Small and medium-sized enterprises (SMEs) make 98% Of all businesses in South Africa. there are Between 2.4 million to 3.5 million In the country. They play an important role in the creation estimated 66% All supporting jobs and local economies.
But little is known about the eco-friendly or sustainability practices of SMEs. For example, do they protect the environment in which they work? Do they see environmental management as a core part of managing their business? Are they willing to switch to renewable energy? And do SMEs incorporate environmentally friendly social development initiatives into their operations and strategies?
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Other sustainability practices in the small business world include developing ethical manufacturing and retail products, or being part of sustainable local social development, upskilling programs, and employment equity initiatives.
We are accounting and small business researchers who recently wrote about South African SME sustainability for the book Green financing in emerging economies. We used the annual reports of the 27 SMEs listed AltX Johannesburg Stock Exchange Between 2017 and 2024 to inform our research.
We used a computer program to look up answers to key questions in the report. Do organizations show that they understand sustainability issues? Are they prepared for climate risks? Are they ready to invest in or use green financing? What actions are they actually taking? And what's stopping them from becoming sustainable?
We chose SMEs from a variety of sectors to give us the big picture. These include finance and business services, mining and quarrying, manufacturing, community services, electricity, gas, water, transportation and construction.
We found If SMEs are aware of green finance, want to adapt to climate change and believe in sustainability, they are most likely to adopt sustainable practices. This will happen even if they face many obstacles in doing so.
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Our research fills the gap in understanding what drives sustainability in developing economies, particularly South Africa.
Policymakers should promote green finance, reduce red tape such as slow municipal and government approval processes, and support capacity building to enable SMEs to follow environmentally friendly practices.
Climate preparedness matters
Small and medium businesses need to be prepared to deal with climate-related risks. These include extreme weather, water scarcity etc. supply chain disruption.
SMEs that recognize these risks are more likely to take steps to adapt to global warming. For example, they can invest in resilient infrastructure, such as clean energy, and use water-saving technologies.
For SMEs, climate readiness is not just about protecting the environment. It is also about ensuring that their business survives.
Awareness plays an important role
one of our most important conclusion Does this awareness strongly influence whether SMEs adopt sustainability practices? Being aware of climate change does not automatically translate into adopting sustainability practices, due to costs and other factors. However, SMEs that are aware of sustainability practices are more likely to adopt them.
SMEs that understand that introducing sustainability measures can reduce business costs over time are more likely to go green.
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However, Our research also found Many SMEs are not taking environmentally friendly steps. This is despite increasing pressure for green business from concerned groups such as environmentalists and responsible investors. Reason: SMEs lack clear, reliable information on sustainability.
Closing this knowledge gap could lead to a wave of environmentally responsible practices in 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 or production processes that do not pollute.
It is often believed that difficulty in obtaining green finance is the biggest reason why SMEs are not environmentally friendly.
However, our findings reveal an interesting and somewhat unexpected result.
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In some cases, SMEs may be aware of green finance opportunities but may still be unable to undertake sustainable projects. This may be because they lack the necessary technical capacity, operational systems or institutional support.
In other words, funding alone is not enough. Businesses also need practical support.
Recognizing problems shows that businesses are making efforts
SME owners may think that going green is too expensive, that they do not have the expertise, that they may have to follow too many regulations and that their companies may not even benefit.
However, another surprising finding from our study is that when SMEs openly identify and report these barriers, it shows that they are thinking deeply about sustainability.
Businesses that recognize the challenges are often those that have already begun the pursuit of sustainability. By identifying barriers, they are also in a better position to find solutions and support.
This shows that it is important for SMEs, policy makers and financial institutions to work together to solve the practical challenges faced by businesses.
what's next
A coordinated effort is needed to support sustainability among SMEs. Awareness programs are necessary. Governments, industry organizations and universities can share knowledge about sustainable business practices and their benefits. Financial institutions should ensure that green finance initiatives are accessible and practical for small businesses. This may include simplifying application processes, providing technical guidance, or providing mixed financial and advisory assistance.
Policymakers should make it easier for SMEs to adopt sustainability. This may include offering training and incentives for energy efficiency. Partnerships that help businesses access new technologies may also be a key policy need.
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Although individual SMEs may seem small, their collective impact is significant. When millions of small businesses adopt sustainable practices, the environmental and economic benefits will be substantial.
The transition to a green economy cannot succeed without small businesses. By supporting them more effectively, South Africa can build a more resilient, competitive and environmentally responsible economy.