role to play in reducing global carbon emissions
The Federation of Small Businesses claims that 99.9% of the business population in the UK is accounted for by SMEs. Naturally, then, SMEs have a huge role to play in reducing carbon emissions and ensuring that successful business operations do not come at the cost of environmental health.
As we’ve discussed, it’s possible to become more sustainable, successful, and better respected by consumers simultaneously, so it will be interesting to see which business leaders step up and take responsibility for implementing sustainable policies in the coming months and years.
COP26 summary: the UN’s global climate change conference
One key milestone for good sustainable practice that may impact businesses across the world as well as those here in the UK was the COP26 climate change conference, which was hosted in Scotland from October 31st – November 12th, 2021.
The primary focus of the conference was on the race to reach net zero, which involves businesses reducing their carbon impact to a point whereby they’re having a neutral impact on the environment. Interestingly, UN data reveals that 130 countries have either set or are considering a net zero target by 2050.
Perhaps even more interestingly, FTSE100 companies from the UK have already started pledging to becoming carbon neutral, with 60 having pledged already. The market capital these companies represent totals over £1.2 trillion, so any sustainable initiatives they implement are likely to impact the economy in a practical sense, and to set a strong example for the rest of UK businesses. It’s also worth noting that in April 2022, it will become mandatory for Britain’s largest businesses to disclose their climate-related risks and opportunities.
As sustainability initiatives become more commonplace, we could well see a trading landscape developing in which smaller businesses that cannot implement such policies struggle to build partnerships with larger organisations – which face increasing pressure to uphold environmentally friendly standards.
How can SME owners get started?
So, if you’re an SME owner and looking to become more sustainable in your operations, how could you get started? Here are some quick actions you could take to kickstart your sustainability program:
- Have a conversation with your team about the concepts we’ve discussed today and pool ideas.
- Review your business’ operations, including waste and processes, to look for efficiencies.
- Assess whether your supply chain is likely to be impacted by environmental legislation, such as an emissions tax.
- Ask yourself whether your partnerships reflect the green standards your business is holding itself to. For example, are you procuring goods from the right suppliers?
- Measure the cost of your waste and see if this could be reduced. There could potentially be advantages for businesses who mobilise on the sustainability front to become more profitable, better liked by their customers, and quicker to reap any future rewards that may come about by developing a more sustainable infrastructure and operation. If you’re in need of more ideas, you can read more sustainability tips from NatWest.