By Denise Klarquist
Sustainability as a business strategy is no longer a fringe idea. Its benefits and ROI are rarely argued, but instead touted in major media and corporate annual reports.
It’s not difficult to see how the most straightforward approaches to sustainability — energy efficiency, resource conservation, and waste reduction — can hugely improve bottom line profits for large global enterprises, and how these firms’ actions can significantly move the needle toward U.S. carbon reduction goals. Wal-Mart, the leading commercial user of solar energy and energy storage technology in the U.S., has stated a global commitment to drive the procurement of seven billion kWh of renewable energy by the end of 2020. To date, the company’s solar projects have saved more than $5 million in energy expenses.
But what about small to mid-size enterprises (SMEs) — why are we not seeing the same trend permeate this sector? Although we’ve certainly witnessed an uptick in sustainability initiatives within the SME market, as a business strategy, sustainability is far from reaching the momentum seen among the likes of IKEA, Coca-Cola, Eileen Fisher, and Patagonia.
Utility companies, especially those in California charged with reducing energy demand, recognize the potential within the SME market, as do companies like ours, with services and products designed to help SMEs realize the business benefits of sustainability. Energy Star estimates that small businesses in the U.S. spend about $60 billion a year on energy. Enterprises occupying less than 50,000 square feet of floor space — schools, churches, strip malls, restaurants, grocery stores, and small manufacturing facilities, for example — account for 90 percent of commercial buildings and consume 40% to 50% of total commercial energy consumption.
On an individual level, sustainability presents obvious bottom line economic opportunities for these hundreds of thousands of organizations, not to mention numerous other significant business advantages, such as stronger customer relationships and productivity due to employee engagement initiatives, risk mitigation, and brand reputation. As a whole, these businesses can have enormous bearing in helping the country manage energy demand and achieve carbon reduction goals.
Yet, therein lies the challenge — SMEs cannot be considered “as a whole.” They are as diverse as individuals on a crowded sidewalk at rush hour. They are fragmented by size, customer type, industry, objectives, and challenges. Though their buildings may occupy the same square footage, the priorities of a church campus facilities manager are vastly different than those of a manager running an ISO 9000 certified facility producing widgets.
While SMEs want to take advantage of the same business improvement strategies and tools as big enterprise employs, they are staff, resource, and time constrained. Energy efficiency and comprehensive sustainability, even if it’s presented in the context of savings, isn’t necessarily a priority, unless there is stakeholder passion or dedicated resources — which is still rare in small and mid-size businesses. Leadership may appreciate the potential for energy saving and dollar return on large initiative such as solar installations or HVAC upgrades, however time and staff may not be available to evaluate and manage these types of projects, and immediate capital may not be within reach.
Naturally, the larger the SME, the more likely they are to invest in sustainability. According to a 2014 Cox Enterprises survey, those with the largest revenues ($100 million plus) are far more likely to participate in sustainability activities than businesses earning less than $10 million.
In addition, those more mundane yet more easily achievable initiatives which should precede larger investments in renewables and infrastructure — the “lower hanging fruit” such as responsible procurement policy and water conservation program — are most often missed because of lack of attention or “sexiness.” SMEs in the aggregate are literally flushing big money down the drain, failing to recognize that dollars saved with resource efficiency measures directly improve profit without undermining production capacity.
Lastly, SMEs tend to lack broad awareness of the various rebate and incentive opportunities available through their utility. While the energy consumption of large enterprises makes a dedicated account manager cost-effective for utilities, the diversity of smaller business customers means they typically are not well understood nor segmented, thus under-served by their utility, to the unfortunate disadvantage of both.
Reaching the SME Market
Ultimately, small enterprises have the same objective as large multinational companies: they want their businesses to succeed. And on an individual level, leaders and managers desire solutions that will not only meet their business objectives, but will also improve their day-to-day work life and that of their workforce.
From our experience, SME business leaders are eager to embrace a sustainability strategy when they are made aware that it’s achievable — that other similar businesses can and are doing the same — and that it won’t add to their already overfull plates. However, unlike big business that can approach sustainability as a larger mission with a longer trajectory, SME managers tend to be more intimately involved with the details of their business and thus need to see how sustainability directly and immediately ties into their operations. Longer-term payback on energy and resource saving investment can be accepted as long as short-term gains are also clearly apparent.
To reach SMEs, communications and sales outreach need to be designed to recognize, acknowledge, and solve an individual’s or organization’s current business issues or improve on current goals. Presenting a solution to a problem that wasn’t previously on the radar (such as dwindling resources or increasing customer demand for sustainable products) may not be an effective approach for SMEs.
In addition, SMEs tend to be more highly networked within their professional area, relying on each other for trends and recommendations. Tapping into these networks can help spread awareness of sustainable strategy benefits. Keep in mind however, that even these networks are fragmented.
Power in Numbers
The potential for the SME sector to impact change is significant. In the U.S., there are over 200,000 SMEs with 50 to 2500 employees; nearly 30,000 in California, according to the U.S. Census. Typically, trends in big business trickle down to small business due to a number of factors including supply chain effects, and consumer awareness and demand. The need to incorporate a sustainable approach to business will inevitably land on SME desks.
As Peter Senge writes in The Necessary Revolution, “No one had a plan for the Industrial Revolution. No ministry was put in charge. No single business led the way. Instead, countless acts of initiative and daring created a critical mass of unstoppable changes. The industrial Age was not planned but innovated. The next age will be no different.”
It is still early, but True Market Solutions’ own work with small to mid-size organizations is encouraging. In a recently completed 6-month post-Sustainability Circle review, 29 organizations reported completion of 224 sustainability initiatives collectively saving more than $2.2M, over 26 million gallons of water, over 3 million KWh, and 3,071 mt of CO2. We also know that in California, the commercial sector is becoming less energy intensive over time. If these results and trends continue, it’s not hard to see the potential positive impact of sustainability for SMEs and the communities in which we live and operate, once momentum builds in the SME market.