Environmental regulation of small and medium enterprises

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Small and medium-sized enterprises (SMEs) have been identified as a problem area in the field of environmental regulation. [1] [2] Small and medium-sized enterprises are defined by the European Commission as having fewer than 250 employees, independent (with no shareholder having over a 25% stake in the business) and with an annual turnover of no more than €50 million or annual balance sheet of €43 million. [3]

Contents

While the individual environmental impacts of SMEs are generally small in comparison to those of large corporations, the cumulative environmental impacts of the sector are large. [4] They also pose particular problems for environmental governance, showing little receptiveness to new environment policy instruments (NEPIs) such as market-based instruments, voluntary agreements and informational devices. [1]

Problem areas

There are approximately 4.7 million businesses in the UK of which 99.7% are SMEs. [5] The large size of the sector lends itself to the idea that environmental impacts are cumulatively large. [1] Whilst there has been limited research into the quantitative impacts of SMEs, the Marshall Report [6] estimates that 60% of total carbon emissions in the UK are attributable to SMEs. SMEs are also responsible for around 60% of commercial waste and 43% of all serious industrial pollution incidents. [7] The perception of SME environmental behaviour is generally poor. Failure to pursue eco-efficient measures has often been attributed to low levels of awareness and lack of resources. [8] It is theorised that as the majority of SMEs serve local markets they are less likely to be exposed to international pressures or incentives, including those likely to promote eco-innovation. [2] It has also been suggested that civil society has less concern for smaller firms’ actions, being more likely to direct their concern towards larger organisations which are seen to have the biggest impact. [1]

Whilst the 1980s and 1990s saw a shift in the perceived relationship between the environment and business practice [9] it has only translated into actions for prominently large firms. This change in environmental business ethics stems mainly from ideas of ‘ecological modernisation', a school of thought advanced most notably by German scholars Joseph Huber and Martin Janicke. They challenged Max Weber’s theory of bureaucratic rationality. [10] A theory which positions government as best placed to resolve environmental problems. Instead, the discourse of ecological modernisation claims that sufficient innovative capacity will come only from industry itself as it has the expertise and means to do so. This is posited with the idea of ‘steering’ industry onto more environmentally beneficial pathways through financial incentives.

This shift is clearly visible in the 1980 World Conservation Strategy [11] which pushes environmental actions from reactive to anticipatory. The shift towards thinking in terms of ‘ecological modernisation’ has also involved a movement to ‘smart’ regulatory instruments involving more reflexive forms of law (law which pushes businesses to reflect on and regulate their own practices) such as Environmental Management Systems, Environmental Reporting and Disclosure Strategies, Market-Based Instruments and the social license. The latter of these being important in Corporate Social Responsibility.

Whilst ‘smart’ regulation is a promising concept, SMEs have been slow on the uptake [12] and have generally been observed to retain a reactive approach to positive environmental actions. [2] Research has often suggested that a more comprehensive approach will be needed to improve environmental performance in the SME sector, [13] these are based on three distinct theoretical perspectives;

Structural issues

It has been suggested that there is not yet a substantial structure in the UK which forces environmental matters onto the business agendas of UK SMEs. The choice of policy instruments in the UK has tended not to acknowledge the structural differences between large firms and SMEs. For example, the EU White Paper [14] has often promoted a sectoral and ‘one-size-fits-all’ approach to addressing the environmental impacts of business activities. Although acknowledging structural differences between industries is important, this distinction alone may undermine the recognition of important differences in large corporations and SMEs that may affect the way in which environmental issues are perceived or acted upon. [15] With regard to policy action, the White Paper has influenced the creation of ‘sectoral sustainability strategies’, voluntary conglomerates of firm representatives from specific industrial sectors. Such associations have been criticised for being unrepresentative of the interests due to the unequal power relations between large and small firms. [15]

SMEs are also perceived to often lack characteristics that would otherwise enable them to engage effectively with the sustainable development agenda, [8] barriers for effective engagement being both internal and external to the firm. It is thought that a lack of institutional enfranchisement of SMEs in the UK is also a key factor in understanding why environmental policies may be ineffective at encouraging proactive environmental performance within smaller firms.

