Business 9.8.2018 04:13 pm

Sustainability strategies are vital for SMEs

Picture: Steve Kretzmann/WCN

Picture: Steve Kretzmann/WCN

A good sustainability strategy incorporates economic, environmental and social performance goals, with each having a direct benefit for the SME.

Many startup and small and medium-sized enterprise (SME) owners in South Africa believe sustainability strategies are only relevant to large corporates, but there are many advantages to making sustainability the foundation of any new business.

This is according to Jeremy Lang, regional general manager at Business Partners Limited, who says it is often difficult to sell local SME owners on the idea of sustainability, largely because of the perceived costs and time involved.

“However, the benefits of implementing a sustainability strategy early on in the life cycle of a business far outweigh any cost implications. Small businesses built on sound sustainability principles could even see themselves gaining a competitive advantage in their respective sectors.”

He cites a recent study by McKinsey that found a strong correlation between resource efficiency and financial performance. “The companies with the most advanced sustainability strategies did best of all in this study.”

In business, sustainability consists of three distinct aspects: “A good sustainability strategy incorporates economic, environmental and social performance goals. Each of these also has a direct benefit for the SME if managed correctly.”

Economic performance is the area a business can see the quickest results. “McKinsey’s study measured the amount of energy, water, as well as waste that companies used, in relation to their revenue, and concluded with 99% confidence that it had a direct correlation with profits.”

He notes that in South Africa, the above-inflation rate increase in electricity tariffs in recent years and increased uncertainty over the availability of water has placed significant strain on SMEs.

“The good news is that the cost of installing renewable energy generation technology (which can be upwards of R100 000) can be offset by the tax benefits. The Income Tax Act allows businesses to enjoy accelerated capital allowances, in respect of renewable energy spend, as a tax deduction.”

Lang says that growing a corporate culture of water saving and investing in water-efficient technology on the production side, will help a business to manage its risks during shortages.

The environmental aspect of sustainability is also vital for SMEs to keep in mind. SME owners need to be aware that environmental obligations will start to impact on them more and more. The carbon tax, to be implemented in 2019, is just one example.

Rising fuel costs will be the most obvious effect of the new tax, so SMEs need to make their logistics more efficient.

Finally, Lang says making room for social considerations in a sustainability strategy can help an SME unlock new opportunities.

It also opens doors for local SMEs to engage with like-minded international companies.

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