Sustainability risk management for SMEs: inaction is not an option

June 14, 2021

Published: Accountancy Europe

By Johan Barros

We live in unprecedented times: globally integrated supply chains, climate change, and now the pandemic, have highlighted the need to change how we do business.

These issues touch on how the UN defines sustainable development: How to meet the needs of the present without compromising the ability of future generations to meet their own needs?

Small businesses are at the heart of our economies. Our publication SME risk management: sustainability explains how and why SMEs need to put sustainability at the forefront. It outlines how accountants can help SMEs become more sustainable organisations so they can deal with these new realities.

A checklist to kickstart SMEs’ sustainable transition

We have developed a 3-step sustainability assessment for SMEs checklist with the support of the European Association of Co-operative Banks (EACB). Directed at accountants, it aims to help their SME clients develop their businesses’ sustainability profile and enable a smooth transition to more durable business models.

Why does sustainability matter for SMEs?

The sustainable transition is having an evident impact on SMEs. For example, society increasingly expects businesses to do better. Our awareness of companies’ social, environment and governance (ESG) impacts is changing our consumption behaviours. SMEs need to become sustainable if they wish to stay viable long-term.

SMEs could face serious risks if they don’t effectively address sustainability issues:

o    outdated business models which could lead to fewer clients and partners

o    competitive disadvantage, especially for consumer facing businesses

o    upcoming regulatory requirements, for example on sustainability reporting, that are trickling down from larger companies to progressively smaller ones

o    requirements that supply chains and business partners set for SMEs to deal with, including on heavy internal controls and reporting

How can accountants help?

Thinking about sustainability can be daunting for SMEs that cope with everyday challenges and the pandemic’s impacts. But Covid-19 is also the latest call for more resilient and sustainable businesses. SMEs often rely on accountants as their primary advisors on business decisions. They can also help SME owners consider sustainability risks, mitigate them, and advise on sustainable transition opportunities. They can:

o      map supply chains and identify weak areas

o      assess sustainability impact and risks, setting KPIs and monitoring processes to reduce impact, publishing businesses’ policies and actions, and create Environmental Management Systems (EMS)

o      identify ESG opportunities and measures’ potential impact on cash flow

o      advise on access to funding and liquidity advantages for when SMEs become more sustainable

o      set up sustainability reporting and communication

o      provide assurance on the reported information when required by external parties

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