Small and medium-sized enterprises (SMEs) account for 98% of all businesses in South Africa. There are between 2.4 and 3.5 million people in the country. They play an important role in supporting local economies, creating an estimated 66% of all jobs.
However, little is known about the environmentally friendly practices and sustainability of SMEs. For example, do they protect the environment in which they work? Do they consider environmental management a core part of business management? Do they intend to switch to renewable energy? Also, are small and medium-sized enterprises incorporating green social development initiatives into their operations and strategies?
Read more: Africa’s small and medium-sized businesses will be on the front lines of climate change
Other sustainability practices in the small business world include developing ethically manufactured and retail products, or working as part of sustainable local social development, upskilling programs, and employment equity initiatives.
We are accounting and SME researchers and recently wrote about how South African SMEs approach sustainability in a book called Green Finance in Emerging Economies. We used the annual reports of 27 SMEs listed on the AltX Johannesburg Stock Exchange from 2017 to 2024 as input for our study.
We used a computer program to examine the report and find answers to key questions. Do organizations demonstrate that they understand sustainability issues? Are they prepared for climate-related risks? Are they prepared to invest in or access green financing? What actions are they actually taking? And what is stopping us from becoming sustainable?
We selected small and medium-sized enterprises from different sectors to give you a complete picture. These include financial and business services, mining and quarrying, manufacturing, community services, electricity, gas, water, transport and construction.
We found that SMEs are most likely to adopt sustainable practices if they are aware of green finance, want to adapt to climate change, and believe in sustainability. Even if we face many obstacles in doing so.
Read more: How small businesses can manage their environmental impact
Our research fills a gap in understanding what drives sustainability in developing economies, particularly South Africa.
Policymakers need to promote green finance, reduce red tape such as slow local and government approval processes, and help build capacity for small and medium-sized enterprises to adopt environmentally friendly practices.
Preparing for climate change is important
Small businesses need to be prepared to deal with climate-related risks. These include extreme weather, water shortages, and supply chain disruptions.
Small businesses that are aware of these risks are more likely to take steps to adapt to global warming. For example, they may invest in resilient infrastructure such as clean energy and use water-saving technologies.
For small businesses, responding to climate change is not just about protecting the environment. It’s also about ensuring the survival of their business.
consciousness plays an important role
One of our most important findings is that awareness has a strong influence on whether small businesses adopt sustainability practices. Due to cost and other factors, recognizing climate change does not automatically mean adopting sustainability practices. However, small businesses that are aware of sustainability practices are more likely to adopt them.
Small businesses that understand that implementing sustainability measures can reduce business costs in the long term are more likely to become environmentally friendly.
Read more: Energy crisis: How to help small businesses survive and become more sustainable
However, our research also found that many small and medium-sized businesses are not taking steps to be environmentally friendly. This is despite increasing pressure from concerned groups, including environmentalists and responsible investors, for greener businesses. Reason: Small businesses lack clear and reliable information on sustainability.
Closing this knowledge gap could lead to a wave of environmentally responsible practices across the small business sector.
Green finance alone is not enough
Green finance, from providers such as banks, development finance institutions and state-owned entities, is designed to support investments in renewable energy, energy-efficient equipment and production processes that do not pollute the environment.
It is often thought that the main reason why small and medium-sized enterprises are not environmentally friendly is that it is difficult to obtain green finance.
However, our findings revealed an interesting and somewhat unexpected result.
Read more: South Africa’s SME Stock Exchange: Some benefits, but not a magic wand
In some cases, SMEs may be aware of green finance opportunities but may not be able to initiate sustainable projects. This can occur due to a lack of the necessary technical capacity, operational systems, or institutional support.
In other words, funding alone is not enough. Companies also need practical support.
Recognizing the problem shows a company is making an effort
Small business owners may think that going green is too expensive, that they don’t have the expertise, that there are too many rules to follow, or that their company doesn’t even benefit.
But another surprising finding from our research is that SMEs openly identifying and reporting these barriers shows that they are thinking deeply about sustainability.
Companies that recognize the challenge are often those that have already begun their sustainability journey. Identifying obstacles will help you find solutions and support.
This shows that it is important for SMEs, policy makers and financial institutions to work together to solve the real challenges faced by businesses.
what needs to happen next
Supporting the sustainability of small and medium-sized enterprises requires a concerted effort. Awareness programs are essential. Governments, industry associations and universities can share knowledge about sustainable business practices and their benefits. Financial institutions must ensure that green finance initiatives are accessible and practical for small and medium-sized businesses. This may include simplifying the application process, providing technical guidance, or providing combined financial and advisory support.
Policy makers need to make it easier for SMEs to adopt sustainability. This could include providing energy efficiency training and incentives. Partnerships that give businesses access to new technologies could also be an important policy requirement.
Read more: African Entrepreneurship Fund: Separating the good from the bad
Individual small businesses may seem small, but the collective impact is large. Millions of small and medium-sized businesses can reap significant environmental and economic benefits if they adopt sustainable practices.
The transition to a greener economy cannot succeed without small and medium-sized enterprises. By supporting them more effectively, South Africa can build a more resilient, competitive and environmentally responsible economy.
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