Sustainability and SMEs: How It Fits In
Best practices for implementing sustainable business practices in small and medium-sized enterprises (SMEs).October 06, 2011
by Kenneth Witt, CPA
Media coverage about sustainability has, to a great extent, focused on the corporate responsibility or environmental, social and governance (ESG) initiatives of large companies and transparency reporting on their sustainability performance to their shareholders and a broad range of other stakeholders. And yet, one-third of the 1,300 small and medium-sized companies (SMEs) responding to an AICPA, Chartered Institute of Management Accountants (CIMA) and Chartered Accountants of Canada (CICA) 2010 survey (PDF) said that they had a defined sustainability strategy, while another quarter (23%) intended to develop one in the next two years. (Readers should note that SME companies in this survey included those with fewer than 1,000 employees.)
Sustainability Drivers in SMEs and How to Get Started
What do smaller companies focus on, what are the costs and benefits and what is the CPA or finance function role? These are some of the questions asked and answered, in a collection of case studies that the AICPA, CIMA and CICA recently published. SMEs Set their Sights on Sustainability (PDF) shows how SMEs are implementing sustainable business practices benefitting the environment, their communities and their bottom line.
Many Paths to Sustainability
The motivating force behind the sustainability efforts of the case companies varies widely. While a few began with sustainability as a founding principle of the organization, others considered the potential for cost savings and efficiency. Still others saw the changing demands in customer purchasing decisions as an important driver. For example, a steel manufacturer used international standards of environmental accreditation to win new clients. Regardless of the initial motivation, all have come to realize commercial benefits from their emphasis on sustainability.
From its inception in the 1970s, New England paper coatings provider Ecological Fibers, Inc. has committed to environmentally friendly manufacturing processes. “The company was ahead of its time — a pioneer in the industry,” said Eric Buchholz, CFO at Ecological Fibers. “It didn’t want to advertise its ecological credentials, it just did it because the owner thought it was the right thing to do, but now those issues have come to the forefront.”
While initially skeptical, U.K. business supplies provider Ukos pursued sustainability to find opportunities for cost savings. It has not only reduced its energy costs by an average of five percent annually for the last four years, it has also increased sales and profits by differentiating itself as a sustainable supplier.
Zions Bancorporation in the Western U.S. launched a division to fund residential, business and small utility-scale energy projects to its customers has also found significant savings from its own energy projects. The savings from Zions’ projects provide a positive model for its innovative lending. “The solar power projects at our corporate center and other locations have good payback and the economics of them are very important. We have a large building here that was designed in the 1980s with a lot of glass and which is not very efficient, but with solar power we have reduced our power consumption by 40 percent in two years,” said Craig Robb, CPA, managing director at Zion Bancorporation. “That shows the value from our own account and can show others the benefit of doing a similar thing.”
A holistic approach with a strong emphasis on the community is at the heart of the Cirtronics philosophy. Based in Milford, N.H., Cirtronics provides assembly, test and fulfillment services for various high-tech sectors. While it does not focus on trying to measure the benefits, Cirtronics feels strongly that its emphasis on employees, the community, customers and suppliers is not just “the right thing to do,” but is key to long-term sustainable success. “We engage with sustainability regardless of the benefits. There is a benefit, but we just can’t measure it,” said George Mandragouras, CFO at Cirtronics. “We know that supporting local groups benefit our employees, their families and friends and builds stronger communities. Do you need tangible evidence to know that what you are doing is having a positive effect?”
Canadian office manufacturer Artopex has taken a comprehensive approach to sustainability in response to the changing demands of customers. The guiding principle of its sustainability drive is commercial advantage. Two key elements of the Artopex sustainability plan are being a “human” company with a focus on community and eco-efficiency. Investing in more efficient equipment has helped Artopex become a more sustainable organization by maintaining its competitive advantage against imports from Asia.
The CPA’s Role
The AICPA, CIMA and CICA are all members of the Prince’s Accounting for Sustainability Project (A4S) which, from its work with larger entities, has identified 10 elements that are integral to embedding sustainability. These case studies illuminate a similar set of elements that are crucial to implement sustainable practices in smaller organizations.
The report also explores how the finance function often plays an important role in company sustainability efforts. As Corporate Finance Insider readers who also read the CPA InsiderTM already know, I discussed the role of CPAs in sustainability in an earlier article, What Do CPAs Have to Do With Sustainability? Cost cutting and efficiency — a critical sustainability driver for both large and small companies — are standard stock-in-trade for CPAs in all areas of practice. In addition, CPAs are trusted business advisors and have important roles to play in strategy, analysis, reporting and assurance.
In many SMEs, CPAs serving as CFO or controller play a critical role in formulating and implementing company strategy.
For SMEs starting out in sustainability, CPAs can contribute significantly by participating in the development of the sustainability strategy, evaluating the business case for investment and creating the vital link between the strategy and the tangible and intangible benefits that are accrued.
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Kenneth W. Witt, CPA, is technical manager in the Business Industry and Government team at the AICPA. Witt launched the AICPA Sustainability Initiative and has represented the AICPA as technical lead to The Prince’s Accounting for Sustainability Project and the technical working group of the Climate Disclosures Standards