Green Transition Strategies for SMEs | ESG & Sustainability in Practice | LKOS Law Office
Green Transition Strategies for SMEs: Transforming Business for a Better Tomorrow
Sustainability has become a popular topic, which is a good thing. However, I have come across ideas and comments that sustainability primarily concerns large corporations due to legislation as well as perceived high costs associated with it. In my view, this perception is outdated. Sustainability is equally relevant for SMEs and their competitive advantage. To lighten the overwhelming feeling caused by the myriad of legal regulations, standards, recommendations, and initiatives, there are a few practical steps that every company, regardless of size, can and should take.
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Consumer demand
In an era where social media amplifies consumer voices, businesses are increasingly held accountable for their actions. Particularly among the younger generations, there is a growing emphasis on sustainability. Consumers are more informed and vocal about their preferences, often demanding companies to adopt sustainable practices. This shift in consumer behaviour makes it crucial for businesses to adapt in order to maintain their market relevance and customer base.
Beyond financial motives, there’s a growing recognition of corporate responsibility towards society and the environment. Ethical business practices resonate with consumers, employees, and stakeholders.
Regulatory compliance
The European Union, as an example, has been at the forefront of drafting and enforcing regulations that mandate businesses to be more sustainable and planet-friendly. The EU’s Circular Economy Action Plan is a notable initiative. It aims to transition from a linear to a circular economy, focusing on product lifecycle, design, circular processes, sustainable consumption, and waste prevention.
In addition, on 5 January 2023, the Corporate Sustainability Reporting Directive (CSRD) entered into force. This directive modernises and strengthens the rules concerning the social and environmental information that companies have to report. A broader set of large companies, as well as listed SMEs, will now be required to report on sustainability.
Cost savings
Sustainability often leads to rethinking and improving business processes, particularly in reducing waste, which directly translates to cost savings. Additionally, focusing on employee health and safety can reduce absenteeism and increase productivity, further cutting costs.
Large investors, including massive pension funds, are increasingly focusing on sustainability. Sustainable businesses often enjoy better long-term financial performance and may have more favourable access to financing. In addition, the shift towards sustainable finance is important to keep in mind.
Brand reputation and trust
Sustainable practices enhance a company’s reputation and build trust with consumers, investors, and partners. It reflects a commitment to ethical standards and social responsibility.
A sustainable supply chain is not only cost-effective but also essential for maintaining the integrity and reputation of the business. It ensures the business model is resilient and adaptable to future challenges.
Risk management
The adage “No planet – no business” encapsulates the existential risk of ignoring sustainability. Businesses that neglect environmental impacts may face substantial future risks, including resource scarcity and regulatory penalties.
Sustainable practices are often aligned with long-term business viability. They help ensure that businesses can thrive in a changing world, where resource constraints and environmental considerations are increasingly paramount.
Competitive advantage
Integrating sustainability into the core business strategy can be a source of innovation and competitive advantage. It encourages rethinking products, services, and processes, leading to new business opportunities.
Sustainability presents new market opportunities. By embracing sustainable practices, businesses can tap into new consumer segments and create innovative products and services.