Based on an extrapolation of APEC numbers, there are over 89 million small to medium-sized enterprises in this world, which represents 98 to 99% of all legally constituted employer businesses. Depending on the definition of the day, somewhere between 55% and 78% of these are micro-enterprises, independent business with less than 10 people. This number does not include one person -shops. These entities have been virtually ignored in the sustainability discussions to date. Individually, an SME is unlikely to cause an Exxon Valdez or Brent Spar event. Yet, it is the cumulation of seemingly trivial everyday contributions to environmental impact that is of concern. Not only do SMEs collectively impact the environmental quality/health of a country, in many cases micros represent upwards of 50% of the GDP. Research indicates that when the 'libido' of the SME community is depressed the GDP falls, and so does the wealth of a nation. The bottom line is while there is a need for them to individually improve their environmental performance, extreme care must be used in how they are asked to improve. Scare tactics or SWAT team approaches have blown up in the face of some regulatory agencies when they found the barrier was not environmental or scientific literacy, it was literacy (ranging from illiteracy to language barriers where the SME was not fluent in the resident country's primary tongue).
There is much discussion in various forums today about the need to get SMEs 'into the fold'. The challenge of engaging SMEs is not limited to one country, one authority, or one sector. Authorities in many countries are buying into the idea that SMEs are a source of environmental impact that has been largely ignored to date in their regulatory activities. Ignored in several ways. One, regulation serves as a glass ceiling not a floor to SMEs. Two, many authorities have risk assessment mechanisms that are insensitive to the resources, nature and culture of SMEs. Three, authorities often err on speaking for SMEs, without engaging in dialogue with SMEs. There are other aspects, let's leave it to those three for now. In speaking with SMEs, they have stated an underlying and growing level of frustration, whether discussed in forums like the World Conference on Small Business, in the ISO Forum for Environmental Management Systems, in clustered sector discussions or one on one. Regulation is not seen as an effective nor desired mechanism for behaviour change. Research to date from various sources (Canadian and European) has indicated that SMEs believe that sustainable development (that is environmentally sustainable economic development) is doable. They also indicate support for good regulation, although the many environmental laws that exist are not seen as being good, when they are known or understood. (A sidebar of this is the need to promote SMART regulation being applied to environment, health and safety). Some of the barriers articulated by SMEs include: The lack of internal expertise The cost of compliance, being prohibitively more expensive to an SME than a big business. The absence of tools right-sized designed for SMEs. The absence of incentives. In some circles it is felt that this last point is the one where greatest attention is needed. I am interested in hearing from members of the list serve examples where incentives have been used to promote the adoption of Environmental Management Systems whether ISO 14001 or EMAS or other perhaps very simplified pathways to sustainability, which have resulted in real behaviour change. With all due respect to authorities by any definition I am not as much interested in a description of the latest funding program. I am interested in a discussion of the results where a critical mass of the SME population has been able to make change based on incentives, or a combination of incentives and SMART Regulation. I look forward to responses and discussion on this issue. I am going to follow this with a REAL TIME case study that I am tracking in the UK.
Lynn Johannson B.E.S., (Hons) M.Sc.,
FRSA Georgetown,
Ontario CANADA
Incentives as a Means to Motivate SMEs to do Better with Less; A Pathway to Sustainability
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Dear Kristine:
To prep this discussion I will err to refer to SMEs in a generic manner. This is insensitive to the tremendous variability in the SME profile, dependent of the size (employee base), annual turnover, mandate, sector, orientation, etc. I am not familiar with those two case studies, at least not by those names. In research that I was involved with we looked at about 2000 references to programs from around the world that were reportedly for SMEs. Of that first cursory review, we applied a framework of critical success factors. That dropped the list down to a more detailed look of 200 in the next screening. The US EPA posted 100 of which only one showed any evidence of real success, the Energy Star program. In terms of clustering, the one we were already aware of and involved in, and that the market reinforced was Ecomapping. It is a simple mapping process that allows people with minimal skills to identify what and where their problems are within a facility. Ecomapping has evolved into a simple approach to implement the standard ISO 14001 and in the EU EMAS, as Iso EASY and EMAS Easy. 80% of environmental issues are location based. Identification at the source is therefore a powerful learning opportunity. Next evidence has shown that 50% of these challenges can usually be improved by better Housekeeping. This is where the 5S tool from quality management helps. But these tools or techniques still need incentives or drivers. Our involvement was driven by the need to reduce barriers to the standard and at the same time reinforce it as the brand of choice. As a result of this work, a new approach to conformity assessment was created, technically it is a recognition approach (not certification/registration) that uses specially trained professional accountants to provide an accounting procedure, specially auditing to confirm the existence of the environmental management system. It is marketed as the EnviroReady Report and it is recognized in the standard under Scope as c) 3). However, while the right-sized tools are there, there is still a dearth of incentives to promote sustainability. In Italy we note the bank case promoting ISO 14001 with the incentive of preferred loan rates. We are trying to get its success confirmed by the small business community. Clustering approaches have some value under certain conditions. There must be a good reason for the group to come together or the changes do not seem to last. We note that for something to become a social