Forget the free rider: SMEs don’t get a pass on climate action

There is no shortage of attention being paid to ESG in the business press today. Yet at times, it can feel like you’ve stumbled into the celebrity section instead, as yet another megastar brand polishes its image with a carefully choreographed press release. Reading about Exxon and Unilever week after week is all very well, but what about life amongst normal people?

The reality of the world is that most businesses just aren’t that big. 90% are SMEs, and they matter – employing 70% of the global workforce and accounting for half of GDP (and emissions, even in developed economies like the UK). 

The ESG story for these SMEs isn’t as easy to find, but it’s out there. It is encouraging and frustrating in equal measure; and if we are going to get the global majority of businesses behind the climate cause, there is one big myth waiting to be busted.

The SME perspective

To get a sense of the issue, let’s examine the SME Climate Hub 2023 Survey – a collaboration between the We Mean Business Coalition, the UN, and Oxford University amongst others. 

The good news is that of the small businesses surveyed here, 80% of them want to take climate action because ‘it is the right thing to do.’ One in three has already begun reducing their emissions. 

The bad news is that the majority still feel there are too many barriers to effective change. The top reasons given were:

• Lack of funds (55%). This is consistently the top issue across such surveys. 70% said they needed additional finance to start or speed up climate action.
• Lack of knowledge, skills or solutions (58%), likely due to smaller teams.
• Lack of time (40%) or other priorities being more important given limited resources.

Bear in mind that this survey took 340 respondents from the 5,200 signatories to the SME Climate Commitment – this is already the most motivated cohort, and they still struggled to justify strong action.

Track the issue more widely, and you will come across the same myth time and again. It is perhaps best captured by this quotation from another recent academic survey: “many small businesses see engaging on social justice and environmental issues as a luxury that only big business can afford.” 

The free rider myth

Sadly I have found this all too common, and there is little that is more frustrating to hear from a fellow CEO. Where does it come from?

The reality is that our ecological crisis impacts everyone, big or small. It is our collective responsibility. But there remains a myth amongst some SMEs that someone else will fix the problem – and there is no price to be paid if you stay on the sidelines. No one notices a free rider if they are small enough, right?

In fact, I believe the opposite is true. SMEs, more than any other type of organisation, are woven into the fabric of their communities. They have smaller teams with stronger relationships; more direct connections with suppliers and key customers; and are more geographically rooted in a sense of place. SMEs live and die on the health and happiness of these networks – and in smaller, tight-nit environments there is nowhere to hide.

This is a matter of risk. A large multinational caught out on the wrong side of an issue will usually survive: be it through a PR blitz, a reshuffling of global production or tax bases, or simply writing off a market (or an entire continent!) for a few years while the fuss dies down. Small businesses don’t have that luxury. If they are discovered cheating, polluting, poisoning or exploiting their community, they have nowhere else to go. For SMEs, being a good neighbour is existential. 

No small business leader ever complains that they’d like to settle their taxes, pay their bills or comply with the law, but that unfortunately it's ‘too expensive’ and they ‘lack the expertise’. They understand that if you can’t afford your accountant, your lawyer, or your lease then you don’t have a sustainable business. We need to see ESG in the same way – a necessary function that needs to be hired for and resourced accordingly.

When small is beautiful

Fortunately, small businesses have unique advantages in this area. Smaller teams can be more nimble, cohesive and responsive to change. Shorter supply chains and closer sales relationships offer natural transparency, making it easier to measure impact and track changes. 

Being embedded in a community brings challenges, but can also be an SME’s greatest strength. Communication is more direct and transparent, and trust is a real commodity. Build a reputation as a pillar of positivity in your networks, then your suppliers and customers will come to understand that your success benefits them too – and they will look after you. Every small business alive today experienced this during the pandemic. Let’s not forget those lessons. 

Today’s climate-positive SMEs already recognise the benefits here. 65% of survey respondents above were acting on climate to differentiate themselves in their markets. 73% believed it enhanced the reputation of their business. All of them understand that ESG alignment is an investment, not a cost. 

Ultimately, there is no free pass for small businesses on climate. Forget the myth of the free rider –embrace the rewards of becoming a community leader instead.