When it comes to sustainability in small and medium-sized businesses, two things are clear. First, the topic itself is not new: Since the 1997 Kyoto Protocol—and certainly since the 2015 Paris Climate Conference—greenhouse gas reduction and other measures have been on every sustainability to-do list. Never before, however—and this is the second point—have the environmental and social footprints of SMEs been subject to such intense regulatory and legislative pressure as they are today. Moreover, regulatory constraints continue to increase.
Sustainability regulations also apply to small and medium-sized enterprises
A prime example of this is sustainable finance regulations, which make it more difficult for companies that do not operate sustainably to access credit. Another example is the 2021 Corporate Social Responsibility Directive, whose rules for sustainability reporting have been significantly tightened. According to expert estimates, this expands the scope of application in Germany from the current 500 larger corporations to 15,000 companies, which will then also include listed small and medium-sized enterprises. For these companies, the reporting requirement takes effect in 2026.
And then there is the Supply Chain Due Diligence Act (LkSG), which took effect this year. The fact that the phrase “due diligence” is often omitted from the name does not diminish the seriousness with which it will impact practice in the future. The LkSG requires companies to conduct a supplier-specific risk analysis: throughout their supply chains, they must verify and ensure compliance with human rights and environmental standards.
Admittedly, this initially applies only to corporations with more than 3,000 employees, and SMEs with 1,000 or more employees will not be included until 2024. Realistically, however, the law has long since been relevant even for the smallest businesses. Even if they are not among those legally required to take action, if they are integrated into the supply chains of larger customers, they are still subject to those customers’ obligation to monitor their suppliers. In plain language, this means that anyone who falls short on sustainability must take action—and quickly.
Sustainability initiatives are resource-intensive and cost-effective
Traditionally, sustainable practices have been a higher priority for small and medium-sized enterprises than for large corporations. This is primarily due to the individual commitment of business owners to the future of their own companies. However, the transformation process now facing many SMEs is creating investment pressure that, even with the greatest commitment, is difficult for some to shoulder.
One thing is clear: identifying, planning, and managing sustainability initiatives for the business environment and the company’s own operations is resource-intensive and cost-effective. This poses a hurdle for small and medium-sized enterprises, where time and liquidity are often in short supply. What’s more, banks will only approve the funding needed to operate in an even more sustainable manner once a company can demonstrate that it already has a functioning sustainability strategy in place. Under certain circumstances, this can be a dilemma that threatens the very existence of the business.
Sales & Lease Back and Sale & Rent Back as Alternative Financing Options
In this situation, alternative financing options are available that do not depend on a bank credit rating and, ideally, are based on resources that are already available. Examples of this include “Sales & Lease Back” and “Sale & Rent Back” solutions.
With these solutions, funds are generated using the company’s own fixed assets. Production equipment is properly appraised by a leasing company (such as Nord Leasing GmbH) based on fair market value and secondary marketability. This results in a purchase price that provides the company with fresh liquidity. Immediately after the sale, the equipment is leased or rented back. The advantages:
• The production equipment remains in the company’s possession for operational use at all times.
• The proceeds from the sale generate operating cash flow within a few days.
• The valuation of assets is purely objective and independent of creditworthiness or a bank’s assessment.
Securing the Future Through Your Own Efforts
The bottom line: Financing alternatives tailored to the situation can significantly facilitate the transition toward sustainability. They offer opportunities to meet regulatory requirements and thereby secure competitiveness and the company’s future. When existing assets contribute to this process, the transition is achieved—in the best sense of the word—through the company’s own efforts.
