Small and Medium Enterprises Small and medium-sized enterprises (SMEs) or small and medium-sized businesses (SMBs) are businesses whose personnel and revenue numbers fall below certain limits. The abbreviation "SME" is used by international organizations such as the World Bank ...

(SMEs) are defined by the

European Commission The European Commission (EC) is the executive of the European Union (EU). It operates as a cabinet government, with 27 members of the Commission (informally known as "Commissioners") headed by a President. It includes an administrative body o ...

as having less than 250 employees, independent (with no shareholder having over a 25% stake in the business) and with an annual turnover of no more than €50 million or annual balance sheet of €43 million. SMEs have been identified as a problem area in the field of

environmental regulation Environmental law is a collective term encompassing aspects of the law that provide protection to the environment. A related but distinct set of regulatory regimes, now strongly influenced by environmental Legal doctrine, legal principles, focu ...

. Whilst the individual environmental impacts of SMEs are generally small in comparison to those of large corporations, the cumulative environmental impacts of the sector are large. They also pose particular problems for

environmental governance Environmental governance (EG) consist of a system of laws, norms, rules, policies and practices that dictate how the board members of an environment related regulatory body should manage and oversee the affairs of any environment related regu ...

, showing little reception to new environment policy instruments (NEPIs) such as

market-based instruments In environmental law and policy, market-based instruments (MBIs) are policy instruments that use markets, price, and other economic variables to provide incentives for polluters to reduce or eliminate negative environmental externalities. MBIs seek ...

, voluntary agreements and informational devices.

Problem areas

There are approximately 4.7 million

businesses Business is the practice of making one's living or making money by producing or buying and selling products (such as goods and services). It is also "any activity or enterprise entered into for profit." Having a business name does not separat ...

in the UK of which 99.7% are

SMEs Superconducting magnetic energy storage (SMES) systems store energy in the magnetic field created by the flow of direct current in a Superconductivity, superconducting coil which has been Cryogenics, cryogenically cooled to a temperature below ...

. The large size of the sector lends itself to the idea that environmental impacts are cumulatively large. Whilst there has been limited research into the

quantitative Quantitative may refer to: * Quantitative research, scientific investigation of quantitative properties * Quantitative analysis (disambiguation) * Quantitative verse, a metrical system in poetry * Statistics, also known as quantitative analysis ...

impacts of SMEs, the Marshall Report estimates that 60% of total

carbon emissions Greenhouse gas emissions from human activities strengthen the greenhouse effect, contributing to climate change. Most is carbon dioxide from burning fossil fuels: coal, oil, and natural gas. The largest emitters include coal in China and larg ...

in the UK are attributable to SMEs. SMEs are also responsible for around 60% of

commercial waste Commercial waste consists of waste from premises used mainly for the purposes of a trade or business or for the purpose of sport, recreation, education or entertainment, but excluding household, agricultural or industrial waste.SME SME may refer to: Economics * Small and medium-sized enterprises * Socialist market economy, an economic system of China Organizations Music * SME Limited, UK audio turntable manufacturer * Sony Music Entertainment, US * Spontaneous Music Ensembl ...

environmental behaviour is generally poor. Failure to pursue eco-efficient measures has often been attributed to low levels of awareness and lack of resources. It is theorised that as the majority of SMEs serve local markets they are less likely to be exposed to international pressures or incentives, including those likely to promote eco-innovation. It has also been suggested that

civil society Civil society can be understood as the "third sector" of society, distinct from government and business, and including the family and the private sphere. Whilst the 1980s and 1990s saw a shift in the perceived relationship between the

environment Environment most often refers to: __NOTOC__ * Natural environment, all living and non-living things occurring naturally * Biophysical environment, the physical and biological factors along with their chemical interactions that affect an organism or ...

and

business practice Business ethics (also known as Corporate Ethics) is a form of applied ethics or professional ethics, that examines ethical principles and moral or ethical problems that can arise in a business environment. It applies to all aspects of business co ...

it has only translated into actions for prominently large firms. This change in environmental

business ethics Business ethics (also known as Corporate Ethics) is a form of applied ethics or professional ethics, that examines ethical principles and moral or ethical problems that can arise in a business environment. It applies to all aspects of business co ...

stems mainly from ideas of ‘ ecological modernisation', a school of thought advanced most notably by German scholars Joseph Huber and Martin Janicke. They challenged Max Weber’s theory of bureaucratic rationality. A theory which positions

government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government is a ...

as best placed to resolve

environmental problems Environmental issues are effects of human activity on the biophysical environment, most often of which are harmful effects that cause environmental degradation. Environmental protection is the practice of protecting the natural environment on t ...

