How smaller companies can help create a sustainable world

"Great things are not done by impulse, but by a series of small things brought together.” - Vincent Van Gogh.

With their entrepreneurship and innovation, many smaller companies have exited the Covid-19 pandemic stronger than before. They’ve gained market share and pricing power, while several now lead on sustainability.

In emerging economies, small and medium-sized enterprises (SMEs) have a particularly important role to play. They represent approximately 90% of businesses, provide more than 50% of employment and contribute around 40% to GDP.¹

The challenge

June 27 is the United Nations' (UN) dedicated Micro, Small and Medium-sized Enterprises Day. The aim is to highlight and further encourage the contribution SMEs make to sustainable development. Currently, smaller companies’ engagement with the UN’s sustainable development goals (SDGs) is more limited than it could be.

There are several reason for this. For example, there’s "small-cap syndrome," whereby smaller-scale companies think they’re not in a position to drive change. Due to limited resources, they may lack awareness of their positive contribution and sustainability footprint. Many find introducing impact initiatives challenging due to the overwhelming amount of information available, the plethora of disclosure mechanisms and lack of uniformity across different regions.

What makes "small" special?

However, smaller companies, by their very nature, have the potential to quickly transform into leaders in sustainability. As businesses, they tend to be more agile and adaptable than their larger peers, allowing them to adjust quickly to global developments. They’re also closer to stakeholders and local communities. When it comes to social responsibility, research suggests small-caps tend to listen more openly to the needs of their employees and the local communities.² And today there are many smaller companies that are already making a difference.

Smaller companies, by their very nature, have the potential to quickly transform into leaders in sustainability

How does this look in practice?

Founder and family-run firms often have a unique connection with local communities and actively support their well-being. This could come in the form of recruiting locally and engaging with suppliers and various institutions or helping local young people to work and advance in the businesses. Working with local students, for example, aligns with the UN Sustainable Development Goal (SDG) 8 — decent work and economic growth.

Smaller companies can contribute and have contributed toward other UN SDGs, too. For example, small-cap pharmaceutical or healthcare companies can try to align with SDG 3 — good health and well-being — by providing access to affordable medicines or services. Other companies could seek to meet SDG 6 — clean water and sanitation — by focusing on, for instance, water conservation or green energy. There are smaller companies that manufacture goods using eco-friendly components and others that try to manage CO2 emissions more effectively or produce less waste than larger peers in their respective industries, like fashion.

What does this mean for investors?

Great things are not done by impulse, but by a series of small things brought together.” - Vincent Van Gogh.

It will require a huge amount of financing and investment to achieve the objectives of the UN’s SDGs. The World Bank puts the figure between US$ 80 trillion and US$ 200 trillion.³ As a result, investors have an important role to play by providing access to financial services and credit. This includes investing in assets best-placed to benefit from the sustainable economy and the transition towards a net-zero world.

Final thoughts…

We believe many SMEs, despite their smaller size, can be leaders in their industries. They aim to future-proof their operations and recognize the importance of conducting business responsibly and sustainably. Smaller companies are making a difference and have an important role to play in supporting the SDG goals and the sustainability agenda. Great things can indeed be achieved by a series of small things brought together.

¹ World Bank SME Finance: Development news, research, data | World Bank

²A. Venturelli, S. Principale, L. Ligorio, S. Cosma, Walking the talk in family firms. An empirical investigation of CSR communication and practices, Corporate Social Responsibility and Environmental Management, 28(1)(2021), pp. 497-510.

³UN, "Roadmap for financing the 2030 Agenda for Sustainable Development," 2019 - 2021.