norm, there is a 7 year process. While cataclysmic events or the consistent presence of other forces such as incentives fast track behaviour change, the 7 year 'switch' seems to us to be the period of time needed for the target market to retain the change. We have looked at innovation theory, group dynamics and economic theory for more clues. We have found that the work by the late Donella Meadows on Places to Intervene in a System useful to analyze situations. CSR reports we have seen from the EU indicate that in the triad (social, environmental and economic) the strong card for SMEs is the social factor. SMEs are integral players with their own community. They are the ones that support the little leagues and community aid programs. It is the reverse mentality to NIMBY (there are always exceptions). Why SMEs tend to shy away from the environment is that it is sold to them as a compliance issue. Yet compliance is not an entry level for SMEs in environmental management. Regulation is too often a ceiling. The cost of compliance is too high (and is considerably higher on SMEs on a business unit basis than it is for bigger firms). And the environment requires some level of scientific literacy in the current context. This is simply not there in SMEs, nor in governments, nor in the public, nor in other influencing stakeholders. We have found that a good approach for SMEs is one that addresses the environment as an issue of productivity. We also find that some improvements in the formality of management, appropriate to the nature and culture of the SME is also helpful. The EU is pouring all kinds of money into programs for SMEs although we find that the majority of cases, the money goes to other smaller authorities to build local infrastructure (not necessarily effectively) and the proverbial "middlemen". Perhaps 1% actually goes to SMEs. The amount of money is obscene given what we see has been the ROI to date. So if program funding is tied to building infrastructure in the public and private sector, we come back to the need for real bottom line incentives for SMEs. Governments generally talk a good show and fail to deliver. We find the fatal flaw at this time is that authorities spend their time pondering and intellectualizing what to do in their respective offices, but they do not talk to SMEs. SME programs are geared to prepping the government agencies to think about SMEs, not to provide solutions that work. Most tools start with compliance or use big company examples - SMEs ignore this with disdain. Part of the challenge here is that bureaucrats are of good heart (generally), intelligent enough, they just offer really bad product pretty well consistently - regulation. Most regulation in the environmental side is expensive, ineffectual and totally insensitive to SME capabilities and needs. Industry lobby is usually from big companies, most tool arrays that regulators use to apply regulations is based on a negotiated process with lobbyists. These are not from SMEs interests. Authorities act paternalistically for SMEs. This is a growing source of discontentment in the SME community internationally. Hence the need to drive SMART Regulation. The Canadian Federation of Independent Business has been an excellent source of information for us and has two papers on how the public views them on their website. We are awaiting a report they are releasing on the cost of regulation. You said your research was aligned to this area. Can you be more specific? What is KPPM stand for?
Cheers
Lynn Johannson
Not being familiar with your description of SMEs per se, what jumped to mind when thinking of "very simplified pathways to sustainability, which have resulted in real behaviour change" is the huge growth in voluntary green building programs around the US. Construction and operation of homes are responsible for many significant environmental impacts. But the majority of home construction is done by small local companies. As an example of change, BuiltGreen in Colorado has certifed over 25,000 homes in their voluntary program. In 2004 they registered about 14% of statewide residential new construction. In my research I am focusing more on the first barrier you point out "the lack of internal expertise." The learning curve for green building is pretty high and that creates a real disincentive to change practices, especially when the market for conventional building is so lucrative right now. Some places like Colorado are having real success with their program, but in our area green building is really languishing. I don't know if this is the kind of example you were asking about. If so, I wonder what green building programs are doing right in terms of their ability to engage SMEs with sustainability issues.
Sincerely
Kif Scheuer
Doctoral Candidate
School of Natural Resources and Environment University of Michigan cscheuer@umich.edu
Dear Kif:
There is no consensus in international authority literature on what an SME is. However, a common view that is supported by the SME community is that SMEs are independent legally constituted employer businesses with less than 100 people. That means that they are not divisions or subsidiaries of a larger entity. Some literature lists service as having up to 250, manufacturing up to 500. The small business community does not see these entities as being small. The employer profile with less than 100 varies per country. For example, Canada has a large micro-enterprise population at around 56%, and a very small population of medium sized entities, whereas the US has a small number of micros and a broad band of medium-sized entities. The % of GDP affiliated with SMEs changes as well depending on the country. APEC carries some numbers on this. I am unclear from your example what the incentive is for SMEs to build green. Is it that the market provides them a premium for green buildings? Certification has a price tag, is the cost (including benefits (ROI) and the price worth it? If so this would suggest that more classic economic behaviour is at play. I am somewhat aware of green build issues from Bill McDonough's work stemming from his Hannover Principles and a company based in Canada that has been working to commercialize an insulation product made from rePET. I have found that the lack of internal expertise is complicated by scientific illiteracy (which is across the board in any organization including authorities and certainly politicians); the lack of right-sized tools with peer examples; the proliferation of jargon in an world where plain language is needed; and a lack of understanding of how an SME functions (an informal management system) focused on cashflow, not profit margins nor ROI's. I look forward to your response.
