http://www.smallbusinessinstitute.biz A B S T R A C T Keywords: Journal of Small Business Strategy 2020, Vol. 30, No. 03, 16-32 ISSN: 1081-8510 (Print) 2380-1751 (Online) ©Copyright 2020 Small Business Institute® w w w. j s b s . o rg Introduction 1Park Center for Business and Sustainable Enterprise, School of Business, Ithaca College, Ithaca, NY, USA, nkasiri@ithaca.edu 2Park Center for Business and Sustainable Enterprise, School of Business, Ithaca College, Ithaca, NY, USA, hormoz@ithaca.edu 3Park Center for Business and Sustainable Enterprise, School of Business, Ithaca College, Ithaca, NY, USA, slamoureux@ithaca.edu Sustainability engagement or not? U.S. SMEs approach Environmental sustainability, Sustainability in operations, Small and medium-sized enterprise (SME), Sustainability in SMEs APA Citation Information: Kasiri, N., Movassaghi, H., & Lamoureux, S. (2020). Sustainability engagement or not? U.S. SMEs approach. Journal of Small Business Strategy, 30(3), 16-32. Small and medium sized businesses (SMEs) are the backbone of the U.S. economy in job creation and genera- tion of economic growth. The U.S. Small Business Admin- istration (SBA) (2004) data shows that small businesses (i.e., independent businesses having fewer than 500 em- ployees) represented 99.7% of all employer firms, gener- ating 58.9 million jobs or 47.5% of the total U.S. private payroll in 2015. Furthermore, between 2000 and 2017, they created 65.9% of the new jobs (SBA Office of Advocacy, 2018). Indeed, the most recent SBA report shows that small businesses account for 44% of U.S. economic activity and create two-thirds of the net new jobs. Between 1998 and 2014, the contribution of small businesses to GDP has grown by about 25% in real terms, or 1.4% annually (SBA Office of Advocacy, 2019). Globally, SMEs account for more than half of all formal jobs (IFC, 2013). While the economic strength of communities is de- rived from SMEs, their negative environmental perfor- mance is alarming. SMEs are held responsible for 64% of pollution in Europe, and account for 60% of carbon dioxide and 70% of all industrial pollution globally (Ashton et al., 2017; Sáez-Martínez et al., 2016; Tutterow, 2014; Walker et al., 2008). Such record calls for urgent need by SMEs to en- gage in adoption of sustainability solutions, such as energy conservation, use of local resources, and reusing/recycling, to mitigate their negative environmental impact. Prior research shows firm size usually has a signifi- cant effect on the degree of environmental proactivity and that small firms, which have a better record of environmen- tal performance, are also the most successful financially (Aragón-Correa et al., 2008; Clemens, 2008), though the relationship between environmental and financial perfor- mance is significantly influenced by the measures used and the sector(s) studied (Albertini, 2013). Majority of large corporations have recently made significant efforts to demonstrate their corporate social responsibility and the en- vironmental plans they are committed to through published annual or semi-annual sustainability reports. Most SMEs, however, have not engaged in such reporting, though ef- forts are underway to help SMEs in developing countries to understand the benefits of sustainability reporting (GRI, 2018). In the extant literature on SMEs’ sustainability engagement, relatively little research has focused on the US compared to Europe. Our study is based on semi-structured interviews with a large number of manufacturing and services firms (75), from big and small cities in New York state, investigating the major drivers and barriers to SMEs’ sustainability and whether such initiatives paid off. Findings show owners/managers’ sense of moral obligation to reduce negative environmental impact as well as their levels of sustainability education and awareness have played major roles in driving sustainability. Gaining competitive advantage, need for regulatory com- pliance or financial incentives offered by governmental agencies were mentioned, but not deemed as key influencers. Major barriers included cost and limited resources, though more than two-thirds of the firms’ owners/mangers believed that sustainability enga- gement had paid off. These results aim to help policy makers learn about the impact of their decisions and adjust them to be more effective. SMEs’ owners/managers can also learn about common drivers and barriers in adopting sustainability and plan accordingly. Narges Kasiri1, Hormoz Movassaghi2, Sarah Lamoureux3 http://www.smallbusinessinstitute.biz http://www.jsbs.org about:blank 17 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 Research on sustainability strategies of SMEs date back to the early 1990s. As shown by Parker et al. (2009) and Wiesner et al. (2017), majority of the published work on SMEs’ sustainability is focused on Europe, particularly the UK and Germany, with some studies also on other countries