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Why Sustainability Matters to SMEs

BY Rapid Cash
19 Apr 2021

Why sustainability matters to 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%.

That said, there’s no indication that global warming is slowing down, and the notion of reversing climate change isn’t even on the horizon. So, governments and organisations around the world are taking steps to promote sustainable behaviours through education and legislation, and this is likely to directly impact UK SMEs – potentially within the next year.

In this article, we’re going to explain why sustainable initiatives are worth exploring for SMEs – and what sustainability laws are currently being discussed by the UK government.

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.
  • Overuse of unsustainable fuel sources (as opposed to renewables, for example).
  • Production of unrecyclable waste.

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 SMEs

Perhaps the most obvious reason is that there’s a good chance of legislation being introduced that taxes SMEs for unsustainable practices. While there aren’t currently any laws controlling SME carbon emissions in the UK, the introduction of such laws is due to be discussed at the UN Climate Change Conference (COP26), which is hosted this year in Scotland (November 2021).

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.

1. Sustainability can impact profitability

Sustainable thinking can unlock new revenue opportunities for SMEs. One great way of achieving this is by turning waste materials into a new revenue stream. For example, let’s suppose that a local restaurant was to be using disposable plastic packaging to store their produce. The packaging is not recyclable, and so it goes into general waste, which the business must pay to have removed. An option for that restaurant could be to find a company that is able to process the plastic and extract the raw materials from it; leaving the plastic in a recyclable form.

Currently, the disposal of thousands of plastic containers each month is an expense for this hypothetical business. But they could turn their costs into profit and open up a new revenue stream by selling the plastic to a processing company, thus doing some good for the planet rather than contributing to landfill. Opportunities like this become much easier to spot when embracing a sustainable mindset.

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 are responsible for most of the environmental impact on the planet.

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.

How can SME owners 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, and ask yourself whether you’re supplying 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 first on the sustainability front and future-proof their operations. If you’re in need of more ideas, you can read more sustainability tips from NatWest.

Rapid Cash

Rapid Cash offers a modern line of credit unlocked by your unpaid invoices, offering greater flexibility and automation than most traditional finance facilities.