Does Sustainability Boost Profits for SMEs?

Alan L. Johnson

It has been argued that sustainable businesses reap significant rewards. In fact, a few years ago a non-profit group CDP reported that:

Specifically, corporations that are actively managing and planning for climate change secure an 18% higher return on investment (ROI) than companies that aren’t – and 67% higher than companies who refuse to disclose their emissions.

Some of the known advantages are more agile businesses & supply chains, better brand recognition and endearment, and higher margins as typically sustainable products can be sold at a premium.

Although there are clear benefits for large companies, it has been mentioned that the effect is more more difficult to achieve the smaller the company.

Recently, however, new evidence has emerged to signal that truly any business engaging in sustainable practices can see a lift especially as competition mounts. It turns out that Sustainability becomes a significant advantage and differentiator as competition for market share occurs.

In a recent article published in ScienceDaily, North Carolina State University talks about new research that proves this point in the Wine industry. The paper, "SME Managers' Perceptions of Competitive Pressure and the Adoption of Environmental Practices in Fragmented Industries: A Multi-Country Study in the Wine Industry," was also published in the journal Organization & Environment and details the financial success of companies who were practicing sustainability measures like using recycled materials to reducing fuel costs to engaging in environmental audits.

Beverly Tyler, a professor of management, innovation and entrepreneurship at NC State who co-authored a paper on the work was quoted as saying:

We found that, consistent with previous studies, sustainability is positively associated with profitability. What's new is that we found that perceived pressure from competitors drives up that effect. Specifically, we found that competitive pressure makes business managers focus on maximizing the value that they get from their existing sustainability measures.

These findings are really interesting. In increasingly competitive markets faced by small and medium businesses, sustainability can drive differentiation and financial growth. In fact Beverly goes on to say that:

This work helps us better understand why some small- and medium-sized businesses in fragmented industries are not investing in sustainability, even though it contributes to profitability. Basically, businesses in fragmented industries that feel threatened by competitors are scared to invest their limited resources in sustainability. However, the study also highlights the advantages associated with having sustainable practices in place when competition is fierce.

The findings are part of a growing body of evidence supporting the use of sustainable business practices across business sizes and categories to drive additional value and increase financial success.

Reality Changing Observations:

Q1. Would you invest in a business based on its sustainable practices?

Q2. Are you more or less likely to buy a product if it is sustainable? Why?

Q3. Why do you think sustainable wineries are so successful?