Sustainability reporting spurs SMEs

Small and Medium Enterpr-ises (SMEs) have been playing a multifaceted role in driving the economic growth of Bangladesh. SMEs are viewed as one of the most effective vehicles of employment creation and income generation. They account for 80 per cent of industrial jobs and 40 per cent of overall employment in the country. As the single largest industrial group, SMEs account for 90 per cent of total industrial units, contributing around 25 per cent to the country's Gross Domestic Product (GDP). Added to this crucially important contribution, the sector puts a tremendous collective impact on the society and environment.
Despite the laudable role played by the SMEs in Bangladesh, less than 1.0 per cent of these entities prepare any sustainability report. While sustainability reporting is not a recent concept, initiatives in this regard are less familiar, particularly with businesses like the SMEs.
Sustainability reporting can be of considerable importance to small and medium-sized companies in a number of ways. Sustainability reports can help SMEs generate larger financial and economic prospects. The reporting requires that businesses, regardless of their positions and contribution to the country's economy, adopt a transparent and holistic approach to business practices. As banking institutions and large financial corporations are the most prominent lenders to SMEs, they need their SME suppliers to deliver a responsible approach.
Being labour-intensive, this sector is able to give a thrust to employment generation as well as to the growth of national income, and thus contribute to the alleviation of extreme hunger and poverty, persistent illiteracy and gender inequality. Sustainability reports alone can be the cornerstone of the sector's initiatives for long-term development.
According to the Global Reporting Initiative (GRI), "A sustainability report enables companies and organisations to report sustainability information in a way that is similar to financial reporting. Systematic sustainability reporting gives comparable data, with agreed disclosure and matrix." Organisations of all sizes (including commercial companies, organizations, NGOs, schools, and small companies) are required to report on their sustainability strategies.
A firm can demonstrate its positivity by reporting its sustainability efforts. Thus, employee-morale can be improved and a competitive environment can be created, especially during retention and new recruiting process. In Bangladesh, a lot of energetic people tend to be interested in working with companies that approach to demonstrate their credibility by proving that they can provide a secure and safe working environment. Sustainability reports often give SMEs a precise understanding of their respective supply chain systems along with economic, social and environmental impacts, human rights and corporate governance system within the organisation.
Large corporations often tend to contract SME suppliers that are located in newly emerging economies for the supply of products and services. These corporations come with a strong interest in their suppliers' sustainability reporting. Apart from the past few years' political turmoil in the country, reluctance of SMEs in adopting the practice of publishing sustainability reports is slightly responsible for the recent decline in both local and foreign corporations' enthusiasm to contract Bangladeshi SMEs.
The central bank and prominent business research organisations in the country have identified constraints for financing facilities for the SMEs as the most challenging aspect for the promotion of the sector in the days ahead. As SMEs in this country are not still obliged to complete their organisational sustainability report, doing so should be perhaps one of the pressing demands of time, particularly when every business wants to secure sustainability. According to a Certified Global Management Accountant (CGMA) Report, as an embedded part of sustainability reporting procedure, finance has a big role to play in the formulation and implementation of sustainability initiatives, definition of the metrics that set SME goals and monitoring of progress. Due to inadequate financing opportunities, SMEs in Bangladesh are likely to struggle in carrying out these initiatives. The report also states SMEs have experienced that sustainability serves philanthropic motives and simultaneously an excellent business because of its higher profitability both in short and long term perspectives.
Sustainability reports thus also contain notes of a company's philanthropic works for the local communities, often conducted by donated volunteers or useful resources. SMEs in Bangladesh do not seem to focus on the truth that these humanitarian actions can furbish a good image in the eyes of their consumers.
The opportunities, risks and drivers of SMEs in the country vary from company to company. It is imperative for an SME entrepreneur to understand these key factors, which may be conventional or very specific for a particular organisation. Rather than define sustainability from a conventional standpoint, every entrepreneur should attempt to define what sustainability exactly means to his or her individual firm. Many business owners in Bangladesh tend to set a generic definition of sustainability forgetting that the right meaning of the word can vary in accordance with the very specific situations of their companies.
Examples of effective sustainability practices are available, and access to information is now easier by virtue of technological progress. A wide range of national or global sustainability actions is out there to assist startups and small businesses. Truly motivated entrepreneurs always try to tap those experiences and information. A good way to get these insights in relevant manners is to collect the sustainability reports from various local and international companies.
The writer is the Deputy Managing Director & Chief Business Officer of Prime Bank Limited.
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