such as the Netherlands, Sweden, Austria, Australia, Cana- da, Hong Kong, Israel, Japan, New Zealand, S. Korea and Malaysia. While some research has also been done on the U.S. SMEs (Becherer & Helms, 2014; Langwell & Heaton, 2016; Theyel & Hofmann, 2012 ), the number of the U.S. studies compared to European countries is not adequate or proportional to the size of the SME sector in the U.S. and their contributions to pollution. Becherer & Helms (2014), for instance, conducted a research with 240 small business- es in the U.S. and identified the factors that significantly influenced the small business’ environmental goals. Alvarez Jaramillo et al. (2019) analyzed the top 46 most influential studies on SMEs sustainability and reported 60% of those studies focused on Europe while none had been conduct- ed in the U.S. Furthermore, the scope of studies on U.S. SMEs is limited in the type of the sustainability behaviors investigated and are typically industry specific (Ashton et al., 2017). In earlier research, we queried the participants in the present study on whether the governmental regulations and/ or incentives at any level (federal, state or local) played any role in their adoption of sustainability practices (Lamoureux et al., 2019). In this paper, we delved deep into learning the motives and obstacles that NY based SMEs had encoun- tered in their efforts to build or expand their sustainability programs and their perception as to whether such initiatives were rewarding, financially and otherwise. Our contributions to the literature rest on taking a broader and more comprehensive approach in investigat- ing the major drivers of and barriers to SMEs’ sustainabil- ity adoption by interviewing 75 such firms in the U.S. Our pool of SMEs come from small towns as well as big cities and across different industries (manufacturing to services such as food, healthcare, etc.). As discussed before, many of studies of the drivers and barriers in the literature are based on SMEs outside the U.S. The purpose of this study is to expand our knowledge of the U.S. SMEs’ sustainability drivers and barriers. Since many external drivers such as regulations and standards are specific to each state in the U.S., we decided to limit our focus to one state (NY) and study the variations in SMEs’ behavior within a state with different counties that implies different constituencies. Un- like many other similar studies, we have also inquired about the variety of environmental solutions that our participating SMEs had adopted and whether or not their sustainability engagement had paid off in general, and whether it did so through reducing cost and/or increasing the profit in par- ticular. Lastly, since the sheer number of the firms that we interviewed (75) is significantly larger than similar types of exploratory qualitative surveys conducted in this area (e.g, Langwell and Heaton, 2016 study was based on 18 inter- views from 8 organizations in Iowa), our findings are likely to be more representative of SMEs sustainability behavior in New York State. In addition to reviewing the literature in order to vali- date and enhance the potential contributions of our study, we shared the focal points of our study with four sustainability experts who are very experienced and involved in business sustainability in New York State or at the regional level. These experts were not aware of any previous practice-ori- ented research like ours, which not only integrates several of these dimensions, but also focuses on the experience of small businesses in this region. Given their feedback, we realized that our research could identify both successes and gaps in the sustainability efforts among small businesses. These experts believed that our study would provide base- line data that could benefit both the owners/managers of such businesses as well as the state and local government agencies in identifying resources and tools that these busi- nesses need for sustainable development. The rest of this paper is organized as follows. In the next section, we review the literature on sustainability in SMEs followed by the Method section where we describe the process of how we selected the participating firms as well as how we collected and analyzed the data. In the Re- sults and Discussion sections, we report on and discuss some of our key findings and conclude the paper with a dis- cussion of the implications and limitations of our study and suggest directions for future research. Literature Review Earlier research on SMEs’ motivations for engage- ment in sustainable business practices has uncovered a range of internal and external factors. For example, in their study of New Zealand SMEs, Lewis and Cassells (2010) found reduction in cost, enhanced profit, and corporate so- cial responsibility as the most important determinants of companies’ sustainability engagement, along with the need to comply with regulatory requirements and