How good are SMEs at embracing eco-friendly practices? An article by a team of researchers, including NEOMA’s Nathalie Spielmann, has stressed the importance of “proactive orientation” in adopting environmental strategies (and their long-term success) alongside the role of regulatory pressure.

Sustainability and respect for the natural environment are taking on increasing importance in a constantly changing world. Small and medium-sized enterprises (SMEs) are facing growing pressure from society as a whole and regulators to introduce environmental initiatives. To take one example, stakeholders are challenging SMEs to streamline their consumption of energy, water and raw materials; to upgrade their waste management; to devise more eco-friendly products; or to scale down their CO₂ emissions. What does all this mean in practice? It’s not just about cutting out excessive food packaging, but also optimising production methods and trimming the number of parts scrapped in the engineering industry.

At the same time, the research shows that in overall terms SMEs are being left behind by bigger companies when it comes to sustainability. When a new regulation is introduced, SMEs will even opt to do the bare minimum because of a lack of resources or due to indifference. Nevertheless, it would be a mistake to generalise these findings: some SMEs that are exceptionally proactive see sustainability as an opportunity. Nathalie Spielmann and her colleagues set out to develop a better understanding of why and to what extent resourceful SMEs try out integrated approaches. In addition, they investigated how the regulatory context influences the direction these firms take on their journey towards an ethical model.

From proactivity to sustainability

The researchers surveyed 286 SMEs in the wine industry in Italy, France, Denmark and the United States. Climate change and other sustainability issues are key concerns for these companies given their substantial impact and dependence on the agricultural environment. Furthermore, it is a sector that is largely dominated by SMEs, which means it is a particularly fruitful industry to study.

The first observation is that the most resourceful SMEs are inclined to anticipate environmental requirements rather than simply react to changes in the regulations. Some firms, it is true, may be motivated by the personal convictions of their leaders or simply because they have an innovative ethos. And yet, it is their overall proactivity that plays a decisive role when it comes to adopting sustainable practices.

The second conclusion is that when SMEs put in this work, they are rewarded by an upswing in their financial performance and long-term reputation. These companies, it follows, quite simply benefit from a competitive edge over firms that do not boast an integrated sustainability strategy. The study also demonstrates that customers and suppliers are the powerhouses behind the introduction of eco-friendly initiatives. A company’s ability to take risks or its capacity for innovation are not major factors.

Practices bolstered by regulations

Environmental regulations have been stepped up over the last decade in numerous industries worldwide. According to the study, the more intense these regulatory pressures are, the more likely it is that proactive SMEs will embrace ecological practices. In fact, when the regulations are more lax, these companies are inclined to turn their attention to other levers of action so they can differentiate their products and drive down their costs. When environmental constraints are strengthened, on the other hand, they focus more on questions of sustainability. Additionally, when more resourceful SMEs take a shot at environmental challenges, they often go over and above the legal requirements.

The researchers point out, however, that these pressures do not have a uniform effect across all spheres of corporate action. Regulations, it seems, have a greater effect on operational management and waste handling in proactive SMEs. Why? Because the rules apply to more concrete aspects: supply chains, energy, water and materials, where it is easier to measure and monitor the positive impacts.

In more general terms, SMEs face myriad challenges in relation to environmental practices. In addition to the regulatory aspects, these include issues of cost, brand image and competitive advantage. In conclusion, SMEs with their sights set on the future and the society of tomorrow are instrumental in furthering the UN’s sustainable development goals while staying one step ahead.

Find out more

Beverly B. Tyler, Brooke Lahneman, Daniele Cerrato, Allan Discua Cruz, Karin Beukel, Nathalie Spielmann & Marco Minciullo (2023) Environmental practice adoption in SMEs: The effects of firm proactive orientation and regulatory pressure, Journal of Small Business Management, https://doi.org/10.1080/00472778.2023.2218435