Small firms that have yet to grasp the business opportunities created by the environmental sustainability agenda are missing out on a potential £5.7 billion of economic growth in the next three years, new research from Lloyds TSB Commercial has revealed.
The bank, which questioned over 1,500 British businesses with a turnover of less than £15 million, discovered the majority of small firms
(91 per cent) have taken some steps towards becoming more environmentally sustainable
. And, almost a third (30 per cent) of small and medium-sized enterprises (SMEs) have already seen their business grow by an average of 13.25 per cent over a three year period solely as a result of these initiatives.
However, the research showed that those SMEs that haven’t embraced the sustainability agenda (nine per cent) could have contributed £5.7 billion of economic growth had they taken steps to become more environmentally responsible.
John Maltby, managing director, Lloyds TSB Commercial, said: "It’s no secret that smaller, private sector firms will be one of the main drivers of the economic recovery this year. However, many businesses may not have realised the wealth of opportunities open to them by becoming a more sustainable business.
"As well as reducing overheads and operating costs, becoming more sustainable will give many firms a competitive edge, enable them to pitch for contracts with strict environmental criteria and enhance their reputation. It may also mean they can target new markets and consumers, or develop new products and services.
"It’s fantastic to see most firms have taken some steps but it is a worry that some businesses have shunned the idea altogether. As the economy begins to recover, those SMEs that do not assess their environmental policies and the opportunities in the green marketplace could miss out on their slice of billions of pounds of growth."
Becoming a more sustainable business
Out of the 91 per cent of small businesses that have taken some steps towards becoming more sustainable, most have implemented new company policies (73 per cent). The second most popular step (68 per cent) has been to improve resource efficiency by reviewing energy usage and just over half (51 per cent) of firms questioned have provided employee training on the subject of sustainability.
A further 46 per cent have consulted other organisations for advice and guidance on the matter whilst 42 per cent have reviewed the sustainable credentials of their sourcing strategy and suppliers. Over a third (36 per cent) have collaborated with other businesses and 32 per cent have developed new products or services aimed at the sustainability sector.
Whilst 30 per cent of SMEs had seen growth has a direct result of becoming more sustainable, improved employee engagement (37 per cent) and the retention of current contracts and clients (33 per cent) were also key benefits.
When asked about why they had decided to take steps towards becoming more sustainable, most firms (80 per cent) said it was because they felt it was an important issue. Other reasons were to reduce costs (74 per cent), to meet current or new legislation (68 per cent) and to improve the reputation of the company (68 per cent).
Risks and opportunities
The research showed that many small firms are still unclear about the risks and opportunities sustainability can create and how it will affect their own businesses.
When questioned about the potential risks associated with not becoming more environmentally responsible - such as higher operational costs, incurring extra fees and taxes, falling foul of legislation, falling behind competitors and losing existing clients and contracts - there was a mixed response.
Almost half (45 per cent) of SMEs are worried that there would be risks to their business if they didn’t take measures to become more sustainable, whilst a similar number (52 per cent) believe there wouldn’t be any risks.
Businesses were also evenly split when asked about the opportunities created, such as the possibility to enhance their reputation, keep up with or stay ahead of competitors, reduce costs and overheads, pitch for contracts that require sustainable policies, retain current clients and contracts, target new markets and improve employee engagement.
Just over half (52 per cent) of SMEs think that no new opportunities will be created if they become more sustainable, but 43 per cent said there would be opportunities.
John Maltby, managing director, Lloyds TSB Commercial, continued: "Whilst the potential for growth by becoming more sustainable is clear, there’s still confusion in the SME market about the opportunities that will be created. This could be for many reasons, but it’s important that support organisations - such as banks, advisors and business groups - help firms identify the risks and opportunities specific to their business."
Nearly a third (31 per cent) are worried their company isn’t doing enough to capitalise on the opportunities, and of that third, the main reason (63 per cent) they are not doing enough is because they are waiting for economic conditions to improve.
Regional and sector variations
Across the sectors, engineering and manufacturers firms (55 per cent and 53 per cent respectively) were most worried about the risks to their businesses if they don’t become sustainable. Only 20 per cent of finance firms thought they would be at risk if they didn’t become more environmentally sustainable.
However, only 35 per cent of engineering firms thought there would be opportunities for them by becoming more environmentally responsible. The hospitality sector was the most optimistic about opportunities that would be created, with 49 per cent stating that this would happen if they become more sustainable.
Looking across Britain, SMEs in Scotland (35 per cent) and the South West of England (34 per cent) were most likely have seen growth as a direct result of becoming more sustainable, whereas businesses Wales and the East of England (both 27 per cent) were least likely to have recorded growth.
John Maltby added: "Climate change and sustainability might seem like issues only relevant to large organisations, but there are real opportunities for smaller businesses to benefit if they act now and set out a clear strategy. Increasingly, sustainable credentials are becoming a key part of the tendering process when pitching for contracts – London 2012 contracts are a concrete example of this.
"A small amount of investment could lead to a strong increase in turnover in the next three years. In fact, some 60 per cent of the small businesses we questioned said the cost of becoming more sustainable was less than £5,000. What’s more, there’s a wealth of free guidance and support that small firms can access if they’re unsure of the steps they need to take.
"By the end of this year we’ll have 400 trained business and environment managers operating nationwide, working closely with our customers to support their sustainability strategies. We’ve also developed a dedicated online resource, which is free for anyone to use, that helps businesses set up an action plan, create a sustainability statement and outline their key goals."
Paul Turner, community investment and sustainable development director, Lloyds Bank, said: "This research confirms what many of us working in the field have increasingly observed: sustainability and profitability are natural bedfellows. By supporting businesses and sharing this message, SMEs can be both the engine for recovery and the route to a low carbon, resource efficient economy. Managing the risks and maximising the business opportunities just makes good business sense."
For more information visit: www.supportingbusinesses.co.uk/lloyds/sustainability