MGT3180 Enterprise & Small Business

SMEs, the Environment and Sustainability

Ian Vickers

Centre for Enterprise and Economic Development Research Business & Management Group

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Overview of environmental issues Findings from a recent study - SMEs in a low carbon economy Concluding questions...

1 Overview of environmental issues

• Two basic & interlinked phenomena contributing to environmental degradation -

economic growth

&

population growth

. • Current environmental issues: – Climate change resulting from greenhouse gas emissions – Ozone depletion (CFCs) – Air pollution: inc. acid rain, issues around local air quality, carbon monoxide and nitrous oxide from vehicles.

– Water pollution: inland (inc. groundwater) and oceans.

• Current environmental issues (2): – Waste disposal to land (inc. domestic and hazardous wastes) – Deforestation – Soil erosion and desertification – Species loss/loss of biological diversity – Depletion of fossil fuel resources + minerals – Risks from new technology (e.g. biotechnology)

Some characteristics of environmental problems

• • • • •

Threshold dependent:

i.e. nothing happens for a long time but when a certain threshold is reached the adverse effects accelerate rapidly

Delayed effects:

i.e. even if we stop now, things won’t improve for 50 years

Combined impacts:

e.g. synergistic effects of different pollutants.

Unknown/difficult to predict consequences:

hence arguments in favour of adopting the

precautionary principle Future generations bear the cost:

development’...

esp. with respect to effects which are irreversible. Hence the importance of ‘sustainable

Drivers for environmental improvement in business:

• Legislation/regulation + fiscal measures (green taxes) • Efficiencies in resource use and / or minimisation of waste (environmental or eco-efficiency); • Consumers: ‘green consumerism’ • Supply chain pressures • Insurance/lending • Local communities • Values/ culture of those within firms

SMEs in a low carbon economy – findings from a recent study

• Report to the UK Government by Sir Nicholas Stern described climate change as

“the greatest market failure ever seen”.....(

HM Treasury/Cabinet Office, 2006, p.i). • Widely accepted by economists and policy makers that severe reductions in greenhouse gas emissions are essential – probably of

80% or more by 2050

against a 1990 baseline. • Aim of achieving a low carbon economy is closely aligned to that of achieving sustainable development...

Climate change - policy • Target of reducing emissions by 80% by 2050 recently recommended by the new, independent Committee on Climate Change (CCC, 2008) and accepted by the UK Government. • The Climate Change Bill also involves a system of

carbon budgeting

& powers to estab.

trading schemes

to limit emissions of greenhouse gases. EU / UK due in 2009 to reach an agreement to reduce emissions by at least 20% by 2020, and to increase

renewable energy

sources to 20% • Whatever the precise targets involved, it is clear that there is a need for swift and radical change in systems of energy generation, production and consumption. • As well as mitigation (reducing emissions) - need for

adaptive actions

, given latest evidence on the rate of climate change + levels of mitigation action to date have

been too low to pre-empt adverse socio-economic impacts

(IPCC, 2007).

Environmental impact of SMEs

• SMEs account for approx 45% of total UK business energy use, this being broadly proportional to their share of the economy (BERR/ONS 2008 data) • almost a third of SME energy expenditure thought to be wasted through inefficient practices, with potential waste equal to £1.1 billion out of a total of £3.5 billion (Carbon Trust 2006 data) • SMEs caused about 43% of serious industrial pollution incidents and generated 60% of all commercial waste in England and Wales (Environment Agency, 2006) • more positively, SMEs that are directly regulated by the Environment Agency had a higher than average rate of waste minimisation and recovery – 62% compared to all directly regulated sites (i.e. including large organisations) (Environment Agency, 2006)

SMEs & sustainability / green management • Studies show that most SMEs have been

slow to adopt environment-related improvements

, including with respect to take up of ‘win-win’ and ‘low hanging fruit’ opportunities and also take up of environment-related business support. • This limited responsiveness is due to a number of

internal and external barriers

, but particularly to a

lack of market, regulatory and fiscal signals

and doubt amongst owner-managers relating to the

business case for sustainability

.

Opportunities for SMEs in a low carbon economy

•

Increasing demand for low carbon / more sustainable goods and services

- opportunities for the

development of innovative solutions and new markets

. •

Opportunities for many existing SMEs to modify their processes and products/services to be more sustainable

, which are particularly important in manufacturing (including product refurbishment/remanufacturing), construction, transport, farming and food production, and also professional advice services on sustainable business practice. • Other opportunities associated with the development of a

low carbon infrastructure and productive capacity -

relocalisation

agenda important for local/regional enterprise......

