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The importance of sustainability for SMEs

The importance of sustainability for SMEs
To say sustainability and corporate responsibility, in general, are utterly crucial to small and medium-sized enterprises would be no exaggeration.

Every organisation now has an ethical and economic ‘duty’ to support a healthy environment – and a buoyant national and local economy – to create fertile ground for businesses and communities to thrive in. In fact, sustainability is now one of the most common ways in which SMEs are assessed by a diverse range of stakeholders – from funders to consumers.

Authentic resource efficiency is also part of their ‘toolbox’ for dealing with inflation and escalating energy and fuel bills.

Let’s explore the importance of sustainability to SMEs in more detail.

The profit priority

Setting aside the ethics of sustainability for a moment, for many SMEs, drilling down on resource management is also about protecting their profit margins. This is when sustainable business practices, lean principles and increased automation all blend together.

If an SME strives to become ‘leaner’ in its business operations, it will naturally focus on better use of all resources. They could potentially find ways to cut down on outgoings for things like energy and transport. For example, moving more meetings to the virtual realm, setting up co-working spaces to share costs, or subcontracting fulfilment to low-cost providers.

Manufacturers who manage waste more adroitly can possibly find ways to buy fewer raw materials. While service sector SMEs can find ways to be more productive – and profitable – by using data analytics to find ways to do things quicker, better and more cheaply.

In other words, becoming more sustainable is tied up with resource management and data analysis these days – not simply avoiding the use of toxins and plastics!

Grants and funding

Many business lenders check green credentials before agreeing to loans, to support their own sustainability stance. This can include, for instance, only lending money for capital projects if sustainable construction practices are evidenced.

However, another way sustainability is important to SMEs, is that a genuine commitment can release additional funding and possibly even grants they don’t have to pay back.

For instance, Ofgem signposts businesses and non-profit organisations to various financial incentives they can enjoy if they adopt energy-saving measures.

Of course, this sort of grant funding is also tied to more energy-efficient equipment, reducing SME outgoings and increasing profit.

A B2B business priority

Managing resources – and taking a stance on environmental issues – to be more ‘green’ brings cost savings, but also often improves your chances of winning new or repeat business when you are an SME.

Business-to-business SMEs may find that their customers are actively seeking out providers with a tangible commitment to sustainability, as part of their supply chain management and corporate responsibility strategy. SMEs pitching for business contracts in the public sector will inevitably find that they are required to show measurable commitment to corporate responsibility, including environmentally friendly working practices and products.

Consumer demand for green products

Business decision-makers are not the only ones now putting sustainability high on the list of ways they evaluate providers of goods and services. So do consumers.

Pre-pandemic, one in three consumers reported basing their purchasing decisions on whether a brand was committed to sustainability.

Has that figure increased, or decreased due to post-pandemic austerity?

According to a survey by Deloitte, inflation and local supply issues have led to consumer ‘innovation’ in how they maintain a sustainable lifestyle. Reusing and repairing things more and buying more ‘pre-loved’ items for instance.

However, many consumers still look for companies that use recycled materials, avoid plastic packaging and produce sustainable products too. In fact, despite austere times, 24% of consumers are still willing to pay more for genuinely ‘green’ products and packaging.

Balancing act of sustainability

Accountants and Bookkeepers can play a significant role in helping SMEs to find ways to juggle all these priorities and tick all the right boxes in terms of operational efficiency, resource management and meeting the sustainability demands of stakeholders.

By way of illustration, one of the things sustainable organisations do is to source more materials and services locally. This cuts their carbon footprint and transport costs. In terms of food, it could provide fresher and more nutritionally-robust produce too.

However, that has to be measured against the increased cost of buying from smaller, local companies, compared to a larger scale and overseas supplier.

Within that financial evaluation, you need to keep in mind whether an SME’s sales success could be boosted by their stance in supporting local traders and farmers – or only buying British goods and services. Do customers of that SME value tangible sustainability measures above increased sales prices?

Backing up sustainability claims

One last note of caution. Though it is vitally important for accountants. bookkeepers and other business advisors to help SMEs embrace sustainability, there must be due diligence on any claims made.

Apart from the rigorous Government ruleson the authenticity of environmental responsibility stances, fake claims ruin reputations, and therefore scupper SME survival.
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