. Instead, the

discourse Discourse is a generalization of the notion of a conversation to any form of communication. Discourse is a major topic in social theory, with work spanning fields such as sociology, anthropology, continental philosophy, and discourse analysis. ...

of ecological modernisation claims that sufficient innovative capacity will come only from industry itself as it has the expertise and means to do so. This is posited with the idea of ‘steering’ industry onto more environmentally beneficial pathways through financial incentives. This shift is clearly visible in the 1980 World Conservation Strategy which pushes environmental actions from reactive to anticipatory. The shift towards thinking in terms of ‘ ecological modernisation’ has also involved a movement to ‘smart’ regulatory instruments involving more reflexive forms of law (law which pushes businesses to reflect on and regulate their own practices) such as

Environmental Management System An environmental management system (EMS) is "a system and database which integrates procedures and processes for training of personnel, monitoring, summarizing, and reporting of specialized environmental performance information to internal and exte ...

s, Environmental Reporting and Disclosure Strategies, Market-Based Instruments and the social license. The latter of these being important in Corporate Social Responsibility. Whilst ‘smart’

regulation Regulation is the management of complex systems according to a set of rules and trends. In systems theory, these types of rules exist in various fields of biology and society, but the term has slightly different meanings according to context. For ...

is a promising concept,

have been slow on the uptake and have generally been observed to retain a reactive approach to positive environmental actions. Research has often suggested that a more comprehensive approach will be needed to improve environmental performance in the SME sector, these are based on three distinct theoretical perspectives; * The strategic perspective highlights the importance of the way in which environmental issues are communicated and perceived by actors involved with SME

governance Governance is the process of interactions through the laws, social norm, norms, power (social and political), power or language of an organized society over a social system (family, tribe, formal organization, formal or informal organization, a ...

. * The network perspective advances improving the environment from which SMEs obtain knowledge relating to new

technological innovation Technological innovation is an extended concept of innovation. While innovation is a rather well-defined concept, it has a broad meaning to many people, and especially numerous understanding in the academic and business world. Innovation refers t ...

s and; * The internal competence perspective underlines a need to build the receptive capacity of SMEs in adjusting to new technological innovation.

Structural issues

It has been suggested that there is not yet a substantial structure in the UK which forces environmental matters onto the business agendas of UK SMEs. The choice of policy instruments in the UK has tended not to acknowledge the structural differences between large firms and

. For example, the EU White Paper has often promoted a sectoral and ‘one-size-fits-all’ approach to addressing the environmental impacts of business activities. Although acknowledging structural differences between industries is important, this distinction alone may undermine the recognition of important differences in large corporations and SMEs that may affect the way in which environmental issues are perceived or acted upon. With regard to policy action, the White Paper has influenced the creation of ‘sectoral sustainability strategies’, voluntary conglomerates of firm representatives from specific industrial sectors. Such associations have been criticised for being unrepresentative of the interests due to the unequal power relations between large and small firms. SMEs are also perceived to often lack characteristics that would otherwise enable them to engage effectively with the

sustainable development Sustainable development is an organizing principle for meeting human development goals while also sustaining the ability of natural systems to provide the natural resources and ecosystem services on which the economy and society depend. The des ...

agenda, barriers for effective engagement being both internal and external to the firm. It is thought that a lack of institutional enfranchisement of SMEs in the UK is also a key factor in understanding why

environmental policies Environmental policy is the commitment of an organization or government to the laws, regulations, and other policy mechanisms concerning environmental issues. These issues generally include air and water pollution, waste management, ecosystem mana ...

may be ineffective at encouraging proactive environmental performance within smaller firms.

Corporate social responsibility

Whilst CSR strategies have been intensively adopted by large and publicly visible corporations, the effectiveness of this type of social regulation with

remains questionable. This is partly due to their size, as their smaller-scale activities are less visible within society. It is thought that many larger firms develop CSR strategies voluntarily to avoid disclosure for bad practice and to maintain and develop a

shareholder A shareholder (in the United States often referred to as stockholder) of a corporation is an individual or legal entity (such as another corporation, a body politic, a trust or partnership) that is registered by the corporation as the legal own ...

base. Small firms however are not subject to the same incentives for practicing CSR. This is because they are defined by a limited

base and are unlikely to exhibit environmental and social bad practice on a scale worthy of media attention. These ideas are exemplified in a study by Lynch-Wood and Williamson which has suggested that SME environmental practice is driven by ‘business performance’ and ‘

’, rather than the ‘business case’ (i.e. maintaining and improving shareholder base) which CSR practice stems from. It is also apparent that smaller firms may not have the available financial resources for pursuing costly CSR strategies (CSR programmes typically involving funding community projects). Voluntary measures as a whole have been problematized by some scholars with a suggestion that environmental practice in SMEs is often constrained by free-market decision-making frames that encourage

profitability In economics, profit is the difference between the revenue that an economic entity has received from its outputs and the total cost of its inputs. It is equal to total revenue minus total cost, including both explicit and implicit costs. It i ...

to the detriment of beyond compliance social and environmental behaviour.

