Companies of all sizes are aware of the pressing and inescapable need to reduce their environmental impact, with SMEs uniquely placed to be able make their businesses more eco-friendly. SMEs are often more agile than their larger counterparts, and their customers are keen for them to go green: research has found that a significant portion of consumers are happy to pay more to buy from more sustainable small businesses.
SMEs aiming to improve their environmental performance will often start the process by increasing their recycling, reducing the volume of waste they create, moving towards more sustainable transport and shipping methods, and cutting their energy consumption.
Having secured some easy wins, where else can small and medium sized business look for new ways to improve their eco-credentials? While every area of the business can be made more sustainable, taking a fresh look at finance can help SMEs on their path to becoming greener.
One relatively simple change is to ditch cash in favour of digital payments. Research by the Dutch central bank found that the energy consumed by a cash transaction far outstrips the same transaction made by credit or debit card. The energy needed for one cash transaction is the equivalent of keeping an 8 watt lightbulb lit for two hours (thanks to the energy needed to produce the coins or notes, to transport them and to power ATMs); for a card transaction, the energy required equates to powering the lightbulb for 90 minutes. While it may seem like a relatively small saving, with small businesses typically making tens or hundreds of cash transactions each day, it all adds up.
Cash transactions also tend to create a lot more paperwork than their electronic equivalents: while card transactions generate their own digital proof of purchase, cash transactions need receipts to prove they really did happen. More and more elements of financing are becoming digital-only, sparing businesses not only the hassle of storing and managing paper documents, but also the environmental impact that goes with them: each tonne of paper a company doesn't create also saves 4,100kWh of electricity and 7,000 gallons of water.
SMEs can also look to become more environmentally friendly by choosing financial products that better align with their sustainability goals. And, with the green finance market growing, they have more eco-friendly financial services to choose from than ever before.
The financial sector is waking up to the need for eco-focused products. For example, HSBC recently launched a suite of green services, including green loans (for companies undertaking sustainable activities) which are specifically aimed at SMEs, and a green revolving credit facility, for businesses of all sizes. Similarly, the European Investment Bank and asset manager Amundi paired up to launch the Green Credit Continuum to offer green SMEs new ways of financing.
The way SMEs approach their accounting could also be also be ripe for an environmentally-friendly makeover.
SMEs are being encouraged to think about accounting as being more than profit and loss, turnover and overheads, and to also start factoring in the environmental costs of doing business alongside their financial results.
Sustainable cost accounting is a new model proposed earlier this year for accounting that would show a company's environmental sustainability alongside its financial health.
While this may be too radical for many businesses, there are more gentle ways to introduce sustainability into accounting. The Association of Chartered Certified Accountants, for example, has guidance on carbon accounting – setting out the amount of carbon generated as a consequence of a company's activities – for SMEs, which could be combined with more standard financial reporting.
As well as building incentives towards greener behaviour into their own finances, SMEs can also use their finances to encourage others to adopt more eco-friendly business practices. By including sustainability requirements alongside more traditional measures during the procurement process, SMEs can ensure their own environmental goals can be extended into their supply chain.