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Canadian SMEs Leading the Way in Sustainability, But Limited by Capacity

New research from the University of Waterloo suggests that small businesses have enormous potential to advance sustainability in Canada. 86% of SMEs surveyed think that sustainability is important, and more than half have taken steps to make their practices more socially and environmentally-friendly.

Interestingly, respondents reported that they are equally motivated by building a good reputation within their community and aligning their business with their personal values as they are by reducing the costs of operating their businesses.

“Big corporations often get the headlines in debates about sustainable business practices, but in reality, we’ve discovered that many small businesses see sustainability as more important than their larger counterparts,” said Sarah Burch, the lead researcher on the project and a Canada Research Chair at the University of Waterloo. “Small businesses aren’t waiting around to be told to care about the environment, they’re already doing it.”

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This motivation represents a significant opportunity to slash emissions. Firms with less than 500 employees make up 98% of the country’s businesses, employ most individuals in the private sector, and cause the majority of private sector pollution.

“They may be small, but by their sheer numbers, SME’s can have a massive cumulative effect on the environmental and social well-being of our country,” Burch added. “The choices they make ripple through supply chains and have direct impacts in communities. Now that we know this, what’s needed are policies that support and accelerate the efforts these small businesses are making.”

Yet, as Burch notes in her policy brief on the research, few studies address the potential of SMEs to play a significant role in sustainability transitions, the unique characteristics of the local scale that support this role, or the policy and governance challenges that these present. She and her colleagues sought to better understand what factors influence the sustainability-oriented actions of SMEs and in turn inform both policy and knowledge sharing.

“Lessons, such as the importance of innovative stakeholder engagement, the value of creative visions of the future and the challenges that arise from taking a longer term, more holistic approach are rarely shared among SMEs outside [of research] experiments, throughout a region or among countries,” Burch explained in the policy brief. She considers understanding SMEs’ motivations and barriers to be the first step in successfully sharing such lessons.

The GATE (Governing and Accelerating Transformative Entrepreneurship) research project team surveyed about 1,700 SMEs in Toronto and Vancouver on a variety of sustainability measures including community outreach, reducing waste and supporting social justice through purchasing practices. They found that although sustainability is rarely at the core of SMEs’ business model (less than 20%), more than half (52%) reported that they have made efforts to make their operations more sustainable.

This is likely in part due to the perception that having sustainable business will improve growth and profitability – a perception held by two-thirds (66%) of SMEs according to research published earlier this year by HSBC Bank Canada. Yet only 25% said they are prioritizing investment to become more sustainable.

“While many smaller companies are trying to do the right thing, they face intense competition, tight profit margins and the costs of meeting existing responsibilities,” said Linda Seymour, Executive Vice-President and Head of Commercial Banking at HSBC Bank Canada.

The GATE study found a similar disconnect between SMEs’ desire to act (or the perceived importance of an action) and the capacity to do so. The most significant barriers were lack of time (a challenge for 62%), funding (for 59%), and availability of staff (for 54%). Survey respondents consider reducing their company’s waste production (75%) and changing employee behaviour to be more environmentally-friendly (72%) to be the most important steps they could take, and most (75.5% and 81%, respectively) of those respondents said they’d taken action in those areas. In comparison, more than half (56.5%) believe that the purchase new equipment and services is an important environmental measure, but only 35% of those respondents have done so. Social actions were found to be significantly more important to the respondents, and more reported taking steps to deliver social benefits.

Despite the barriers they face, Canadian SMEs appear to be pursuing social and/or environmental efforts, largely due to their consideration of social factors such as reputation and a sense of responsibility. As such, Burch suggests that management and policy approaches explicitly consider the community-based motivations of SMEs rather than solely on the economic business case. If SMEs can receive more support in their sustainability efforts, they can deliver significant benefits such as improving the wellbeing of their employees and local residents, influencing their customers and communities, and more – and we would all benefit.


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