Giving SMEs the tools they need to grow greener

Written by: Richard Blundel, Professor of Enterprise and Organisation in the Department for Public Leadership and Social Enterprise at The Open University Business School.

Small and medium-sized enterprises (SMEs) have a vital role in our efforts to tackle the Climate Emergency. Their combined environmental impact is more significant than the big corporations, but they are much more varied, less well-resourced and often harder to reach. So how can governments, and other agencies, ensure that such a large and diverse population of organisations can become more sustainable? Professor Richard Blundel and his colleagues have drawn on cross-disciplinary research insights to create new tools and techniques that will enable SMEs to ‘grow greener’.

SMEs form a large part of the UK’s economic landscape. There are more than 5.9 million across our four nations. Together they employ around 16.8 million people, generate an estimated £2.3 trillion in turnover each year, and account for more than 40% of the energy used in non-domestic buildings. Their individual environmental footprints may appear relatively insignificant, but we cannot ignore their aggregate impact.

Governments across the UK recognise that these firms have a significant role to play in meeting the ‘Net Zero’ target to reduce carbon emissions by 78% by 2035, compared to 1990 levels. The UK Government recently launched the UK Business Climate Hub and is seeking a commitment from SME owners and managers to take on the Net Zero target as part of a global campaign. SMEs are also vital to achieving a range of sustainability goals, from increasing recycling and cutting waste to reducing water consumption.

Yet, these businesses often find it the most difficult to change. Relatively less well-resourced than their larger corporate counterparts, SMEs don’t always have the financial capacity or personnel to prioritise sustainability over other pressing business needs. Many small business owners also find it difficult to see the long-term benefits of investing in sustainable practices when they spend most of their time focusing on the ‘bottom line’ and dealing with more immediate ‘here and now’ concerns.

As SMEs continue to feel the devastating economic effects of the coronavirus pandemic, the challenge of prioritising sustainability has, arguably, never been greater. However, there is also evidence that the pandemic has changed many business owners and managers’ attitudes. In recent interviews with business advisors working on environmental projects, their experience of seeing client firms re-thinking their approach was striking. One interviewee described it as “hitting a re-set button”, while another made a direct comparison with the way businesses responded to the financial crash of 2008-10 when many dropped their sustainability initiatives altogether:

[But now], the whole world is changing, and businesses are part of that. They're responding to the public, and government leaders. It's been pretty encouraging.

Short term ‘win-win’ incentives won’t lead to fundamental change

Financial incentives, such as grants to improve energy efficiency, can help create a short-term ‘win-win’ for businesses and sustainability goals. But our research, and that of colleagues such as Dr Sam Hampton at The Environmental Change Institute, University of Oxford, demonstrates that these incentives often lead to superficial changes. Moreover, the new practices often cease along with the funding because the incentive is insufficient to embed sustainability within the organisation's culture and drive real, meaningful change. So how can we move beyond the conventional, one-size-fits-all, ‘win-win’ approach?

We propose an alternative intervention for intermediaries, such as professional associations, business advisors and economic development organisations. Instead of relying on financial incentives alone, it enables them to align sustainable practices to their SME clients' personal, professional and organisational values. By scaling this approach, we can encourage many more SME owners and managers to integrate sustainability into their everyday operations and see it as a real strategic priority.

A values-based approach is crucial to encourage SMEs to grow greener

Developed in partnership with The University of Oxford’s Environmental Change Institute and the climate change communications consultancy, Climate Outreach, our values-based approach brings together insights from several fields. It builds on pioneering work on SME owner and manager values conducted by former OU doctoral researcher, Dr Sarah Williams (now at the University of Cumbria), in conjunction with Dr Anja Schaefer and myself, my previous research on SMEs and enterprise development, and studies conducted by Dr Aqueel Wahga on SMEs and support organisations in Pakistan. Our work has demonstrated that - with the right tools and techniques - these intermediaries can play a catalytic role in helping SME owners and managers see the long-term value of sustainability.

We conducted two phases of extensive consultation with SME owners and managers and five groups of intermediaries, including a series of collaborative workshops across the UK. We then worked with OU colleagues to produce Promoting sustainability in business: a values-based toolkit, a free open-access online course on the Open University’s ‘OpenLearn Create’ platform. This interactive course and supporting resources give intermediaries a thorough introduction to our values-based approach and practical guidance on communicating the value of sustainability to business audiences. The five-hour programme teaches participants how to encourage SMEs to engage with sustainability more deeply to deliver cost-effective and positive lasting change for their business and the environment.

To date, close to 1,000 people have engaged with the course, and feedback suggests it has helped individuals and organisations to engage their SME clients on environmental issues, such as climate change mitigation.

This [course and toolkit] has accelerated our understanding of the problem space of SME engagement with sustainability and helped us form opinions about viable next steps in our project.

Senior Manager from a design consultancy

Empowering SMEs to drive sustainable development in Pakistan

Pakistan’s second most successful export sector, the leather industry, accounts for 5% of the country’s GDP and employs more than half a million people. Its larger firms are generally more regulated. However, the small tanneries that make up the bulk of the sector still have very limited resources. This poses a continuing risk that chemicals used to convert raw animal hide into finished leathers will end up in rivers, polluting drinking water and destroying natural habitats.

To address this challenge, in late 2019, we piloted a modified version of our values-based course, combining the online programme and face-to-face workshops with local business advisors from the environmental charity WWF Pakistan. The blended programme, which also built on Dr Aqueel Wahga’s related work on the role of intermediaries in supporting SMEs in Pakistan’s leather industry, also welcomed graduate students – primarily experienced professionals and entrepreneurs – from the prestigious Government College University (GCU), Lahore. Many participants have since told us they are implementing new approaches to environmental stewardship. One local business advisor, in particular, said that they were starting to match entrepreneurs with “more active environmental values” with others who showed less interest in environmental improvement and added that they thought this collaborative approach was effective.

Training the next generation of sustainability leaders

We’ve incorporated material from this strand of research into two OU undergraduate modules to enable students on B205 Exploring Innovation and Entrepreneurship and B327 Creating Futures: Sustainable Enterprise and Innovation to gain case-based insights on improving SMEs environmental performance. Our work has also influenced the curriculum at GCU Lahore. Since 2018, the university has included our research in material for its graduate entrepreneurship and small business management students, many of whom are business owners or professionals. In 2020, it also launched a new postgraduate course on environmental entrepreneurship incorporating critical aspects of our work.

Our experience during the past few years demonstrates that a values-based approach can make an essential contribution to the crucially important task of helping several million businesses to make a rapid and successful transition towards a low carbon economy. We’ve made a start, but there is still a great deal to be done to refine and scale this work over the coming years.