Corporate social responsibility

Whilst CSR strategies have been intensively adopted by large and publicly visible corporations, the effectiveness of this type of social regulation with SMEs remains questionable. This is partly due to their size, as their smaller-scale activities are less visible within society. It is thought that many larger firms develop CSR strategies voluntarily to avoid disclosure for bad practice and to maintain and develop a shareholder base. Small firms however are not subject to the same incentives for practicing CSR. This is because they are defined by a limited shareholder base [3] and are unlikely to exhibit environmental and social bad practice on a scale worthy of media attention. These ideas are exemplified in a study by Lynch-Wood and Williamson [1] which has suggested that SME environmental practice is driven by ‘business performance’ and ‘regulation’, rather than the ‘business case’ (i.e. maintaining and improving shareholder base) which CSR practice stems from. It is also apparent that smaller firms may not have the available financial resources for pursuing costly CSR strategies (CSR programmes typically involving funding community projects).

Voluntary measures as a whole have been problematized by some scholars with a suggestion that environmental practice in SMEs is often constrained by free-market decision-making frames that encourage profitability to the detriment of beyond compliance social and environmental behaviour. [15]

Environmental management systems

Environmental Management Systems (EMS) such as ISO 14001 and EMAS seek to provide all businesses (regardless of size and industry) with the means to develop systematic approaches to improving environmental performance. ISO 14001 was purportedly written with the chipshop owner in mind so as to defend its use across the entire EU business community. [16] Whilst EMS is supposed to be suited for SME use, rates of uptake have been marginal. It is estimated that in 1999 only 24% of UK businesses registered with EMAS were SMEs, whilst no figures are available for ISO 14001 based on company size [16]

The most promoted incentive for businesses implementing EMS is generally cost-savings. A pan-EU survey of businesses using EMAS identified that cost-savings were indeed the biggest perceived benefit to arise from implementation across enterprises in Europe however SMEs placed this second claiming EMAS mainly benefited corporate image. [12]

Whilst ISO 14001 was designed with the chip shop man in mind, the requirements of EMS should not be underestimated. The ISO 14001 follows a basic structure requiring business to define an environmental policy, environmental aspects register (detailing applicable environmental legislation) and annually reviewed objectives and targets (in reference to environmental aspects). Without support or training, these elements can be difficult to understand. ISO 14001 requires internal auditing (on an annual basis) meaning extra constraints such as time dedicated to staff training (as it cannot be undertaken by the individual responsible for overseeing the management system). Certification and Validation are expensive and SMEs especially may require support from consultants, further adding to costs.

Whilst these financial burdens may have minimal impact on larger corporations, for smaller firms the costs of implementation and upkeep may out-weigh the cost savings achieved through the EMS. If SMEs are to pursue EMS it is likely to be a result of supply chain pressure rather than ideas of financial gain. [1]

Environmental innovation

The diffusion of cleaner technologies and self-regulation (i.e. through the use of EMS) has been limited in the SME sector. This is thought to offer a key challenge to policy makers as SMEs lack sufficient network relations. [13] A lack of resources often entails that the firm will only participate in limited network activities for example with only one prominent customer or supplier. This limited network activity limits the scope for transferring information on technological innovations.

Changing legislation

More recently structural problems regarding SME governance have been recognised by the European Union. In June 2008 the ‘Small Business Act’ (SBA) for Europe was adopted. The act seeks to promote a greater range of incentives for SME good practice with the aim of bringing the sector in line with the sustainable development agenda.

Principle 9 ‘Turning environmental challenges into opportunities’ is seen as pivotal in steering SMEs onto more environmentally active pathways. In line with this principle several member states have provided energy efficiency funding either through subsidies or encouraging loan conditions as well as varying degrees of cost-free consultancy support to SMEs.

The SBA review [17] invites member states to use an "SME test" to assess whether disproportionate effects will be realised in relation to enterprise size. It has also been recognised that greater regulatory incentives need to be given for SMEs to adopt ISO 14001 or EMAS. The review paper sets out to provide greater networking support to SMEs. It is theorised that by facilitating the use of networks it will be possible for information resources regarding eco-innovations to be transferred across a broader array of firms, including those from the SME sector. [13] The SBA review also recognises that ‘whilst SMEs have some market incentives to optimise their resource use, in many cases the market signals are not easy to identify’ they also state that ‘SMEs face challenges of limited information, time and human and financial resources’. [17] It has been suggested that to overcome these challenges it will be necessary to develop incentives such as financial assistance. It is said that the Enterprise Europe Network will provide incentives for good environmental practice by offering assistance to SMEs marketing products and services resulting from best practice, particularly those adopting low carbon technologies.

