Small and Medium-sized Enterprises at the Crossroads of Digitalization and Sustainability

Twin transition, encompassing digital and sustainability transformations, creates challenges and opportunities for small and medium-sized enterprises. SMEs have a significant role in greenhouse emissions and industrial waste globally. Many SMEs have resource constraints that hinder their ability to invest in the development of these aspects. Sustainability can guide digital transformation strategy and bring benefits to the environment, society, and improve the competitive position of the firm, too.

Author: Heidi Myyryläinen

Small and medium-sized enterprises (SMEs) are responsible for about 60-70% of greenhouse gas emissions and industrial waste (OECD 2021). Therefore, also SMEs are pressed to innovate more sustainable practices to address environmental challenges.

Digital tools have the potential to significantly impact the green transition of small and medium-sized enterprises (OECD 2021). The Distance LAB project team aimed to gain a deeper understanding of the field by studying practical and theoretical perspectives and by collecting views from SMEs in Lithuania, Finland, Latvia, and Norway (LAB 2023).

Twin transition

Climate-neutral and sustainable economy and digitalization have high priority in the EU´s agenda (European Commission 2023b). EU also recognizes the interconnectedness of sustainability and digitalization processes. The digitalization can contribute to achieving sustainability goals, too (European Commission 2023a). It has been envisioned that digitalization can contribute to decarbonization, particularly in five sectors. These sectors are construction and buildings, manufacturing, energy, transportation, and agriculture. (European Commission 2023a) Also learning, health, and business sectors have significant ICT-enabled sustainability benefits (Global e-sustainability Initiative 2015).

EU has set a goal that by 2030, 90% of companies will have a basic level of digital intensity and 75% of EU companies will use cloud computing services, big data, and artificial intelligence. In the 2030 manifesto, it is envisioned that 85% of EU companies will use ICT to reduce their environmental footprint. (European Commission 2023a) It must be noted not all digital technologies or practices automatically advance sustainability, and digital technologies can hurt the environment, too (OECD 2021) but the potential for positive contribution is still great.

Challenges and opportunities for SMEs

The digitalization and sustainability challenges pose opportunities and threats for SMEs. Value chains are increasingly digital, and therefore new capabilities are required (Denicolai et al. 2021). Being an early adopter in digital markets brings a competitive edge (OECD 2023). Approximately 66% of firms employ information and communication technology (ICT) solutions to decrease their greenhouse gas emissions. (European Commission 2023). The COVID-19 pandemic forced many small and medium-sized enterprises (SMEs) to further accelerate the digitalization process (OECD 2023).

According to the OECD (2021), SMEs lack resources for transformation. The investment costs. Access to skills, knowledge, technology, and finance is not automatically available. The smaller the company is, the less likely they are to prioritize sustainability (OECD 2021).

Disparities in digital capabilities are closely linked to shortcomings in productivity, innovation, and growth (OECD 2023). The digital divide between regions, organizations, and individuals has grown over the past years (OECD 2023).

What did we learn from our survey of SMEs?

With our survey, we reached 21 enterprises from four Nordic or Baltic countries. The survey aimed to have more open questions and to learn from the sensemaking of respondents in SMEs. We had not defined sustainability but asked respondents what aspects of sustainability are important to them and how they manage sustainability aspects in their firm. Even though the small number of respondents, the views reflected the manifoldness of the sustainability and digitalization perspectives in the field, as was to be expected. Yet, the variety of responses was surprising.

Most respondents see sustainability as a high priority for their firm, but respondents emphasize different meanings of the topic. For some firms, sustainability refers to the resilience of employees and securing skilled employees in changing situations, for some, it is recycling the waste they generate and greener choices in the supply chain, for some sustainability is associated with recycling nutrients. For some, sustainability is associated with steady process automation and eliminating failures.

Though many firms make sense of what sustainability means for them, some respondents experience their firms do not have a clear approach to sustainability. This is reflected in some responses, for example, one respondent describes that sustainability is seen as “beautiful words in the paper”. Most respondent firms have not audited sustainability in their firm internally or externally.

For some respondents, sustainability topics arrive from some program they are attending, for some, the sustainability initiatives come because clients need them, and for some, sustainability topics are shared values that are tried to be integrated with the core business, and some firms help other companies in the topic. Some firms are born with sustainability aspects and for some other firms, pressures to develop approaches arrive from an external environment.

In terms of the digital maturity of a firm, respondents represent different positions. The respondents note that a challenge to developing a firm for sustainability or digitalization is hindering usually because of resource constraints. The investments require skilled people, time, finances, and depending on the context other resources.

Benefits of strategic fusion of sustainability and digitalization for SMEs

Nowadays, SMEs are increasingly expected to be accountable for sustainability by their business partners and clients. Scholars see integrating views of “people, planet, and profit” into business strategy as the only long-term competitive option for doing business (Palmer et al. 2016). Studies suggest SMEs´ commitment to sustainability positively contributes to dynamic capabilities (Montresor and Vezzani 2023; Chatzistamoulou 2023) and competitive position in the market (Lopez-Torres 2023). Digital technologies can make processes smarter in the sense of the use of resources and lessen pollution (OECD 2021). Also, digitalization can contribute to all dimensions of sustainability in various ways, some of them yet unexplored. The investments into sustainability and digitalization seem to pay off, also financially.

The twin transition is underway (Chatzistamoulou 2023). The regulative environments all over the world also require a growing effort from SMEs to consider sustainability issues (Edeigba and Arasanmi 2022). The macro-environment may be a key driving force for influencing the business agenda of firms (Chatzistamoulou 2023).

The landscape for business is changing, and it is useful for SMEs to adopt a strategic, well-prepared, and holistic perspective on sustainability. Sustainability and digitalization are in many ways imperatives in today´s business but they also present avenues of innovation for SMEs.

References

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