SMEs are the backbone of the world’s economy, and therefore play a critical part in the transition to greater sustainability.
As a CPA, you have an excellent opportunity to play a crucial role in their “green” transformation. Not just to create a better world, but also a more significant economic opportunity for clients to take advantage of changing consumer demands.
Continue reading to discover how you can help embed sustainability in your clients’ business with your accounting practices.
A more sustainable business means that it's ready for the demands and operations of the future. Below, we’ve outlined two main drivers of sustainable change for SMEs.
1. Customer Priorities
According to a study from Deloitte, 28% of consumers will stop buying products if they have ethical or environmental concerns. This figure rises to 45% for gen Z customers (born between 1997 and 2012).
For SMEs, a focus on how to embed sustainability can be a long-term investment in future sales within a changing audience. If customers look at the overall impact of the businesses before they make purchase decisions, environmental concerns could become essential.
It could seem like eco-friendly objectives are more suited to SMEs with young people amongst their target audiences. But remember those are also tomorrow's customers in every industry.
2. Operating Priorities
Increasing political interference to tackle climate change and waste means environmentally unfriendly practices will become untenable in the future.
Most businesses within Europe are likely to keep an eye on environmental legislation that might affect their operations. The EU has a European Climate Law, which legally binds member states to reduce carbon emissions by 2030 dramatically.
That means that countries are likely to place regulations on:
- How businesses make products
- What materials they can use
- Where their energy will come from
- Which transport they can buy
SMEs that show up late to the sustainability party could face serious (and costly) repercussions down the line.
Environmental change can result in risks or opportunities, which CPAs must be aware of to help improve services to clients.
Physical Climate Risks
It's a reality that climate change itself could be a physical risk. SMEs aren't immune to the environmental changes that take place. Those may vary from location, but weather is likely to play a more prominent role than before.
For example, SMEs could face flooding, wildfires, or structural damage from intense heat.
Material Prices Risks
Certain materials that businesses use could be vulnerable to price changes due to government regulation or scarcity, leading to financial risks.
For example, relying on oil to produce plastic products could mean businesses suffer if governments introduce carbon tariffs.
A significant positive reaction to SMEs and sustainability, can be that they develop new technology or processes. Being forced to innovate can lead to discoveries and inventions, which they could sell to other businesses.
SMEs who know how to embed sustainability into their practices can become more self-reliant, which could mean fewer threats to the business in the future.
For example, a business running on renewable energy would take less of a financial hit if gas prices ever increased.
There are three key ways to help your SME clients embed sustainability into their business, keeping them on track to achieve their long-term environmental goals.
1. Help SMEs Apply for Funding and Subsidies
Since governments' regulations to curb climate change affect business, they also set aside money to help with the transition. That could mean additional funding available in loans or grants to spend on updating operations.
Additionally, subsidies are available for SMEs that go beyond those changes and actively start to adopt an environmentally progressive strategy. For example, the government in the UK offers businesses help with the upfront costs of energy-efficient equipment.
Although the funding is a powerful motivator for SMEs looking to go green, the applications can be time-consuming and require businesses to get their accounts in order. That's why the assistance of a CPA can be crucial.
2. Assign Costs to Negative Environmental Impacts
When your clients think about their typical expenses, likely, environmental impacts are not going to feature. But these things do indeed have a cost that they'll need to start to consider.
Whether that's the actual harm they do to the planet or the long-term success of their business, as an accountant, you can make all costs clear. For example, you can calculate the potential loss of earnings if customers decide to switch to a more eco-conscious competitor.
Those impactful expenses may reflect the actual nature of different aspects of the business, making decisions easier for SMEs' leaders.
3. Provide Independent Assurance
Greenwashing is another primary consideration for businesses that set themselves environmental targets. Consumer backlash is a risk if a company markets itself as eco-friendly but its actions don't match this narrative.
That's especially the case for larger businesses, which often improve operations in one area but not another. But, adverse public reactions can also affect SMEs, especially on a more localised scale. For example, if a business is polluting in their area, but posts support for environmental concerns on social media.
Independent assurance can help a business' trustworthiness in terms of its sustainability efforts. As an accountant, you are able to review the SMEs books to find out if they’re in line with their green agenda. If not you can flag it before it becomes a wider issue.
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