Although the aims of the SBA for Europe are seen as necessary for catalysing positive change in the environmental business performance of the SME sector it is not legally binding.

Related Research Articles

The ISO 14000 family is a set of international standards for environment management systems. It was developed in March 1996 by International Organization for Standardization. The goal of these standards is to help organizations (a) minimize how their operations negatively affect the environment ; (b) comply with applicable laws, regulations, and other environmentally oriented requirements; and (c) continually improve in the above. The standards were designed to fit into an integrated management system.

<span class="mw-page-title-main">Small business</span> Business with fewer employees or revenue

Small businesses are types of corporations, partnerships, or sole proprietorships which have a small number of employees and/or less annual revenue than a regular-sized business or corporation. Businesses are defined as "small" in terms of being able to apply for government support and qualify for preferential tax policy. The qualifications vary depending on the country and industry. Small businesses range from fifteen employees under the Australian Fair Work Act 2009, fifty employees according to the definition used by the European Union, and fewer than five hundred employees to qualify for many U.S. Small Business Administration programs. While small businesses can be classified according to other methods, such as annual revenues, shipments, sales, assets, annual gross, net revenue, net profits, the number of employees is one of the most widely used measures.

<span class="mw-page-title-main">Corporate social responsibility</span> Form of corporate self-regulation aimed at contributing to social or charitable goals

Corporate social responsibility (CSR) or corporate social impact is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in, with, or supporting professional service volunteering through pro bono programs, community development, administering monetary grants to non-profit organizations for the public benefit, or to conduct ethically oriented business and investment practices. While once it was possible to describe CSR as an internal organizational policy or a corporate ethic strategy similar to what is now known today as Environmental, Social, Governance (ESG); that time has passed as various companies have pledged to go beyond that or have been mandated or incentivized by governments to have a better impact on the surrounding community. In addition, national and international standards, laws, and business models have been developed to facilitate and incentivize this phenomenon. Various organizations have used their authority to push it beyond individual or industry-wide initiatives. In contrast, it has been considered a form of corporate self-regulation for some time, over the last decade or so it has moved considerably from voluntary decisions at the level of individual organizations to mandatory schemes at regional, national, and international levels. Moreover, scholars and firms are using the term "creating shared value", an extension of corporate social responsibility, to explain ways of doing business in a socially responsible way while making profits.

Small and medium-sized enterprises (SMEs) or small and medium-sized businesses (SMBs) are businesses whose personnel and revenue numbers fall below certain limits. The abbreviation "SME" is used by many national agencies and international organizations such as the World Bank, the OECD, European Union, the United Nations, and the World Trade Organization (WTO).

<span class="mw-page-title-main">Environmental resource management</span> Type of resource management

Environmental resource management or environmental management is the management of the interaction and impact of human societies on the environment. It is not, as the phrase might suggest, the management of the environment itself. Environmental resources management aims to ensure that ecosystem services are protected and maintained for future human generations, and also maintain ecosystem integrity through considering ethical, economic, and scientific (ecological) variables. Environmental resource management tries to identify factors between meeting needs and protecting resources. It is thus linked to environmental protection, resource management, sustainability, integrated landscape management, natural resource management, fisheries management, forest management, wildlife management, environmental management systems, and others.

A sustainable business, or a green business, is an enterprise with a minimal negative impact or potentially a positive effect on the global or local environment, community, society, or economy. This business attempts to meet the triple bottom line. They cluster under different groupings, and the whole is sometimes referred to as "green capitalism." Often, sustainable businesses have progressive environmental and human rights policies. In general, a business is described as green if it matches the following four criteria:

  1. It incorporates principles of sustainability into each of its business decisions.
  2. It supplies environmentally friendly products or services that replace demand for nongreen products and/or services.
  3. It is greener than traditional competition.
  4. It has made an enduring commitment to environmental principles in its business operations.
<span class="mw-page-title-main">Eco-Management and Audit Scheme</span> International standard for environment management systems

Eco-Management and Audit Scheme or Environmental Management and Audit Scheme (EMAS) is an international standard for environment management systems. It was developed in March 1993 by European Commission. The goal of the standard is to enable organizations to assess, manage and continuously improve their environmental performance. The standard was designed to fit into an integrated management system. The scheme is globally applicable and open to all types of private and public organizations. In order to register with EMAS, organisations must meet the requirements of the EMAS Regulation. Currently, more than 4,600 organisations and more than 7,900 sites are EMAS registered.