Environmental management systems

Environmental Management Systems (EMS) such as ISO 14001 and EMAS seek to provide all businesses (regardless of size and

industry Industry may refer to: Economics * Industry (economics), a generally categorized branch of economic activity * Industry (manufacturing), a specific branch of economic activity, typically in factories with machinery * The wider industrial sector ...

) with the means to develop systematic approaches to improving environmental performance. ISO 14001 was purportedly written with the chipshop owner in mind so as to defend its use across the entire EU business community. Whilst EMS is supposed to be suited for SME use, rates of uptake have been marginal. It is estimated that in 1999 only 24% of UK

registered with EMAS were SMEs, whilst no figures are available for ISO 14001 based on company size The most promoted incentive for businesses implementing EMS is generally cost-savings. A pan-EU survey of businesses using EMAS identified that cost-savings were indeed the biggest perceived benefit to arise from implementation across enterprises in

Europe Europe is a large peninsula conventionally considered a continent in its own right because of its great physical size and the weight of its history and traditions. Europe is also considered a Continent#Subcontinents, subcontinent of Eurasia ...

however SMEs placed this second claiming EMAS mainly benefited corporate image. Whilst ISO 14001 was designed with the chip shop man in mind, the requirements of EMS should not be underestimated. The ISO 14001 follows a basic structure requiring business to define an

environmental policy Environmental policy is the commitment of an organization or government to the laws, regulations, and other policy mechanisms concerning environmental issues. These issues generally include air and water pollution, waste management, ecosystem mana ...

, environmental aspects register (detailing applicable environmental legislation) and annually reviewed objectives and targets (in reference to environmental aspects). Without support or training, these elements can be difficult to understand. ISO 14001 requires

internal auditing Internal auditing is an independent, objective assurance and consulting activity designed to add value and improve an organization's operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to ...

(on an annual basis) meaning extra constraints such as time dedicated to staff training (as it cannot be undertaken by the individual responsible for overseeing the management system). Certification and Validation are expensive and SMEs especially may require support from consultants, further adding to costs. Whilst these financial burdens may have minimal impact on larger corporations, for smaller firms the costs of implementation and upkeep may out-weigh the cost savings achieved through the EMS. If SMEs are to pursue EMS it is likely to be a result of

supply chain In commerce, a supply chain is a network of facilities that procure raw materials, transform them into intermediate goods and then final products to customers through a distribution system. It refers to the network of organizations, people, acti ...

pressure rather than ideas of financial gain.

Environmental innovation

The diffusion of cleaner technologies and self-regulation (i.e. through the use of EMS) has been limited in the SME sector. This is thought to offer a key challenge to policy makers as

lack sufficient network relations. A lack of resources often entails that the firm will only participate in limited network activities for example with only one prominent customer or supplier. This limited network activity limits the scope for transferring information on

Changing legislation

More recently structural problems regarding SME

have been recognised by the

European Union The European Union (EU) is a supranational political and economic union of member states that are located primarily in Europe. The union has a total area of and an estimated total population of about 447million. The EU has often been des ...

. In June 2008 the ‘ Small Business Act’ (SBA) for Europe was adopted. The act seeks to promote a greater range of incentives for SME good practice with the aim of bringing the sector in line with the

agenda. Principle 9 ‘Turning environmental challenges into opportunities’ is seen as pivotal in steering SMEs onto more environmentally active pathways. In line with this principle several member states have provided energy efficiency funding either through subsidies or encouraging loan conditions as well as varying degrees of cost-free consultancy support to SMEs. The SBA review invites

member states A member state is a state that is a member of an international organization or of a federation or confederation. Since the World Trade Organization (WTO) and the International Monetary Fund (IMF) include some members that are not sovereign states ...

to use an "SME test" to assess whether disproportionate effects will be realised in relation to enterprise size. It has also been recognised that greater regulatory incentives need to be given for SMEs to adopt ISO 14001 or EMAS. The review paper sets out to provide greater networking support to SMEs. It is theorised that by facilitating the use of networks it will be possible for information resources regarding eco-innovations to be transferred across a broader array of firms, including those from the SME sector. The SBA review also recognises that ‘whilst SMEs have some market incentives to optimise their resource use, in many cases the market signals are not easy to identify’ they also state that ‘SMEs face challenges of limited information, time and human and financial resources’. It has been suggested that to overcome these challenges it will be necessary to develop incentives such as financial assistance. It is said that the Enterprise Europe Network will provide incentives for good environmental practice by offering assistance to SMEs marketing products and services resulting from best practice, particularly those adopting low carbon technologies. Although the aims of the SBA for

are seen as necessary for catalysing positive change in the environmental business performance of the SME sector it is not legally binding.

References

{{Reflist Environmental law in the United Kingdom Small and medium-sized enterprises