How do SMEs contribute to sustainable development?

Small and medium-sized companies are important actors in promoting sustainable development in economies. This is due to their ability to add value to society through solutions that respond to a market’s needs and problems, which are not already covered by other companies, as well as for their potential to create quality jobs that allow citizens access to better living conditions.

However, these two basic conditions of a business activity are only the starting point for the development of strategies that let them approach their real potential in terms of economic, social and environmental impact. In this regard, and provided that it conforms to a country’s legal provisions, business activity in itself has an impact on the Sustainable Development Goals (SDGs) promoted by the United Nations—particularly Goal 8, related to decent work and economic growth. By promoting job creation and providing the best possible remuneration to its employees, the company can also have an impact on Goal 1, which focuses on ending poverty.

Depending on the nature of the business model and the practices adopted by each organization, it is also possible to identify favorable impacts to Goal 9 (industry, innovation and infrastructure) and Goal 12 (responsible consumption and production).

As companies adopt more sophisticated business purposes and practices attuned to specific social or environmental needs, impacts related to other SDGs may also be added.

By way of illustration, agribusinesses may contribute to Goal 15 (“Life on land”) by adopting practices such as:

• Implementing environmental management systems that prevent and minimize the activities’ impact on terrestrial ecosystems and biodiversity.
• Land rehabilitation, protection and restoration of habitat in areas of activity.
• Inclusion of inputs and materials that do not pose risks to endangered animal or plant species.
• Research, development and implementation of technologies and processes that contribute to terrestrial habitat preservation.

With regard to the social dimension of sustainability, companies could also make progress on Goal 5 (gender equality) if they incorporate internal diversity policies that, for example, allow women to access job development opportunities on equivalent terms to men. Actions related to Goal 10 (reduced inequalities), may also be promoted by including vulnerable populations into the framework of opportunities created within the organization, as well as the value chain and products and services on offer.

In each sector we find a number of sustainability recommendations and best practices that can be aligned with the various SDGs. Regardless of what its main activity is, for a small or medium-sized company, some practices may be easy to implement. But incorporation of more sophisticated ones can be a challenge, since they usually require financing, time and dedication to undertake the needed investments and transformations.

However, in recent years sources of financing to promote the transformation of business models into more sustainable forms have hit a peak, and are progressively growing. According to figures from the Climate Bonds Initiative (CBI), a global organization that promotes green finance, growth in the availability of sustainable finance has increased rapidly over the past five years. During the first half of 2021, investment in environmental, social and governance bonds linked to sustainability and transition to sustainable models reached USD 496.1 billion, which represents an increase of 59% compared to the same period in 2020.

These financing mechanisms are transferred to the financial institution network, offering companies more favorable conditions than traditional instruments in terms of rates and terms, so that they represent an opportunity to drive business growth, and in this way, also drive economic, social and environmental impacts.

Moreover, the adoption of sustainable practices has additional benefits for companies that far outweigh the costs. On the one hand, with the efficiency and higher business productivity that are achieved through savings in, for example, inputs and energy consumption, a long-term advantage is developed. On the other, the benefits are also related to the favorable positioning the company can achieve among its various stakeholders, and particularly in its target markets, given the brand’s positive perception. This affects consumer preferences and therefore market share growth.

In view of the opportunities and advantages derived from sustainable business growth models, it is recommended that SMEs design and implement a strategy that helps them follow this path. This starts with a position in which the minimum possible contributions are included in the SDG framework, identifying objectives that may be linked to its purpose and establishing clear goals in the short, medium and long term that embrace operational and management practices as well as the configuration of products and services and their positioning in the market.