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MGT3180 Enterprise & Small Business
SMEs, the Environment and Sustainability
Ian Vickers
Centre for Enterprise and Economic Development Research
Business & Management Group
1. Overview of environmental issues
2. Findings from a recent study - SMEs in a low carbon
economy
3. 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: esp. with respect to effects
which are irreversible. Hence the importance of ‘sustainable
development’...
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 overemphasising 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 ?