What obstacles do SMEs face in meeting sustainability goals?

Small and medium-sized enterprises (SMEs) have a crucial role to play in the transition to a sustainable economy. In fact, they represent 99.8% of the business fabric and 64% of employment in Spain. Many SMEs are agents of innovation and active exporters.  

But for SMEs to have a fighting chance in the sustainability challenge, they must have more equitable access to information and resources, and regulations must be better aligned with their needs.  

These are some of the conclusions presented in the latest report by the SDG Observatory promoted by the Center of LeadershipS and Sustainability of Esade and “la Caixa” Foundation, collected through discussion sessions with 43 Spanish SMEs from various sectors committed to sustainable development.  

Keys in sustainable practices

Committing to becoming leaders in sustainability can give SMEs a competitive edge. Standing out from competitors in this area can boost innovation, help attract and retain talent, and revamp the company's reputation. 

Committing to sustainability gives SMEs a competitive edge

However, this can only happen if the management team shows an unwavering commitment to sustainability goals. Otherwise, it is very difficult to get all the company teams on board and working toward this common goal.  

This conviction must go hand in hand with adequate training. The transfer of knowledge and technology between the public sector, universities, companies, and civil society is especially relevant. As pointed out in the report, these strategic alliances can “bring order to the existing confusion around the new standards and tools for integrating sustainability.” 
 
Although most of the companies interviewed tend to focus on a specific area of sustainability, they all share a broad vision of sustainable development and recognize that the social, environmental, and governance dimensions are interrelated.  

Main obstacles

Since 2020, SMEs have operated in a highly fluctuating and uncertain socio-economic context that, above all, has led them to focus on surviving and minimizing unnecessary risks.  

There have been many uncertainties: increased general and labor costs, the rebound in demand, oscillating sales, financial debt, etc. Against this backdrop, over the past year, SMEs have renounced medium and long-term planning, and transformative measures have slowed down.  

Another major obstacle is the costs associated with sustainability, which are reflected in the final price of many products. More expensive products may be more prohibitive to end consumers. However, this is conditioned by consumer purchasing power and the prioritization of sustainability in public procurement, among other factors.  

Despite the costs associated with sustainability, some sustainable alternatives are now more affordable 

Still, it should be noted that due to innovation efforts and the recent increase in the cost of traditional materials, some sustainable alternatives are now more affordable in price, while still having less negative impact on people and the planet.  

Yet another obstacle to overcome is the difficulty SMEs face when it comes to sharing sustainability values throughout their entire value chain. Small businesses are often unable to exercise sufficient sway over larger suppliers and customers and may have trouble finding partners aligned with their level of awareness.  

Moreover, the regulations on SMEs are hostile. While in recent years a dense legal basis promoting the sustainability transition has been constructed and a large amount of funds has been made available to companies to promote the green transformation, SMEs are still very critical of the administration.  

Some of the most common complaints are: 

• Excessive bureaucracy blocking access to aid. 
• Legal uncertainty in the face of changes to common regulations and varying requirements.  
• Regulations unaligned with the reality of SMEs. 
• The lack of respect for sustainability criteria in the administration's procurements and adjudications. 

Regarding talent recruitment, the companies in the study reported having fewer resources and capacity for professional promotion than larger companies.  

However, this handicap is easily overcome as long as job seekers understand the mission of the hiring companies — regardless of their size — as genuinely aligned with sustainability criteria. 

The importance of good communications

In addition to implementing a sustainable model, SMEs must be adept at communicating it. This is crucial to emphasize the continuity between the business model and the company's values and, thus, steer clear of greenwashing, which ends up negatively affecting the brand’s reputation. 

To achieve this, SMEs should combine an understandable and simple message aimed at the general public with indicators and new KPIs that lend themselves to the rigorous reporting of their contributions to the 2030 Agenda.  

In addition to implementing sustainable models, it is important to communicate them well and steer clear of greenwashing

In this sense, non-financial reports and certifications are two good practices for accountability to society. However, adapting them requires valuable time and resources that are not always available, especially in the case of SMEs.  

That is why when considering implementing these practices, it is important to “evaluate the initial investment they represent, their popularity among the competition, and the end consumer’s ability to understand and distinguish their added value,” the report explains.