Sustainable business practices unlock SMEs competitive edge

The 17 Sustainable Development Goals (SDGs), the United Nations General Assembly ratified in September 2015, were presented as a universal call to action to eradicate poverty, achieve food security, protect the planet, achieve clean water and sanitation while embracing green energy as well as ensure that all people enjoy peace and prosperity.

The private sector has embraced the 17 goals with daily update of who is adopting SDGs and which ones. This has been largely been the case for large corporates and therefore it begs the question — is there room for sustainability in small and medium-sized enterprises (SMEs)?

The answer is simple yet complex depending on the side of the coin you are looking at. SMEs are the backbone of the African economy. The overwhelming majority of businesses in Africa can be classified as SMEs and are the drivers of the economies.

They play a crucial role in addressing poverty, inequality and job creation in rural and urban areas across Africa.

They are also an important source of employment, particularly for women, low skill workers and the youth.

According to the International Trade Centre (ITC), SMEs in developing countries will contribute to the SDGs through four main channels — employees, business practices, sectors and national competitiveness.

The ITC analysis shows that through these channels, investments in SMEs can contribute to 60 percent of the 169 SDG targets. For this to happen there is a need for sustainable investment by the private and public sectors to build the potential of the SMEs.

The financing will take different shapes such as blended finance, impact investing, trade finance and sustainable development bonds.

For the investments to happen there will definitely need to address the challenges that businesses face, which will include the issues of investor readiness and helping the SMEs to build bankable business plans, risk management — both the perceived and the actual and providing an enabling environment to connect the investors and the SMEs.

There are two main factors that are pushing SMEs towards sustainability and implementing the SDGs within their strategies — the fact that they are part of the globalised supply chain and the realisation that sustainability a means toward a competitive advantage for the businesses.

MARKET ACCESS

In terms of the global supply chain more and more companies are willing to buy from sustainable firms, therefore sustainability will act as a way of market access.

As for the corporate edge, business success is dependent on peaceful conditions, a healthy environment, legal certainty and good human relations within a company and its operations. If a company is sustainable these issues will be guaranteed and hence will lead to business success.

Larger businesses are benefiting from sustainability, the benefits are in the forms of cost-cutting, brand building, revenue increment, risk management and the enhancement of the social licence to operate for such businesses.

SMEs that take long-term views and embrace the sustainable matters will be able to accrue some of the above benefits, which will be a boost to their bottom line as well as address stakeholder expectations.

In particular, SMEs that form part of larger company value chain stands to benefit. Implementing sustainable business practices and demonstrating a passion for sustainability will unlock competitive advantages, as larger companies will prefer suppliers that observe best practice in harmony with their own sustainability objectives.

Through embracing sustainability in their business strategies, SMEs will be able to appreciate the impact of the system and resources constraints in their business model and operations.

By addressing the concerns related to social and environmental matters, the companies may achieve competitive advantage as well as provide the business with opportunities for innovation.

To embed sustainability easily in SMEs there is a need to provide an enabling environment as well as innovative financing mechanisms to accredit the transition.

The efforts should be aimed at addressing the concern on the fact that sustainability is a cost and hence reduces the return on investment. It is important to have initiative and incentives that make the entrepreneurs understand that whenever there is a reduction of carbon or other sustainability initiatives, there is a profit.

Sustainability strategy should be viewed as a profit centre for the business and not as a cost.

This will mean that businesses will need to measure their energy, water consumption, waste and carbon in terms of cost saving. Many predict that Africa will become a key player in the global economy in the coming decades due to untapped wealth in minerals and natural resources, its geostrategic position, vast arable land and a population where the majority include young workers.

The continent’s SMEs could lead the way. If invested in and challenges eliminated, then the next crop of billionaires could come from Africa.

Africa should realise that strengthening the capacity of SMEs is the key target of achieving most of the sustainable development goals.

With sustainability, SMEs will become responsible businesses which will result to continuous improvements enabling the companies to increase their bottom line through new opportunities as results of globalised supply chains as well as competitive advantages presented by sustainability and implementation of the SDGs.

The writer is CEO of Kenya Climate Innovation Centre.