Sustainability for Small Businesses

By Jim Haywood, Managing Director, Woodman Farrow Ltd.

Running a small business in today’s competitive marketplace is a constant challenge.  Bills need to be paid and books need to be balanced whilst remaining profitable.  Small law firms face many demands on often limited resources – including the time and expertise of colleagues and, of course, finances.  When setting out priorities and budget planning it may be tempting to reduce the focus on sustainability (in all its guises), or even ignore it altogether.  Some small businesses may see it as an irrelevance and something that only the bigger players in the market need to worry about.  After all, it’s just about compliance with environmental legislation, isn’t it?  An understandable view but one missing the opportunities and benefits that sustainability offers firms of all sizes.

Of course, it’s a given that we all must comply with relevant environmental laws – for example, when dealing with waste, discharging anything to watercourses, or in demonstrating the energy efficiency of the business (e.g. via the UK’s Streamlined Energy and Carbon Reporting requirement).  But being a sustainable business (and demonstrating that you are) is about much more than staying on the right side of the law.  It can give your business a critical edge over your competitors as well as putting you in a good position to be a key part of the supply chain of larger companies.  It can make you more attractive to lenders and investors and help you recruit and retain committed and engaged staff.  Being sustainable can ultimately save you money and improve your bottom line.

The sustainability landscape is changing quickly:

• Around two thirds of investors now take sustainability performance into account[i] – a significant increase in the past few years. They often need to see hard evidence, such as a demonstration that your business meets a standard like the new VSME, the voluntary sustainability reporting standard for SMEs (see below).  There is compelling evidence[ii] that companies with top ESG ratings are able to obtain financing on the capital market at significantly lower rates on average (average interest rate ~6.8 %a.) than ESG laggards (7.9 %)
• Companies with a strongly embedded sustainability culture and who ‘walk the talk’ score up to 70% higher on employee engagement than competitors who take the issue less seriously[iii]. They also retain 93% of their employees[iv].
• 80% of Gen Y/Z now expect companies to actively protect the environment[v]. Those who clearly do not can suffer serious consumer backlash.  (Just think of the bad press and reputational damage suffered by fast fashion brands such as Boohoo).
• Sustainable products are in increasingly high demand from customers. (For example, Unilever’s purpose-led ‘Sustainable Living’ brands grew 69% faster than the rest of their portfolio in 2019)[vi].  Thinking and acting sustainably can open market opportunities (with both end consumers and B2B customers).  This also helps promote innovation and efficiency, particularly for nimble and proactive small firms.
• As energy prices increase (and security of supply becomes more uncertain), cutting energy through efficiencies and thoughtful use of power not only helps to reduce a dependence on grid supplied electricity but also helps cut carbon as well as saving money. It is estimated that the average SME could reduce energy bills by 18-25% by making energy improvements[vii] (such as installing solar panels with battery storage, changing out old lighting for LEDs, draught-proofing windows and doors, replacing old heating systems with more sustainable options (e.g. Air Source Heat Pumps), etc.

Small law firms who respond positively and seize the many opportunities presented by embedding sustainability into their organisation are more likely to be the survivors in the competitive marketplace.  Despite the possible up-front costs (for example, installing more energy-efficient equipment), becoming a sustainable business is a win-win situation.  Experience shows that the ROI on expenditure which improves the sustainability of the business is worth the investment, particularly given the wider business benefits.  (For example, there is usually a 4-5 year payback on the average solar panel installation (30kWp) for SMEs)[viii].

Finally, don’t forget the opportunity to highlight your own business’s commitment and progress with becoming a sustainable firm. If your firm has fewer than 250 employees,  the newly introduced voluntary sustainability reporting standard (VSME) for non-listed SMEs requires a company to provide relevant information about its impacts on people and the environment, and the effects of environmental and social issues on its financial position, performance and cash flows in the short, medium, or long term.  The standard is likely to attract the attention of B2B customers, lenders and other key stakeholders.  They will be looking to see who adopts it; meeting the requirements is likely to become an expectation for doing business in the supply chain.

Not engaging with sustainability could leave you out in the cold.  Not embedding it into all aspects of your business could, quite simply, put you out of business.

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[i] Cse-net.org

[ii] MSCI

[iii] Gallup

[iv] WeSpire

[v] psico-smart.com

[vi] Unilever

[vii] UK Department of Energy & Climate Change (DECC)

[viii] heatable.co.uk