Strengthening the role of SMEs in promoting human rights
SMEs in the business and human rights landscape
The business and human rights agenda has been steadily gaining traction. Yet, much of the focus has remained on the role of larger corporations and MNCs. Globally, legislative initiatives aimed at strengthening human rights due diligence and reporting have been implemented or are currently underway – amongst others, this includes the UK Modern Slavery Act, the French Corporate Duty of Vigilance Law, and most recently, the European Commission’s proposal for a bloc-wide directive on corporate human rights accountability. An important note however, is that such legislation applies only to companies above a certain size. The UK Modern Slavery Act, for instance, pertains to larger businesses with a turnover of £36 million and above. The impact of the Act on SMEs thus is indirect, such as in cases where business or supply chain relationships exist with the corporations targeted by the Act.
Indeed, the general exemption for SMEs from mandatory human rights due diligence no doubt stems from policy-makers’ acknowledgement that smaller businesses do not necessarily operate within a similar context, or with the same resources, as their larger counterparts. Nevertheless, it is critical for the discussion around the corporate responsibility on human rights to actively involve SMEs. Just look at the numbers – globally, SMEs make up 90% of all businesses and generate up to 50% of total employment. In the EU, the percentage is even higher, with SMEs accounting for an estimated 99% of all businesses. Clearly then, while individual SMEs may have the perception that their human rights impact is limited in comparison to MNCs, the cumulative impact of SME operations is extremely significant. Seeing as SMEs are a key driver of job creation and employment around the world, strengthening their role in the promotion of human rights will allow for greater value to be created for people and society.
How can SMEs be supported in reinforcing their commitment to human rights? A one-size-fits-all approach is not likely to be meaningful. Rather, stakeholders should first begin by addressing the distinct context in which SMEs operate, along with the particular set of challenges that they face.
Potential challenges specific to SMEs
- SME leaders may lack awareness of the business value of investing in social sustainability. The business case for human rights and social sustainability may appear weaker to SME owners and managers at first. Unlike large corporations, SMEs face less regulatory and reputational pressure to incorporate social sustainability into their business practices. Their supply chain and business networks are also usually less complex in terms of geography and scope, thus contributing to the erroneous perception amongst certain SMEs that their business operations do not have a significant human rights impact. Therefore, when taking into account the smaller profit margins generated by SMEs, it may be harder for SME owners and managers to see the value of investing in social sustainability practices, particularly if the financial returns are not immediate.
- Limited resources or expertise in managing sustainability and human rights issues. Even when there is awareness and values alignment on social sustainability issues, SMEs may be confronted with challenges in implementing these strategies because of insufficient human resources, finances or technical skills. This problem is compounded as many SMEs face limited access to financing from banks and other investment corporations, in comparison to bigger corporations with more established wealth and credit ratings. Thus, SMEs may be unable to invest in increasing their capacity to implement sustainable and responsible business practices.
- Existing standards and guidelines place emphasis on the activities of large corporations, and thus are not oriented towards SMEs needs. The challenge to SMEs in promoting human rights and sustainability at the workplace can be exacerbated because of the lack of targeted standards and guidelines. This thus increases barriers to implementation. In contrast to MNCs, SMEs have a smaller staff, and may not be able to assign and train specific employees to lead on sustainability issues. Thus, the more complicated it is to understand and to report on existing human rights and sustainability standards, the more of a daunting task this becomes for SMEs.
- Less leverage in terms of ensuring compliance to social sustainability & human rights standards from business and supply chain partners. The smaller volume of SME business activities means that unlike large corporations and MNCS, SMEs tend to have lower bargaining power vis-a-vis their suppliers and partners. This can limit the ability of SME leaders to influence the business practices of their partners in accordance with social sustainability standards.
Opportunities & strategies to strengthen the human rights agenda amongst SMEs
While SMEs are confronted with specific challenges, the nature of their business also opens up opportunities, which especially if complemented with support measures, can give SMEs an advantage over large corporations in promoting human rights and social sustainability. How can stakeholders strengthen the role of SMEs in this regard?
- Move beyond a ‘policing’ approach, and focus instead on training and support measures. When it comes to SMEs, simply imposing and expecting compliance to strict due diligence requirements may not be an ideal strategy. Rather, stakeholders should actively work to create conditions aimed at developing the capacity of SMEs to fulfil their responsibility to promote human rights. This could include training for SME managers and staff on how to apply human rights standards in their specific business context, or schemes to ease financing for SMEs to support the transition to sustainable business practices.
- Develop guidelines which are aimed specifically at SMEs. SMEs are often required by their partners to adopt various social sustainability standards, which are often not designed for their context. This thus creates a gap between these specified standards and their application by SMEs. Thus, to decrease the complexity of implementation, policy-makers could consider creating a unified social sustainability standard for SMEs, based on the latter’s active input.
- Take advantage of the unique nature of SMEs. As a business community, SMEs have distinct features which can be an asset for them, in terms of promoting human rights and social sustainability. In comparison with large corporations, SMEs enjoy a leaner and less complex operational structure, which makes them more flexible and more able to respond quickly to change. This means that if the leadership level has a strong awareness and orientation towards social sustainability, this can be easily diffused throughout the entire business. Therefore, the first step for policy-makers would be to step up awareness programs to strengthen the social sustainability orientation of SME owners/managers. On the part of SMEs meanwhile, internal communication with employees on sustainability and human rights will be critical. In this area, SMEs have an advantage – considering their smaller workforce, face-to-face interaction and open communication with employees is more likely, which goes a long way in developing the culture of respect, trust and empathy that provides the basis for promoting human rights at the workplace. This advantage does not just apply internally with employees, but also in terms of SMEs’ business relationships. SMEs work with a smaller number of suppliers and customers, which provides the opportunity to develop stronger and better-quality relationships. SMEs would be well-advised to carefully select suppliers with the same values alignment, and to invest time in building up open communication and mutual understanding with these partners. This would allow SMEs to influence the business practices of their suppliers towards social sustainability, without depending on bargaining power or leverage alone.
The unique features of SMEs mean that the usual tools for encouraging the corporate respect for human rights, such as due diligence legislation, reporting requirements or capitalising on leverage in the supply chain, are not necessarily appropriate. Rather, SMEs can take advantage of their agility, as well as their deeper connections to the local community and to business partners in order to promote respect for human rights in their own way. The opportunities and strategies for SMEs and MNCs thus are very distinct, and the most forward-thinking SMEs have been able to capitalise on their business context to innovate on social sustainability measures. On the side of policy-makers and stakeholders, more attention must be paid to actively involve SMEs in designing and implementing social sustainability standards. Additionally, this should be accompanied with the provision of necessary training and resources to support more SMEs in making this transition. Looking at their sheer cumulative size, strengthening SMEs’ commitment to sustainability and respect for human rights, will undoubtedly go a long way in creating value for people and society globally.
This article was authored by Jozie Yusof, Editor at slavefreetrade.