A survey of Canadian small and medium enterprises (SMEs) by Sage Group found two-thirds see sustainability as important to their businesses, but are struggling with the complexities of sustainability reporting.

Sage, a U.K.-based accounting, financial, human resources, payroll and software company that concentrates on SMEs, conducted an international survey of over 16,400 SMEs in 16 countries – including 1,002 in Canada – asking how they are dealing with sustainability regulations.

Almost three-in-four (74 per cent) Canadian SMEs said they feel environmental reporting standards and frameworks are too complex. It's a figure Elisa Moscolin, executive vice-president of sustainability and society at Sage, said indicates most SMEs “find it very hard to engage with sustainability and they face a number of barriers.”

SMEs are crucial to taking on climate change as they are at “the heart of economies around the world,” comprising 97 per cent of Canadian businesses, Moscolin said in an interview with Sustainable Biz Canada.

A report from Climate Smart in 2018 said Canadian SMEs are responsible for 30 per cent of the nation’s greenhouse gas emissions.

“Even though their individual contributions may appear small, their aggregate is big . . . We know that they have a very big role to play. They contribute to emissions but they can also contribute to solutions,” she said.

Interest and confusion

Sage’s data showed most Canadian SMEs see sustainable practices favourably, but are uncertain how to take action.

Sixty-seven per cent have environmental, social or sustainability-related policies on how they conduct business activities, and an equal number see sustainability as important to their operations.

In terms of their interest in sustainability, the ranking of Canada’s SMEs is comparable to counterparts from Belgium, France and Germany, despite not facing as much regulatory pressure as their European peers.

By comparison, 55 per cent of SMEs in the United States expressed their belief in sustainability as important.

The attention is there, but there is trouble when it comes to action, Sage found.

The lack of knowledge or understanding about sustainable practices was identified as the main barrier to accurately measuring environmental impact, at 44 per cent. Almost a quarter (22 per cent) of Canadian SMEs rarely discuss the measurement of environmental impact within their business.

“First and foremost, limited resources and expertise,” are the main impediments to better ESG reporting, Moscolin summarized. The average SME owner is likely occupied with numerous roles, and it is unrealistic to also expect them to also be a sustainability chief, she said.

An additional roadblock is the complexity and inconsistency of sustainability reporting frameworks, which trips up even Moscolin and her team. It would be “almost impossible” for an SME to navigate sustainability reporting, she said.

Challenges around data collection and the cost of reporting are additional complicating factors.

But the survey found 59 per cent of Canadian SMEs “strongly” believe they would be more inclined to engage in climate reporting if the standards were simpler and more closely tailored to their businesses.

Supporting simplified sustainability standards

The responsibility to ease the reporting process for SMEs falls on governments, standard setters and technology companies, Moscolin said.

Technology can play a key role in this process, she added, and survey responses corroborate this belief. Seventy-four per cent considered digital tools to be “very important” in simplifying environmental reporting.

Some key principles Moscolin highlighted to help close the reporting gap on sustainability are:

• proportionality and relevance to the SME’s sector;
• convergence in jargon and standards; and
• simplicity and accessibility.

For governments, Sage urges steps such as demonstrating the importance and benefits of sustainability reporting to SMEs, and promoting the use of affordable and automated technologies for easier sustainability reporting.

Standard setters can establish more consistent ESG terminology and provide user-friendly guides, templates and automated solutions.

There is a myriad of sustainability reporting software, including one offered by Sage. The company has an accounting software for SMEs called Sage Earth that automates carbon footprint accounting and advises on sustainability strategies.

The company also advocates for more favourable regulatory policies for SMEs. Moscolin and Sage will be attending an event devoted to SMEs at the global COP28 conference in Dubai in early December to see this through.