SMEs can benefit from integrating growth with environmental sustainability. Here's why

Accounting for about 30% of global greenhouse gas emissions, the industrial sector is accelerating its efforts to achieve net zero by 2050 or sooner and make environmental sustainability an imperative in response to the growing urgency of climate change.

Indeed, findings from the Climate Action 100+ 2023 report shows that 77% of the companies surveyed now commit to net zero across at least Scope 1 and 2 emissions.

And there are economic benefits too – a 2023 McKinsey study of publicly listed companies found that organizations which outperformed on profit, growth and environmental, social and governance (ESG) saw greater revenue increases than companies that only outperformed on profit and growth.

In addition, studies indicate that by incorporating climate risk assessments into a company’s sustainability plan, organizations can better hedge against the threat extreme weather events and future policy updates present to their business.

However, surveys show that many small to medium sized enterprises (SMEs) have yet to develop strategies incorporating environmental sustainability and are therefore not yet participating in the sustainability journey.

SMEs and mid-sized companies do not have the same number of resources to dedicate to sustainability efforts. Yet smaller enterprises are not only a key part of the industrial transformation overall as they are estimated to contribute up to about 60-70% of global industrial emissions, but also can benefit from embracing more sustainable operations.

As such, there is an opportunity to embrace a business investment mindset with three key benefits that can be unlocked through sustainability showcased below and illustrated with real-world practices that can be taken to advance this journey.

When exploring pathways to decarbonize operations, companies often think of the most impactful projects such as generating renewable energy onsite via a microgrid or changing high-heat processes over from gas power to electrical.

While impactful, projects of this type are often capital expenditure (capex) intensive and can have long payback periods which SMEs and mid-sized enterprises cannot always accommodate.

The sustainability transformation does not necessarily need to start with such capex heavy projects; there are many technologies with low upfront cost and fast payback periods that can help SMEs and mid-sized enterprises to lower their emissions and operational expenditure.

For example, variable speed drives (VSDs) enable motor systems to adjust their speed and output to the load demand placed on the system (vs operating at 100% all of the time). When placed in centrifugal motor systems like those running a pump or fan, VSDs can achieve energy consumption savings of up to 50% while also extending the lifetime of the motor.

Case in point – Benders, a leading paper cup manufacturer in the UK was looking for ways to improve the efficiency of the wastepaper extraction fans in their production systems as the fans were drawing an outsized amount of power.

By piloting the system with a VSD in place and adjusting the motor output, the Benders team were able to achieve a significant reduction in energy consumption and increase the lifetime of their motors.

The energy savings alone resulted in a payback of just under six months on a project that cost less than $10,000 to implement. These type of ‘low-hanging fruit’ efficiency projects can lead to quick wins in profitability and emissions savings for savvy SMEs.

Leveraging new technologies for competitiveness demands skilled workers who can fully utilize these advancements. However, the ongoing challenge of finding experienced professionals persists, leaving many employers struggling with a shortage of qualified talent across the value chain.

This new operating environment highlights the importance for SMEs and mid-sized enterprises to deploy new strategies to attract top talent and distinguish themselves. One of the key approaches to achieving this is putting an emphasis on corporate values throughout the recruitment process.

According to a 2021 study by the IBM Institute for Business Value, 69% of global consumers say they are more likely to accept a job with an organization they consider to be environmentally sustainable.

In addition, data suggests that when a company embeds sustainability into their culture it can help to reduce workforce turnover versus industry averages. Putting an emphasis on sustainability strategy and demonstrating progress on environmental goals can be a key pillar of a winning recruitment strategy for SMEs and mid-sized enterprises.

Sustainability-driven innovation can unlock new business models that position companies at the forefront of their markets. Traditionally, SMEs seek growth and profitability within the boundaries of their current business model.

By taking a fresh look at a companies’ material and process flows, exploring new partnerships and leveraging digital marketplaces, SMEs can identify opportunities to turn waste into resources and differentiate themselves.

Take the example of InnovaFeed, an agtech company that develops animal feed from Black Soldier Fly larvae at an industrial scale. Instead of paying for a food source for the larvae colonies, InnovaFeed chooses production locations close to facilities that process agricultural goods (e.g., corn processing facilities) and uses the agricultural by-products to feed their colonies, significantly lowering their feedstock cost.

Another example of circularity can be found in the Schneider Electric Angouleme plant where push buttons are manufactured. Scrap metal filaments from the production process were initially considered too lightweight to reuse in the feedstock.

Initially the team planned to dispose of the filaments, but engineers took a second look and determined a compactor could be used to compress them into denser blocks which could be sold back to the supplier for recycle.

By installing said compactor onsite and selling the compressed filaments the plant turned scrap into revenue which helped to offset the cost of raw materials.

No matter the angle from which one views the case for sustainability in manufacturing and supply chains, there are numerous incentives for SMEs and mid-sized enterprises to embed sustainability into their corporate vision and industrial operations moving forward.

Environmental sustainability and business performance can grow hand in hand. By adopting sustainable practices, SMEs and mid-sized companies can not only reduce environmental impact but also enhance operational efficiency, cut costs, attract talent and unlock new growth opportunities.

The path to sustainability is also a path to greater efficiency and profitability. Start today and lead the business into a future where growth and environmental responsibility thrive together.

The World Economic Forum’s Centre for Advanced Manufacturing and Supply Chains has established the SME Sustainability Accelerator, in collaboration with Schneider Electric, to help manufacturing SMEs and mid-sized companies accelerate the sustainability transformation by providing actionable insights and guidance tailored to their specific needs and challenges.

To kick this off, the SME Sustainability Accelerator is launching a survey to capture the voices from small and mid-sized companies about the challenges they face and the specific support they need to accelerate their sustainability journey.

The World Economic Forum invites manufacturing SMEs and mid-sized companies to participate in this survey to shape an actionable framework that simplifies and energizes the sustainability journey, and inform both the public and private sectors in developing support mechanisms tailored to the specific needs of SMEs on their path to sustainability.