Potential advantages of SMEs • Importance of development

of learning capabilities

in SMEs. Smaller firms are

resource constrained

, limiting their ability to make significant innovations, but possess certain

behavioural advantages....

• SMEs (including social enterprises) have

other characteristics

which may be

supportive of sustainability and responsible behaviour:

they are more likely to be embedded in their local economy, not so driven by profit maximisation, rely on reputation & trust for business transactions, often show strong commitment to employees.

Low carbon innovation

• Small hi-tech start-ups and SMEs have been playing a particular role in the development of novel low carbon technologies - renewable energy technologies, e.g. tidal/wave, solar photovoltaics, geothermal power, regional biomass, energy storage, organic/local food provisioning, pro-biodiversity activities and novel transport options.

• Particularly important here has been the role of

supportive contexts

, including venture capital, public sector and other forms of support. • Case studies of low carbon start-ups in the recent literature also demonstrate the origins of novel technologies on which the start-ups are based in research-intensive universities.

Low carbon innovation (2)

It has been argued that: • ‘climate change entrepreneurship’ could be a more significant and enduring opportunity than the dot-com boom of the late 1990s, when global sales of personal computers were growing at 15 to 20 per cent; • the global low carbon energy market opportunity could reach £2,000 billion per annum by 2030 (Vivid Economics, 2008).

Low carbon innovation (3)

• Most SMEs need to increase the application of

existing knowledge and (affordable) technologies

for improving their sustainability. • In order to understand why opportunities are taken or not in particular SME contexts, need to understand the

learning dynamics and competing pressures

involved when firms seek to incorporate environmental concerns into their general business strategy. • Studies draw particular attention to the importance of

appropriate incentives

and an

institutional context that is supportive of the greening of SMEs.

Sectoral implications

• Studies have identified implications and opportunities for

particular sectors

– eg in energy, housing transport, food production.....

• This includes in areas where there are other social needs, such as for affordable (as well as low carbon) housing and in order to reduce dependence on increasingly volatile overseas markets (e.g. energy and food production).

Barriers to the low carbon economy

• • Powerful influence of

existing practices

and the

interests of incumbent businesses and industries

which may constrain the transition to a low carbon economy

Uncertainties and complexities

relating to the strength and consistency of the

regulatory/fiscal and market drivers.

• Danger that such factors, in a context of economic downturn, will

undermine investment

in low carbon tech, products and services, also jeopardising the viability of businesses that take real actions to make their operations more sustainable.

Policy for SMEs in a low carbon economy

• Government has a central role: – establishing a

strong and consistent regulatory and fiscal environment

– spending decisions – supporting individual pro-environmental consumer behaviour/lifestyles through

education and further raising the profile of climate change policy

• Better regulation: – building and product standards standard – other environmental regulations - to stimulate integrated and ‘clean technologies’

Policy for SMEs in a low carbon economy (2) •

Sustainable sourcing and procurement

- principles need to be more widely applied and barriers to greater involvement of SMEs overcome. More consistent application and extension of

whole life costing

(i.e. including the full environmental costs/benefits of products/services) in public sector is particularly crucial. • Government has a key role to play in relation to supporting

innovation and R&D

, with a number of studies pointing to the need to increase both business and government expenditure on low carbon technology in order for the UK to be more in line with other leading industrialised nations.

Policy for SMEs in a low carbon economy (3) • Need for new

‘disruptive

’ technologies, business and social enterprise models - involving step changes in both business practice and consumer behaviour. • Some contributions warn against the danger of over emphasising new technology as a solution to climate change – danger of ‘rebound effect’ + need to speed up deployment of existing technologies + need for behavioural change....

Sustainability related business support • Previous studies have identified a

limited impact

of environment related support - recommendations for more coherent and effective env business support include: – Better targeting / more effective referral to the appropriate service; – a focus on sector specific and local provision; – the identification of opportunities for the creation of new low carbon enterprises; – influencing all start-ups to take on board sustainability considerations at the business inception stage; – tools and techniques which are appropriate to SMEs need developing/disseminating • Strong

external drivers

, such as regulatory, market, supply chain and other stakeholder pressures, important in increasing demand for environment-related support and training in SMEs.

Concluding questions

• Very short time frame for effective action – what is the role of business innovation?

• Need for a new perspective on consumption and markets – role of values and lifestyle change? • Are current and proposed policy actions sufficient to promote transitions to sustainability ?