Lynn Johannson
E2M Canada
Lynn,
Not sure if I'm misunderstanding you, but I was thinking of residential construction companies as the SMEs. Many construction companies are very small in terms of # of employees, but can do a substantial amount of building (5-25 million annual gross sales). I'm guessing these are microbusinesses by your description. In terms of incentives for building green - I think it's all over the map currently. Some builders are just committed to it for environmental reasons, some see it as a market niche, some probably think it's going to be standard in the future so they're just investing in learning now. In some cities there are financial incentives, or permitting incentives to build green, but I don't believe they're widely available or particularly compelling. Certification of commercial buildings can be costly, but many of the residential programs are not that expensive to participate in. I'm not sure how much of what's happening is classical economic behavior, because you get two builders in the same market making "economic" arguments both ways. One builder might tell you it costs nothing more to get certified and another tells you it's a 15% premium. Here's a link to an amusing characterization of the resistance to green building that gives you a flavor of the issue. http://www.builtgreen.org/homebuilders/bogus.htm
Best,
Kif
Now that I've figured out that SMEs are what we call small businesses, I can add to the discussion. It is true that costs of innovation are greater for SMEs and that they often don't speak English. They also lack expertise. I am not willing to say that regulatory approaches are not appropriate for them: they must have sprinkler systems, fire exits, etc., and must pay their taxes. They can comply with environmental requirements as well. But professional land management agents can do it for them more efficiently. My agency wants SMEs to recycle. I want to explain that, here in New Jersey (for those of you far away, that's the most densely populated of the United States, and the one with the highest per capita income, and one of the oldest of the states, thus one of the most industrial), our method of regulation adds barriers. We are a "home rule" state, in which each town makes its own rules under state law. This makes statewide outreach less useful, since there can be no real statewide content. Some towns offer drop-off points, and some don't. Some offer curbside pickup, but no one offers it at what we used to call "shopping centers" and now call "strip malls" (rows of connected shops set back from the street allowing for a big ugly parking lot, all owned by one landlord). We feel that, given a region where a huge proportion of the SMEs are in strip malls, the property managers are a barrier, because each one wants to offer cheap space, and so will include garbage pickup in the rent, but not recyclable hauling beyond cardboard. It makes more sense to incentivize a few hundred large management companies that thousands of shopkeepers speaking hundreds of languages. The towns must act, since the state law does not grant such power to the state agency: If each town put the landlord on the hook to provide service, it would be fair, and the SMEs would likely get the service cheaper than if they shopped for it themselves. The towns would then have to build a relationship with a few people, (and those would speak English), in order to encourage compliance, and address non-compliance. A few towns have done so. Of course, towns could do the pickup and obviate the need for paid service. Given a new source of revenue, the state could incentivize them. I admit, we haven't done this yet. Another thing we haven't done but will do is to require by state regulation that all local planning boards review new construction and major renovation for recycling space. You could do this for any kind of green building. State law already requires it, but the new rule will allow the state to fine a town for failing to comply. That's an incentive! Again, rather than incentivizing thousands of small entities, we are incentivizing 563 towns. It incentivizes building contractors, who wish to be approved quickly. So, if you live in a strip-mall kind of place, consider obligating the landowners, not the tenants.
Sondra Flite
Principal Environmental Specialist
Solid and Hazardous Waste Programs
New Jersey Dept. of Environmental Protection
sondra.flite@dep.state.nj.us
Jennifer:
We are a consulting firm in the area of solid waste management. When we work with businesses to begin or enhance recycling we go to the waste hauling community to see what programs are available for businesses. Putting the business owner together with the waste hauler in an office paper program or some other program is a great way to get the recycling ball rolling. Office paper is a good beginning. We recommend individual recycle/waste cans that have two compartments. The larger is for office papers and the smaller (considerably smaller) is for waste. Once the office is comfortable with recycling, bottles and cans can be the next hurdle to attack and then... Each step is in conjunction with a local hauling company who's program includes containers, labeling, etc., all of the logistical tools to make participation easy and pleasant.
JW.
J W Spear, Sr., P.E.
J Spear Associates
325 West Vine Street
Milwaukee, WI 53212-3605
Telephone (414) 263-5715
Facsimile (414) 435-3110
Mobile (414) 687-0518
Email jw@jspear.com
http://www.jspear.com
Good question Lynn,
I'm doing my PhD on a closely aligned issue. Does anyone know whether the SME cluster regions (that feature strongly in the social capital literature) like Baden-Wurttemberg and the Third Italy have had any greater success in getting SMEs to improve their environmental performance?
Cheers
Kristine Peters
KPPM South Australia