A micro-enterprise is generally defined as a small business employing nine people or fewer, and having a balance sheet or turnover less than a certain amount. The terms microenterprise and microbusiness have the same meaning, though traditionally when referring to a small business financed by microcredit the term microenterprise is often used. Similarly, when referring to a small, usually legal business that is not financed by microcredit, the term microbusiness is often used. Internationally, most microenterprises are family businesses employing one or two persons. Most microenterprise owners are primarily interested in earning a living to support themselves and their families. They only grow the business when something in their lives changes and they need to generate a larger income.

<span class="mw-page-title-main">Mittelstand</span> Small and medium-sized enterprises in German-speaking countries

Mittelstand commonly refers to a group of stable business enterprises in Germany, Austria and Switzerland that have proved successful in enduring economic change and turbulence. The term is difficult to translate and may cause confusion for non-Germans. It is usually defined as a statistical category of small and medium-sized enterprises with annual revenues up to 50 million Euro and a maximum of 500 employees.

An environmental management system (EMS) is "a system which integrates policy, procedures and processes for training of personnel, monitoring, summarizing, and reporting of specialized environmental performance information to internal and external stakeholders of a firm".

<span class="mw-page-title-main">ISO 22000</span> Food safety standard

ISO 22000 is a food safety management system by the International Organization for Standardization (ISO) which is outcome focused, providing requirements for any organization in the food industry with objective to help to improve overall performance in food safety. These standards are intended to ensure safety in the global food supply chain. The standards involve the overall guidelines for food safety management and also focuses on traceability in the feed and food chain.

<span class="mw-page-title-main">Regulatory Flexibility Act</span> 1980 act of the U.S. Congress

The Regulatory Flexibility Act (RFA) is perhaps the most comprehensive effort by the US federal government to balance the social goals of federal regulations with the needs and capabilities of small businesses and other small entities in American society. In practice, the RFA attempts to "scale" the actions of the federal government to the size of the groups and organizations affected.

<span class="mw-page-title-main">SME finance</span>

SME finance is the funding of small and medium-sized enterprises, and represents a major function of the general business finance market in which capital for different types of firms are supplied, acquired, and costed or priced. Capital is supplied through the business finance market in the form of bank loans and overdrafts; leasing and hire-purchase arrangements; equity/corporate bond issues; venture capital or private equity; asset-based finance such as factoring and invoice discounting, and government funding in the form of grants or loans.

Creating shared value (CSV) is a business concept first introduced in a 2006 Harvard Business Review article, Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility. The concept was further expanded in the January 2011 follow-up piece entitled Creating Shared Value: Redefining Capitalism and the Role of the Corporation in Society. Written by Michael E. Porter, a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School, and Mark R. Kramer, of the Kennedy School at Harvard University and co-founder of FSG, the article provides insights and relevant examples of companies that have developed deep links between their business strategies and corporate social responsibility (CSR). Porter and Kramer define shared value as "the policies and practices that enhance the competitiveness of a company while simultaneously advancing social and economic conditions in the communities in which it operates", while a review published in 2021 defines the concept as "a strategic process through which corporations can turn social problems into business opportunities".

A socially responsible business (SRB) is a generally for-profit venture that seeks to leverage business for a more just and sustainable world. The objective of the SRBs involves more than just maximizing profits for the shareholders; it is also about creating positive changes and making valuable contributions to the stakeholders such as the local community, customers, and staff. In other words, the SRB is both profit-oriented and socially responsible as these companies seek to make financial gains, and at the same time, aim to improve the well being of the community. In doing so, the businesses engage in the voluntary initiatives with the aims of improving in various areas ranging from the social to environmental aspects of the society.

Environmental certification is a form of environmental regulation and development where a company can voluntarily choose to comply with predefined processes or objectives set forth by the certification service. Most certification services have a logo which can be applied to products certified under their standards. This is seen as a form of corporate social responsibility allowing companies to address their obligation to minimise the harmful impacts to the environment by voluntarily following a set of externally set and measured objectives.

