Pressure on small businesses to become green too

But ESG should be seen as an opportunity, not another barrier against funding – Mark Paper, CEO of Business Partners.
Sometimes all it takes is a few changes for a business to become more sustainable and gain access to more finance. Image: Shutterstock

The move towards sustainable business practices should not be the reserve of big corporates at the receiving end of activism that aims to force them to consider environmental, social and governance issues (ESG). Smaller businesses should also embrace these principles to ensure sustainability – and access to financing.

It may seem like another obstacle in the way of entrepreneurs who want to start a business or expand their businesses – small business entrepreneurs who usually struggle to get capital.

“It is not another barrier,” says Mark Paper, CEO of SME financier Business Partners.

Opportunity

“The implementation of ESG practices should not be regarded as a barrier to access funding, but rather an opportunity to demonstrate a commitment to environmental and social management, whereby business owners can develop positive relations with their staff, bankers, insurers, customers, suppliers, regulators and the local community.

“This, in turn, can lead to an improved image and financial benefits, such as increased investment, customer sales and market share,” he adds.

Business Partners quotes figures supplied by the Global Impact Investing Network which put the value of investments in ESG initiatives (or impact investing) at $715 billion.

“The proliferation of the sector brings with it indispensable opportunities for green SMEs [small and medium-sized enterprises] to access funding and become a key driver of change,” says Paper.

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While Business Partners is set to continue its focus on providing finance for small businesses, it is making more financing available to those that demonstrate commitment to reducing their carbon emissions, adopt renewable energy technologies and enhance the environment.

“Our focus on green businesses forms part of a vision that we as a company have been investing in for a number of years. With the funding we provide, we have the opportunity to drive the country’s broader sustainability goals at a grass roots level by supporting small business,” says Paper.

“Through our green business focus, we hope to create a supportive and enabling environment for green entrepreneurship.”

Green financing 

The green industries and initiatives that would be considered for finance include the energy, waste and water sectors.

SMEs that meet a number of green criteria may be granted access to loans between R500 000 and R50 million.

In addition to these industries, Business Partners would also get involved in and finance companies that can provide innovative solutions to the growing needs for a sustainable world.

A question that immediately springs to mind is how the average small business – like the owner-managed tyre and exhaust fitment shop, franchised restaurant, coffee shop, clothing store or bakery – can become more sustainable and access financing.

Ways and means

Sometimes, its needs only a few changes in a business to help entrepreneurs to become more sustainable and get access to more finance.

“Small businesses regardless of size or sector, when implementing sustainable practices which consider the impact of people on ecological systems, can contribute significantly to environmental sustainability,” says Paper.

“Businesses can use energy efficiently by only using LED light or energy saving light bulbs, ensuring that bathrooms have dual flush facilities and make use of aerated or flow regulators on all taps to reduce water consumption.

“Social management includes taking care of all stakeholders with regards to occupational health and safety, human resources issues and community involvement – creating a safe environment in all aspects,” says Paper.

Some of the examples he mentions are nothing new. In cases, they are enacted in legislation.

Laws require transparent human resource policies and procedures, which also help to avoid labour problems and ensure occupational health and safety in the workplace.

Seeing things in a new light

“The above examples only need limited capital outlay,” says Paper, “[and] rather require a mind shift in the way we do business.”

“Obviously, other more intensive ESG programmes such as solar energy installation and rain water capture may require higher levels of capital outlay – the cost of which is notably becoming lower as technology and manufacturing capability improve. With lowering costs, the saving arising from this lower electricity and water usage reduces the payback period of the initial capital outlay.”

Business Partners notes that small and medium business owners are accepting the challenge to change.

“The calibre of applications that we have been reviewing over the last year has impressed and inspired us. Already, we are seeing a number of South African SMEs using the finance they have accessed to build companies that we believe represent the future of business.

Strong business case for sustainability

“There is a strong business case to be made for sustainable solutions. Entrepreneurs who understand this and build their business around sustainability will be well positioned for long-term success,” he says.

Read: We want to be green and rich

Paper notes that many smaller businesses have adopted solar energy to mitigate the effects of load shedding – reducing their carbon emissions at the same time, and points out that the costs associated with reducing environmental damage are coming down.

“Take solar energy, where the cost of installation has been reducing over the last 10 years and where the payback period of the electricity savings has reduced from an average of 7.5 to 4.5 years.

“The benefit of the initial capital outlay is no longer merely an environmental decision, but is now also a positive economic decision which will provide a healthy return on investment.”

Assistance

Catering to small business owners who aspire to join the movement towards a greener business environment, Business Partners has established a technical assistance programme, offering technical assistance loans at zero interest, which can be used to support SMEs in adopting green processes and policies.

Paper says the focus of Business Partners has not changed: the ultimate objective is to help boost the economy and tackle the country’s record-high unemployment rate.

Its records show that since its establishment in 1981, Business Partners has provided more than R21.5 billion in business loans in over 72 000 transactions, creating in excess of 671 000 jobs.

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