By Pamela Chen

Small and medium-sized enterprises (SMEs) play a major role in the global economy and are a key driving force towards a sustainable future. Sustainability is no longer a topic catered to or driven by only the large corporations. According to UOB’s SME Outlook Study 2022, three in five SMEs believe in the importance of incorporating sustainable practices in their business and its value to the organisation’s reputation, especially in terms of driving new opportunities to work with multinational corporations that care about sustainability goals. Hence, it is in fact, increasingly important to note that sustainability is linked to financial stability, as well as the ability to future-proof all businesses. This is even more so for SMEs, for whom survival and growth is of utmost importance.

As SMEs navigate through the current day challenges of digitalisation, globalisation and increasing pressures from stakeholders, it will be prudent to factor in sustainability as part of their long-term strategic planning to adequately address expectations from various stakeholders. Business leaders are now acknowledging that sustainability is a business imperative. Leaders can be more effective in achieving their strategic priorities by reviewing their environmental (E), social (S) and governance (G) commitments, rethinking their business models and exploring new opportunities in addition to maximising profits and shareholder value. Profit maximisation, contribution to societal development, and environmental or climate change impact are concepts that are not mutually exclusive. In fact, they work in tandem to ensure long-term business value.

Change is both constant and progressive. It is thus important for the leadership of SMEs to understand that sustainability is imperative to long-term business value and to drive this transformation at the strategic level. Leaders can be more effective in ensuring their strategic priorities are achieved by driving changes within their organisations to meet increasing stakeholder’s expectations that environmental and societal impact is being considered as part of the business strategy.

These changes have to be proactive, and it can begin with matters close to the heart of SMEs such as maintaining competitive advantage, cost optimisation and process efficiency; technological development, innovation and talent retention could then follow closely behind.

Steps in Driving Changes within the Organisation

Firstly, SMEs could begin by understanding who their key stakeholders are, and what are their expectations and the motivations behind those expectations (e.g whether it is market driven, regulations driven, etc.) Following that, they should assess how prepared their business is in meeting these expectations, including the impact of other external pressures such as disruptive technology, disruptive innovation and the introduction of new regulations relating to climate change issues, on their business activities or investments. SMEs need to be able to identify key areas for action such as resource preservation, diversity, inclusiveness, and impact of their business activities on the climate. Next, is to set proactive goals within the organisation to drive the sustainability agenda. Finally, identify your core sustainability team to drive this change across the organisation.

It is a common belief that “sustainability” is an abstract concept which involves costly processes that SMEs have limited capacity to undertake. In fact, when examined closely, SMEs would discover, much to their surprise, that the concepts underlying sustainable development have often already been addressed through various initiatives adopted in their organisational processes. These include workplace safety, cost reduction, innovation, talent retention and preservation of resources through reduction of waste. Hence, it is not a totally new or daunting task to undertake.

Key sustainability matters relevant to SMEs

1. Competitive Advantage

Responsible business practices are about continuous improvements and innovation, and these are crucial to the success and competitive advantage of businesses. Leaders should start the conversation on assessing product or service line opportunities that can evolve with the changing needs of the market towards sustainable development or undergoing business process re-engineering with a focus on cost optimisation and process efficiency.

2. Cost Optimisation and Process Efficiency

Cost optimisation and process efficiency stays top of the mind for business leaders and with that embedded as part of the strategy, sustainable initiatives can be introduced through investments in energy efficient capital assets, renewable energy options and even LED light upgrades.

These initiatives drive both energy and capital savings and are a step towards a low-carbon future. When operating in locations that are vulnerable to climate change-related disruptions (e.g. extreme weather events, telecommunication and energy failures), organisations will have to make considerations to safeguard their assets against infrastructure disruption. This could include having onsite energy generating facilities, backup inventory or even strengthening infrastructure to be resilient to climate change. Such decisions would not only bring about more efficient processes translating to cost savings in the long-term, but also business value protection by addressing climate-related risks.

3. Technology Obsolescence

Increasingly, regulatory changes are being enacted surrounding climate change, including the measurement and mitigation of carbon emissions, all with an aim to protect planet Earth and our continued prosperity. Besides regulatory pressures, the downtrend in the cost of adopting clean technology such as electric vehicles, and changing consumer behaviour, will force all companies to proactively consider mitigating or adapting to sustainability-related risks. Business leaders need to have these developments in mind and have discussions with their key executives to assess if their key assets are affected by this shift towards green energy alternatives which may render their existing assets to be obsolete or suffer unanticipated or pre-mature write-downs or devaluation – otherwise known as stranded assets.

4. Employee Well-being

Employees are key assets to an organisation as they play an important role in the execution of the organisation’s strategy and goals. Their well-being and development are integral to the success of the organisation. As business leaders, a culture which focuses on employees as an important stakeholder through ensuring job security, safety, human resource development and training is what drives long-term success of the organisation. Focusing on the needs of employees will help ensure they are optimised to create and deliver long-term value for the organisation, which in turn can translate to long-term profit maximisation.

Conclusion

Sustainability is here to stay, and it is driving the expectations of organisational stakeholders. SMEs have a crucial role to play in the sustainable development of the global economy and it is important to note that everyone is on their own journey towards a sustainable future.

Find the structure that best fits your organisation’s business model and sustainability agenda. Initiate and have conversations within your organisation on the critical concerns, and new opportunities or risks that will arise from implementing sustainable best practices.

It takes a village to build a sustainable future but as a business leader, you are the key driving force to steer conversations in the right direction. Through your leadership, the company is then prepared to propel towards new growth areas, opportunities and scale the organisation towards greater heights.

This article was originally published on asme.org.sg on 16 September 2022.

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Sustainability Advisory Specialists

	Pamela Chen Director, Head of Internal audit & Sustainability & Climate Change pamelachen@sg.cla-ts.com		Krishna Sadashiv Advisor, Sustainability & Climate Change ksadashiv@sg.cla-ts.com
	Maria Teo Associate Director, Sustainability & Climate Change mariateo@sg.cla-ts.com