The Small Business Act for Europe(SBA) is a package of principles put forward by the European Commission in 2008, designed to assist small businesses within the European Union (EU). The package contains ten "guiding principles intended for adoption "at the highest political level" across the EU. It is not a legislative act as such.

<span class="mw-page-title-main">Corporate environmental responsibility</span>

Corporate environmental responsibility (CER) refers to a company's duties to abstain from damaging natural environments. The term derives from corporate social responsibility (CSR).

Innovation in Malaysia describes trends and developments in innovation in Malaysia.

The Ministry of SMEs and Startups is a ministry of the Republic of Korea, established in July 2017 by the Moon Jae-in government. It succeeds the former Small and Medium Business Administration. The headquarters are located in Sejong City, Sejong. As of February 2021, Lee Young, a member of the National Assembly and People Power Party, has been appointed as the South Korean Minister of SMEs and Startups.

References

  1. 1 2 3 4 5 6 Williamson, David; Lynch-Wood Gary (2006). "Drivers of environmental behaviour in manufacturing SMEs and implications for CSR". Journal of Business Ethics. 6 (3): 317–330. doi:10.1007/s10551-006-9187-1. S2CID   154836631.
  2. 1 2 3 Del Brío, Jesús; Junquera Beatriz (2003). "A review of the literature on environmental innovation management in SMEs: implications for public policies". Technovation. 23 (12): 939–948. doi:10.1016/s0166-4972(02)00036-6.
  3. 1 2 "Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (Text with EEA relevance)". European Commission. Retrieved 7 December 2024.
  4. ↑ Petts, Judith (2000). "The regulator-regulated relationship and environmental protection: perceptions in small and medium sized enterprises". Environment and Planning. 18 (3): 191–192. doi:10.1068/c9861. S2CID   154752808.
  5. ↑ "Enterprise Directorate Analytical Unit Frequently Asked Questions". Department for Business and Innovation Skills. Archived from the original on 2 September 2009. Retrieved 16 May 2011.
  6. ↑ Economic Instruments and the Business Use of Energy. Marshall Report (Report to Chancellor of the Exchequer, HM Treasury, London). 1998.
  7. ↑ "From green to black and white: embedding sustainability in small and medium-sized enterprises (SMEs)". Association of Chartered Certified Accountants. Archived from the original on 23 May 2011. Retrieved 16 May 2011.
  8. 1 2 Petts, Judith; Herd Andrew; Gerrard Simon; Horne Chris (1999). "The climate and culture of environmental compliance within SMEs". Business Strategy and the Environment. 8 (1): 14–30. doi:10.1002/(sici)1099-0836(199901/02)8:1<14::aid-bse175>3.0.co;2-4.
  9. ↑ Schmidheiny, Stephan (1992). Changing Course: A Global Business Perspective on Development and the Environment. Massachusetts: MIT Press.
  10. ↑ Weber, Max (1968). Economy and Society. New York: Bedminster Press.
  11. ↑ UCN, UNEP & WWF (1980). "World ConservationStrategy". (Gland, International Union for the Conservation of Nature).{{cite journal}}: Cite journal requires |journal= (help)
  12. 1 2 Hillary, Ruth (2004). "Environmental Management Systems and the smaller enterprise". Journal of Cleaner Production. 12 (6): 561–569. doi:10.1016/j.jclepro.2003.08.006. S2CID   154562271.
  13. 1 2 3 Hansen, Ole Erik; S⊘nderga˚rd, Bent; Meredith, Sandra (2002). "Environmental innovations in Small and Medium Sized Enterprises". Technology Analysis & Strategic Management. 14 (1): 37–56. doi:10.1080/09537320220125874. S2CID   38788197.
  14. ↑ Europa. "White Papers" . Retrieved 16 May 2011.
  15. 1 2 3 Gibb, Allan (1997). "Small firms' training and competitiveness: building upon the small business as a learning organisation". International Small Business Journal. 15 (3): 13–29. doi:10.1177/0266242697153001. S2CID   154771542.
  16. 1 2 Hillary, Ruth. "An Assessment of the Implementation Status of Council Regulation (No 1836/93) Eco-Management and Audit Scheme (EMAS) in the European Union Member States (AIMS-EMAS)" . Retrieved 16 May 2011.[ permanent dead link ]
  17. 1 2 "SBA review: what has been done and what is to be done for European SMEs". Europa. Retrieved 16 May 2011.
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