The missing link: SMEs and sustainable development

Source: WBCSD, 18 November 2003

Big business may be catching the sustainable development bug, but small and medium size enterprises (SMEs) are resistant to the business case. What can be done to make sustainability more inclusive? A new WBCSD discussion paper explores the issues.

Theres no denying that interest and involvement of business in sustainable development have increased tremendously over the past 10 years. But while the concept has embedded itself in the psyche of brand conscious multinationals, the culture and management systems of SMEs have hardly changed at all especially those at the smaller end of the spectrum.
Awareness muted

When it comes to sustainable development, small business owners show either little awareness or lack of interest. On one level this is not surprising since, unlike their corporate peers, SMEs face huge barriers implementing sustainable strategies due to a lack of resources, skilled staff and technical expertise. In addition, SMEs frequently have poor access to finance due to market bias and often fall victim to burdensome red tape and regulation.

Nevertheless, the importance of encouraging sustainability amongst SMEs should be recognized for a number of reasons. As a general rule, the smaller the firm, the lower the attention to environmental issues. As a result, SMEs tend to be a significant source of pollution.

But in contrast, SMEs may take a longterm view in the local community and have more links to the local civil, cultural and/or religious environment as they are generally less mobile organizations. The latter has come to be known as silent Corporate Social Responsibility.

Silent CSR

SMEs also play a crucial social role as income generators for large parts of the population. This is particularly true for the developing world. In least developed countries, the so-called informal sector of micro-enterprises is the main source of employment for the poor.

Significantly, the development and formalization of micro and small enterprises provide a realistic step toward poverty alleviation and is therefore a key aspect of sustainability.

This point was noted at the Johannesburg Summit in 2002 and there are now numerous government and aid agencies involved in the promotion of SMEs. The results of their programs and initiatives are mixed at best.

That in part is why the WBCSD believes there is a case to be made that business especially large companies influence the environmental and social performance of SMEs through supply chains. A review of WBCSD member companies and the Regional Network demonstrates this to be so.

Supply chain leverage

Big business is able to build skills and standards into the supply chain while more indirect influence can be leveraged through community involvement in developing countries where corporations are often the largest source of employment in poor areas.

Large inward investors often create what is known as the honeypot effect when workers migrate to a companys operations in search of better-paid employment. This is often to the economic detriment of the communities from which the workers have moved. Responsible companies can help minimize this effect by engaging with local businesses and establishing small or micro enterprises that provide services that they can purchase.

SME engagement

Some good working examples of SME inclusion are already taking place as the WBCSDs member companies and regional partners demonstrate, but much remains to be done before small business owners are convinced of the business case in significant numbers. The WBCSD will publish a full report on the subject next year.