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18 November 2021

What can Small and Medium Size Enterprises learn from Social Entrepreneurs?

The market imperfections that cause environmental problems can also be an entrepreneurial opportunity

Two men fixing a solar panel

A new report published by Dr Anna Rebmann and her collaborator Dr Emma Folmer of the University of Groningen for the Economic and Social Research Council’s Enterprise Research Centre and the Women’s Organisation explores what lessons can Small and Medium-sized Enterprises learn from social enterprises and environmental entrepreneurship to tackle environmental sustainability issues.

Reviewing previous academic research, the report argues that some of the market imperfections that result in environmental degradation can also create opportunities for businesses and social enterprises to profit by developing solutions to the problem.

One example of a market failure creating entrepreneurial opportunities is the fashion industry. The industry creates what economists call ‘negative externalities’. These occur when the production or consumption of a product or service causes harm to a third party. The fashion industry’s negative externalities include 20 per cent of the world’s industrial water pollution, 10 per cent of CO2 emissions, and its role in modern slavery. However, in the pursuit to make fashion more sustainable, entrepreneurs are now working with recycled fabrics, waste-reducing technologies and new business models such renting clothes.

How can we encourage more businesses to put sustainable development their core?

Social enterprises focusing on environmental causes put environmental sustainability at their core. Previous research suggests that around nine percent of the UK Small and Medium Enterprises (SMEs) can be classed as social enterprises, meaning that they prioritise social and/or environmental impact at least as much as profit and have rules in place that determine how they use profit to further social and environmental goals. This is a meaningful but still a small proportion of the overall business community. The report argues that a supportive local and national government context can help to develop businesses that put sustainable development at their core, but that it also requires huge changes to existing business models.

Developing a business model explicitly for sustainability as well as profit helps businesses to understand, measure and communicate their environmental and economic impact. The report suggests that SMEs that want to promote sustainability should look to existing ‘typographies’ of social enterprise, or planning tools such as the Flourishing Business Canvas to understand how to manage and plan their social and environmental impact.

Making sustainability a business goal makes it more complex for businesses to measure how they are delivering value. They may also find that they are dealing with a wider range of stakeholders.

SMEs may also want to consider adding members to the governance board who can provide great scrutiny of their sustainability, and to start using transparent measures of impact. These steps can help them to cultivate legitimacy and win over consumers that are wary of ‘greenwashing’.

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Anna Rebmann

Lecturer in Social Entrepreneurship