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As organisational sustainability measures are mandated around the globe, a study by the IPA-Deakin SME Research Centre reports on what sustainability means for SMEs.
One of the biggest problems within the SME sustainability sphere, says Dr Miethy Zaman, Research Fellow at the IPA-Deakin SME Research Centre, is that there is no clear definition for the term ‘sustainability’. It means different things for different organisations, and there’s no distinction in how it’s used to describe economic, social or environmental issues.
In a research report co-authored by Zaman and her colleagues Professor George Tanewski and Gimhani Ekanayake, called ‘What does sustainability mean for small business?’, the academics said there are two aspects of sustainability that are equally important for SMEs.
Firstly, the practice of using sustainability to foster lean management, innovation, recycling and green manufacturing.
Secondly, it’s just as important to measure the outcomes of those sustainability practices, which might include product quality and recyclability, recycling throughout the business, profit, waste reduction and employee wellbeing.
These factors will be different for every SME according to their sector, but they’re vital to understand as frameworks for measuring sustainability standards are introduced across organisational landscapes. Growing concerns from the United Nations all the way to local governments around the world about sustainability outcomes is bringing the issue into sharp focus.
Regulators around the globe, Zaman says, are beginning to mandate sustainability. The recently introduced European Sustainability Reporting Standards, which have been designed to create consistent and trusted organisational sustainability reporting within the European Union, will be mandatory for large businesses in 2024 and for SMEs in 2026.
Similarly, the International Sustainability Standards Board (ISSB) is delivering “a global baseline of sustainability disclosures to meet capital market needs”, the report says.
In March 2022, the United States Securities and Exchange Commission introduced annual requirements for organisations to provide specific climate-related information, including facts around climate-related risk governance and disclosure.
Large organisations will be required to provide reporting as soon as next year. SMEs have been given one extra year of grace, mandated to follow the new sustainability reporting methods from 2025.
With the aim of holding businesses to account for the verification and accuracy of information in their reporting, the International Auditing and Assurance Standards Board recently released the proposed International Standard on Sustainability Assurance (ISSA) 5000, General Requirements for Sustainability Assurance Engagements, for public consultation.
All of this begs the question about what sustainability actually means for SMEs. When so much of the focus has been on big corporations, how are those at the small end of town supposed to perceive a concept that's hard to understand?
The ‘What does sustainability mean for small business?’ study, conducted by Deakin researchers in collaboration with the IPA, involved an evidence-based, systematic literature review of 50 peer-reviewed studies focusing on SME sustainability.
Zaman presented the results at the International Council for Small Business conference in South Korea last month.
“Most of the time, small businesses are focused on economic return,” Zaman says. “So, are they really worried about being sustainable? And does it mean anything to them in the first place?”
When it comes to SMEs, she says, every business operates differently. If they want to be sustainable, they should put sustainability practices into their management systems, according to how their business works.
This unique, individual level of SME behaviour won’t change in the future, Zaman says. SME regulators and other organisations will have to recognise that sustainability means something different for every small business, and they will have to develop specific support mechanisms to help these businesses achieve their unique goals.
“Everyone has to be more cognitive and aware of sustainability meaning different things to different SMEs,” she says. “The whole umbrella of support around SMEs has to come into play to support their varying needs.”
The report says that an integrated model for sustainability should be developed to consider the specific practices that can combine different methods to generate reliable performance outcomes, depending on the size of the business, its industry, the territories in which it operates, its stakeholders’ perspectives and more.
Several practical recommendations came from the study, some regarding SMEs themselves, others focusing on the tax and regulatory environment, and other factors influencing their operations.
They included: