The value of sustainability for SMEs

SMEs constitute a pillar of the European economy and the global value chain, so these businesses play a pivotal role in the challenging transition toward sustainability. Without their total engagement, this transition simply would not happen. But by the same token, for SMEs this challenge represents an incredible opportunity to achieve or bolster a competitive advantage. This not only because of the innovative impetus that a sustainable approach gives; it also ensures access to certified supply chains, better financing conditions, and strategic partnerships with public and private entities.

According to EU projections, by 2030, businesses are expected to generate economic opportunities totaling $12 trillion worldwide thanks to the sustainability transformation. What’s more, 380 million jobs will be created, more than half located in developing countries.

So in light of the challenge that European SMEs are facing in the near future, in our white paper Fostering Sustainability in Small and Medium-sized Enterprises, we first set out to analyze the approach of these businesses to sustainability, analyzing the criticalities and drivers of success. Second, we provide an initial systemization of the tools and initiatives that are currently available to get SMEs on board with the sustainability agenda, and to create a European platform that spotlights sustainable businesses and prompts small and medium-sized entrepreneurs to adopt more responsible business models from an environmental, economic and social standpoint.

We developed our study in the Sustainability Lab at SDA Bocconi, with the contribution of Assicurazioni Generali within the framework of their SME EnterPRIZE Project, and with the support of researchers from universities in eight countries (Austria, Czech Republic, France, Germany, Hungary, Italy, Spain, and Switzerland). We analyzed over 3,000 scientific articles and more than 100 reports from international institutions, statistics offices and public and private research centers. What emerges from our report is that the approach of SMEs to sustainability is less structured or formalized than what we find in larger organizations, and in fact smaller businesses adopt more informal strategies. Here are some numbers that tell the story: only 13% of European SMEs say they’ve actioned sustainability strategies; 21% are in the process of doing so; 40% declare they will become sustainable at some point in the future. But in actual fact, European SMEs do much more than they realize or are able to communicate. In fact, many companies have already adopted welfare policies for their employees (76% of all SMEs Austria, 68% in Hungary, 66% in Italy and Spain, and 65% in Germany), implemented environmental protection measures (69% in Spain, 67% in Italy, 66% in Switzerland), and promoted community engagement by supporting local social, educational, cultural and charitable initiatives (this applies to 84% of German SMEs, for example).

This white paper also identifies the five biggest barriers to the sustainable transition for SMEs, barriers which pertain to institutional, organizational and individual factors: a lack of internal competences, a lack of financial resources, limits arising from bureaucracy, a decline in consumer demand and a lack of tools tailors to SMEs.

Our analysis, broken down by country, also offers a closeup view of the obstacles to adopting a structured approach to sustainability (Figure 1). For example, 52% of Italian SMEs point to bureaucracy and high costs as the major barriers to implementing sustainability interventions, while 38% complain that the market is still not mature enough to have an appropriate response to relevant issues. Time and bureaucracy, as well as a lack of personnel, are constraints that dissuade German SMEs from adopting a sustainability strategy, while uncertainty regarding the political and legal context makes companies less inclined to make long-term investments. The same is true about uncertainties in market demand and the willingness of customers to pay for more sustainable products and services, which impact the ability of French SMEs to adopt sustainability initiatives.

Figure 1 – The main barriers for individual countries that prevent SMEs from adopting a structured approach to sustainability

To overcome the barriers that are preventing SMEs from adopting sustainability strategies, these companies must have access to customized tools (both economic and non-economic), developed and managed by public or private organizations or via partnerships between the two. Our study identified 15 broad categories of initiatives and tools to ensure that SMEs make the right transition toward sustainability, in other words, a transition that’s compatible with their resources and the competencies (see Figure 2). These categories include: further education on the question of sustainability; wider access to ESG financing tools; standardized, customized KPIs to measure the environmental and social impacts and risks of SMEs and to provide guidelines to assess these companies with respect to ESG criteria; promoting and supporting demand for ecological products and services; ESG criteria incorporated into public procurement and new reporting tools.

Figure 2 - Initiatives and tools for promoting sustainability in SMEs

Although there are myriad challenges which can represent difficult, discouraging hurdles for SMEs, certain well-planned processes can smooth their growth path toward sustainability. 

• Adopting language that is more accessible to SMEs is a way to link theoretical and empirical knowledge to the practices that have already been adopted to some extent by entrepreneurs. 
• Identifying and selecting relevant issues to address is a way to ensure a list of priorities that SMEs can work on. 
• Creating a network with other companies on sustainability issues, especially for SMEs, can be a winning approach to coming up with new solutions and innovative business models. 
• Evaluating social and environmental aspects of each company and measuring progress on achieving sustainability goals are ways to enable SMEs to improve their profiles and demonstrate their commitment to these concerns.