Environmental regulation of small and medium enterprises

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Small and Medium Enterprises (SMEs) are defined by the European Commission as having less 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.[1]

SMEs have been identified as a problem area in the field of

market-based instruments, voluntary agreements and informational devices.[2]

Problem areas

There are approximately 4.7 million

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.[3] 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.[2]

Whilst the 1980s and 1990s saw a shift in the perceived relationship between the

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

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’

SMEs have been slow on the uptake[12] and have generally been observed to retain a reactive approach to positive environmental actions.[3] 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

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

environmental policies
may be ineffective at encouraging proactive environmental performance within smaller firms.

Corporate social responsibility

Whilst

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[1] 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[2] 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

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.[2]

Environmental innovation

The diffusion of cleaner technologies and

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

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.

References

  1. ^ a b "Small and Medium-Sized Enterprises (SMEs): SME Definition". European Commission. Retrieved 16 May 2011.[permanent dead link]
  2. ^
    S2CID 154836631
    .
  3. ^
    doi:10.1016/s0166-4972(02)00036-6
    .
  4. 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. ^
    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. ^
    S2CID 154562271
    .
  13. ^
    S2CID 38788197
    .
  14. ^ Europa. "White Papers". Retrieved 16 May 2011.
  15. ^
    S2CID 154771542
    .
  16. ^ a b 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. ^ a b "SBA review: what has been done and what is to be done for European SMEs". Europa. Retrieved 16 May 2011.
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