Sustainability in SMEs: not a lack of willingness, but a lack of capacity

Many SMEs want to become more sustainable, but in practice they are held back by costs, regulations, and market pressures. This is according to research carried out by The Hague University of Applied Sciences amongst entrepreneurs in South Holland. ‘The problem usually isn’t motivation, but the limited scope for action that entrepreneurs have’, says Sanne Ursem, a researcher at the New Finance research group (part of Centre of Expertise Digital Operations & Finance).

Sustainability is high on the agenda for businesses, governments and consumers. Nevertheless, for many SMEs, becoming more sustainable is proving to be more complicated than expected. Although European sustainability regulations, such as the CSRD Directive, mainly apply to large enterprises, smaller businesses are also affected by them through their customers, suppliers, and tendering processes.

Relaxation of the rules

‘Initially, we mainly wanted to focus on the impact of the CSRD on SMEs’, says Sanne, who works on these kinds of issues at the New Finance research group. ‘However, during the study, the European Commission changed the rules with the so-called “Omnibus simplification package”, relaxing the reporting obligation for many businesses. This change led us to the question: what motivates entrepreneurs to become more sustainable when external pressure from legislation and regulations eases?’ 

High motivation

The study consisted of qualitative interviews with approximately sixteen businesses from sectors including construction, catering, manufacturing, and the food industry. The researchers spoke at length with these entrepreneurs about their experiences, beliefs, and day-to-day practices.

One striking finding of the study is that many SMEs are intrinsically motivated to operate in a more sustainable way. They not only consider financial value, but also social and ecological impact. 

Moving in the right direction

‘Several of the businesses interviewed have already taken steps in this direction, even though they are not required by regulations to do so’, says Eveline Kapteijn-Kruijswijk, researcher at the Designing Value Networks research group. ‘Many entrepreneurs want to move in the right direction. Some even keep track of sustainability data, even though this is no longer officially required. They want to stay on that course.’ Personal beliefs also play a part in this. Entrepreneurs often link sustainability to their families or future generations. ‘That was a real eye-opener’, according to Eveline. ‘To many entrepreneurs, sustainability is also a personal matter.’

Cheapest option

In practice, intrinsic motivation does not automatically lead to sustainable choices. Financial viability, in particular, is a bottleneck. The interviews show that customers of SMEs consider sustainability important but are often not prepared to pay extra for it. ‘Most of them end up going for the cheapest option anyway’, adds Sanne. ‘This puts SME owners in a difficult position.’ According to the researchers, this creates a structural problem. More sustainable materials, certifications, and production processes often entail additional costs. When businesses are unable to pass on those costs, their competitive position comes under pressure.

Complex rules and procedures

Besides financial pressures, legislation and regulations are a major obstacle. Not because SMEs are opposed to regulations, but because implementing them is often complicated and time-consuming. ‘Smaller businesses in particular do not always have the staff or resources to meet all the requirements’, says Sanne. ‘As a result, business owners sometimes put off making sustainable investments. Not out of unwillingness, but out of uncertainty.’ The way in which large enterprises request information is also a source of frustration. According to Eveline, many organisations use their own forms and reporting systems. ‘As a result, SMEs are faced with all sorts of different requirements.’ Greater standardisation leads to greater efficiency. In this regard, entrepreneurs are often dependent on other parties, such as accountants, advisers or financiers. ‘If those parties do not go along with sustainable changes, making things more sustainable will become even more complicated.’

Little room for manoeuvre

The researchers of the Digital Operations & Finance Centre of Expertise emphasise that, within the SME sector, sustainability is often wrongly seen as a matter of unwillingness. However, the study shows something quite different. ‘It is usually not a matter of choice, but a lack of scope for action’, says Sanne. ‘Many entrepreneurs are willing, but the economic context ultimately determines what is feasible.’ This insight ties in with broader societal discussions on sustainable transitions. Profitability remains a prerequisite for SMEs. Without a viable business model, sustainability is simply not feasible. Eveline: ‘We therefore want to make sustainable choices more attractive and more feasible. For example, through better pricing mechanisms, workable rules, and greater investment certainty.’

Practical support

‘We want to make knowledge-sharing and practical support more accessible’, adds Sanne. ‘To this end, we are working together with New Designers from the Communication and IT degree programmes at The Hague University of Applied Sciences. On the instructions of the research group, these students are creating a digital platform to support businesses in becoming more sustainable. This is how we link our research to education. ‘Through the scientific publications and practical articles that follow, we are keeping the discussion on this topic going.’

Read more about the CIRCA project.