Most companies have business models that involve Corporate Social Responsibility or CSR, which ensures that companies do their part in transforming their surroundings, socially, environmentally, or financially.
By Md. Sajid Khan
For years now, individuals and organizations have been called to ensure the right balance where the needs of the current generations are fulfilled, without compromising on the needs of the future generation — this in a nutshell is what sustainability is all about. With the concept of sustainability being implied in our actions, we can enjoy better economic growth without hindering environmental care and social well-being. In the business world, sustainability is of growing importance; as climate change and man-made disasters continue to impact the lives of all inhabitants on earth, businesses are expected to be the loudest advocates of sustainability.
Sustainability In Businesses: What It Implies
Sustainability in businesses means that a business or an organization conducts its operations in such a way that they do not impact the environment negatively, rather, they contribute to the betterment of the planet, by incorporating sustainable processes as a part of their system. In addition, there are several businesses that take it upon themselves to be socially responsible, thereby supporting a particular cause or community to positively impact them and make changes. Most companies have business models that involve Corporate Social Responsibility or CSR, which ensures that companies do their part in transforming their surroundings, socially, environmentally, or financially.
Additionally, the United Nations shared its “Sustainable Development Goals’” or SDGs, in an attempt to urge corporates and organizations to play a big part in transforming the world for a better tomorrow: sustainability is a critical part of these goals.
SMEs and Sustainability: The Importance And Benefits
In developing and developed countries, Small and Medium Enterprises (SMEs) consist of a major share of the total private sector. In fact, the numbers based on recent research by the Organisation for Economic Co-operation and Development (OECD), says that close to 99% of all businesses and 70% of the total employment in the OECD falls under SMEs. With SMEs constituting the lion’s share in the world of business, the impact they have on the future of our planet is monumental. The good news is that incorporating sustainability within the functioning of SMEs is not just beneficial for the environment, but for the business as well. By taking a green turn, SMEs could see the following benefits:
- Cost Savings
Making a switch to greener practices will require initial investment, however, in the long term, businesses notice that they end up reducing overall costs. For example, an enterprise might choose to invest in solar energy to power their office space. Implementing a solar power panel will incur upfront costs, however, commercial property owners who opt for solar energy save thousands a month on electricity. Businesses that focus on saving water, energy, waste management and efficient use of resources have witnessed a boost in profitability, while having a positive impact on the environment.
- Boosts Reputation
A global survey conducted by IBM Institute for Business Value states that a staggering 71% of employment seekers and employees prefer working for businesses that are environmentally aware and contribute to sustainable practices. There is no doubt that sustainability has gained awareness and become a buzzword, so much so that businesses that negatively impact the environment are receiving flak. By incorporating a good sustainability model, businesses will witness a boost in their reputation.
- Enjoy Better Competitive Advantage
Overall, companies that boast of sustainable practices witness a better ROI and are more profitable than companies that do not have a plan in place for sustainability. The innovations that come into play, coupled with cost savings, efficient practices, and a better inflow of new customers all contribute to ensuring better competitive advantage.
- Great Value Creation
People are increasingly choosing brands, products and services that are a reflection of their own values. Customers are now identifying better with brands and organizations that are socially responsible and environmentally aware. Imbibing sustainability at the core of a business will ensure great value creation as it enables the business to be positioned in a better light.
How can businesses make themselves sustainable?
In order to turn a business into a champion of sustainability, there are a few things that should be taken into consideration:
- Understand The Numbers, The Cause, And The Role Your Business Can Play
Before getting started on the path to sustainability, businesses should cover all bases, such as understanding how many people within the organization understand the concept of sustainability, where it can be incorporated, and the amount of carbon footprint the company leaves behind. Once this is done, the business will have to identify issues that call for intervention: for example, the regulation of waste and better management of the same, or the efficient use of water within the premises.
- Set Goals That Are Aligned With Sustainability
By making sustainability a core principle, it becomes easier for businesses to integrate this concept into all their actions. Once these goals become a part of the system, businesses can focus on reshaping processes, policies, and attitudes in a way that is aligned with sustainable principles. The management can then work towards conducting training programs and workshops to help employees get a better understanding of what these goals are and what must be done to achieve them.
- Take Action, Start With Small Steps
While the larger picture is to be a sustainable business and change the world, it is equally important to make small changes in daily office life. Encouraging recycle and reuse, efficient usage of water and electricity, and promoting the switch to electric vehicles for commuting can all contribute in making a huge impact and reducing carbon footprint.
- Carbon Neutrality
For most businesses, the first step to a sustainable future is by becoming carbon neutral. Carbon neutrality happens when businesses offset Scope 1 and Scope 2 emissions. Scope 1 emissions are essentially direct emissions that come from an owned source, one that can be controlled. The latter refers to indirect emissions that are generated from purchased sources.
Barriers To Sustainability And How To Tackle Them
There is no doubt that SMEs can create waves of transformation when they begin their journey towards sustainability; however, there are a few barriers that can hinder the process. One such barrier is the lack of finances or capital that is much needed when implementing sustainable actions. Depending on what phase the SME is at (start-up or growth phase), they have different financial needs – the lack of collateral, low awareness, financial skills, and limited knowledge of funding options can all act as barriers to accessing financial aid.
As far as the supply side is concerned, there is often a lack of understanding between SMEs and financial institutions. Green markets are still a niche concept and there are a limited range of sustainable financing products due to which there is a rise in incompatibility between the needs and ideals of investors and entrepreneurs.
SMEs can face roadblocks on the demand side as well. With sustainability being fairly nascent, some SMEs do not have access to enough information, thereby lacking the capabilities that financial opportunities require for green financing.
Green Finance – The Need Of The Hour
Green finance or sustainable finance is essentially a set of financial regulations, norms, products, and aid that allows an enterprise to pursue their environmental concerns for a greener tomorrow. With the help of green finance, there can be an increase in the flow of finances from micro-credit, banking, and investment stakeholders to SMEs, so the latter can fulfill their sustainable priorities.
The contribution of SMEs to the economy and the environment is huge, thus, commitment to sustainable practices will make a difference.
Sustainability should matter to everyone, more so to businesses thanks to the huge impact that they can have on this society and planet at large. Infusing a sustainable business model into an organization can do wonders in turning around climate change, reducing the use of plastics, and saving our natural resources. In addition to this, businesses that lean in the direction of sustainability can also enjoy better profits and overall success, making it a win-win for all.
(Authored by Md. Sajid Khan Director-India at ACCA)
