Key Highlights
- A survey by Sage, ICC, and PwC UK of over 16,000 SMEs highlights a disconnect: 70% of South African SMEs prioritise sustainability but only 4% report on their impact.
- Reducing barriers could open up new financial avenues, growth, and employment opportunities for SMEs.
- Sage recommends more straightforward reporting frameworks and better tech support to help SMEs act on sustainability.
A global study of 16,423 small- and medium-sized enterprises (SMEs), launched recently, shows that a promising number of SMEs want to make progress on their path to sustainability, but are often unable to measure and report on their performance, which prevents them from acting on their ambition.
Path for Growth: Bridging the SME Sustainability Reporting Gap, was led by Sage, the leader in accounting, financial, HR and payroll technology for SMEs, in partnership with ICC, PwC UK, and Strand Partners.
Given that SMEs, which are 99% of businesses across the world, play a critical role in society’s path to sustainability, the report aimed to identify their motivators and roadblocks on that journey.
The report found, positively, that an increasing number of SMEs understand sustainability is critical to business growth.
In 2022, 76% of those surveyed said sustainability was important to them, a number that rose to 83% this year.
South African SMEs also reported feeling pressure to be more sustainable from their many stakeholders: customers topped the list at 34%, but others like suppliers (9%) and local community (9%) were also factors.
However, very few of the global SME respondents (8%) are currently measuring and reporting on their sustainability impacts.
According to the South African businesses surveyed, the two biggest roadblocks on their path to measure their impact were the upfront costs involved (28%) and difficulties assessing the environmental impact of their operations (26%).
Positively, South African SMEs (21%) are ‘ready’ and ‘willing’ but are not yet measuring their impacts. The statistical analysis from the report suggests that if the barriers to reporting for SMEs were removed, there is potential to triple the number of SMEs who start reporting in the next two years – this would be an addition of 51 million SMEs to the global reporting pool, signalling a serious shift in society’s potential response to climate change.
Importantly, this would allow reporting SMEs to leverage the benefits coming from sustainability reporting, which include increased access to finance from banks that include sustainability impact as part of their assessment; a more positive employer brand, allowing them to hire high-quality talent; and the ability to compete in contract processes which require sustainability information, winning them new customers.
In light of these findings, Sage, ICC and PwC UK are issuing the following recommendations for standard-setters, governments, and industry leaders to consider, so the reporting landscape can be more accessible for SMEs across the world.
Standard setters:
- Establish consistency in ESG terminology used so SMEs can understand and respond to reporting asks more seamlessly
- Work with governments to assess and increase the interoperability of emerging SME standards with leading market standards, and make clear how the requirements of one standard meet the requirements of others
- Provide user-friendly guides, templates and automated solutions that ease the burden of reporting for SMEs
- Consider if the reporting asks being made of SMEs are proportional for a business with limited resources, and prioritise material issues to help them focus on the right areas
Government:
- Build data infrastructure to support SMEs and move reporting towards accuracy and transparency, such as developing shared tools and data repositories
- Showcase the importance and benefits of sustainability reporting among SMEs, such as access to markets, funding, and cost efficiencies
- Promote the use of affordable and automated digital technologies for sustainability reporting that lighten the burden on SMEs
- Encourage SMEs to invest in their sustainability reporting considering financial incentives to mitigate upfront costs
Pieter Bensch, managing director and executive vice president of Sage Africa and the Middle East, says many of the businesses surveyed acknowledge the positive impact associated with sustainable business practices, such as attracting customers, increased financial returns, and tax subsidies.
“However, it is impossible to overlook the reporting challenges, as evidenced by the low reporting number of SMEs in South Africa (4%),” Bensch adds. “Furthermore, 45% of South Africa businesses stated that adopting sustainability reporting would be more feasible with government support, loans, or some form of financial backing. This revelation showcases the willingness of most SMEs wanting to be more sustainable, however, the undertaking of sustainability reporting, is blocked by high costs and complex reporting frameworks.”
Elisa Moscolin, executive vice president of Sustainability & Society at Sage, said:
“Beyond the figures, the report tells us one key thing: there is in an indelible connection between sustainability reporting and action – SMEs can’t fix what they can’t see. Tech is a huge part of that – 63% of SMEs told us the right digital tools will make it easier for them to report, and we are committed to being part of the solution there with tools like Sage Earth. But it will take an ecosystem to get SMEs – and society at large – to embrace sustainability, and we hope to partner closely with governing bodies and governments to make the reporting landscape more accessible for SMEs across the world.”
John W. H. Denton AO, Secretary-General of ICC, said:
“As the institutional representative of more than 45 million businesses worldwide, we see every day the potential of SMEs to lead the way in creating a more sustainable future. While it is clear that SMEs are increasingly taking action, this report identifies what SMEs need to deliver fully on the promise of a more sustainable and prosperous future. Specifically, we must provide SMEs with the right policies and incentives, effective tools and, most importantly, SMEs need a collaborative effort to transform business practices. By collectively focusing our attention on these key areas of action, we can enable SMEs to tackle the obstacles in their way to better understanding, managing and ultimately improving their sustainability performance.”
Lynne Baber, Head of Sustainability at PwC UK, said:
“The critical contribution SMEs will make in how the world meets sustainability goals must be grounded in clear and reliable reporting, and the link between accurate reporting and effective and meaningful action is clear. Just 8% of SMEs say that they are reporting on sustainability issues, indicating the need for support in navigating such a complex and resource intensive process. This will require collaboration across markets, industries, and government leaders to develop tech-powered solutions that will make sustainability reporting more efficient and accessible.”
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