responsiveness to business customers. Similarly, Baden et al. (2009) and Johnson (2015) found owners/managers’ personal values and their social/environmental commitments as their main motivators. Ashton et al. (2017) conducted a survey of 59 SMEs in the tool and dye manufacturing industry in Mid- western U.S. and found a majority of the firms to be more driven by internal motives to implement green practices 18 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 than social responsibility considerations; cost and compet- itiveness seemed to influence sustainability engagement decisions of these firms more than the external coercive pressure from government or customers. Drawing on sur- vey data from SME wineries and vineyards in Italy, France, Denmark, and the U.S, Tyler et al. (2018) found manag- ers’ perceptions of competitive pressures to be positively associated with the adoption of environmental practices and improved firm performance. Among studies focused on developing countries, Aga- na et al. (2013) surveyed 500 Turkish manufacturing firms and found the most influential driver affecting environmen- tal improvement to be the expected benefits resulting from enhancement in companies’ image, reputation, and brand. Chan (2011), surveyed 48 SME hotels in Hong Kong on barriers to the implementation of environmental manage- ment systems and found the following factors hindering such adoption: implementation and maintenance costs, lack of knowledge/skills, low sense of urgency, paucity of quali- fied consultants and ambiguity of standards. Many meta-analysis studies also analyzed drivers and barriers in the sustainability adoption of SMEs (Johnson & Schaltegger,2015; Parker et al., 2009; Walker et al., 2008). Walker et al. (2008) reviewed 351 publications with a pri- mary emphasis on identifying the main barriers and drivers to environmental management among SMEs. They noted three barriers that prevented such firms from engaging in good environmental practices. First, SMEs’ characteristics in general (heterogeneous industry nature, size, urban/ru- ral divide, managers’ varying educational and ethnic back- ground/gender) made targeted communication and coor- dination of technical assistance difficult. Second, resource constraints (financial, human, and time) made perceived cost the most important reason why SMEs did not engage in environmental management. Third, owners/managers’ limited knowledge of, interest in, and motivation to adopt environmental management prevented them from viewing environmental issues or the need to act responsibly para- mount, sometimes based on the belief that their adverse en- vironmental impact was small or insignificant. Parker et al. (2009) reviewed nearly 50 journal articles published between 2003 and 2008 with a primary focus on developing environmental improvement intervention strat- egies that would be most effective for various subsets of SMEs. They listed the following factors as the main drivers/ barriers of SME environmental improvement: regulation, environmental commitment, business performance commit- ment, financial incentives, external demand, environmental knowledge, and assistance/education. In their analysis of the role of SME suppliers in im- plementing sustainability, Meqdadi et al. (2012) provided a synthesis of the earlier studies on the barriers and drivers in sustainability initiatives for SMEs vs. their supply network. Among drivers, they listed beliefs, values and sustainability commitment of the top management, environmental aware- ness, cost savings, competitive advantage, availability of financial and technical resources, and possession of infra- structure for compliances with environmental standards. Barriers included lack of top management commitment, time and awareness, perception that their impact on envi- ronment is minimal, high cost of environmental programs, lack of financial resources, lack of skills, know-how and technical expertise. Drawing on 84 journal articles published between 1987 and 2010, Klewitz and Hansen (2014) found SMEs’ strate- gic sustainability behavior to range from resistant, reactive, anticipatory, and innovation based to sustainability-rooted and identified innovation practices at product, process, and organizational levels. In their review of literature, they refer to most of the major factors listed by the studies referenced earlier. Johnson and Schaltegger (2015) reviewed 112 studies to identify the specific sustainability management tools de- signed for SMEs and reasons why they were or were not implemented. They noted the following as the normative considerations for why SMEs should implement these methods: managing legal compliance and stakeholder rela- tionships, performance improvement, organizational learn- ing, and innovativeness. As for barriers, they listed lack of awareness on sustainability issues, absence of perceived benefits, lack of knowledge and expertise, and lack of hu- man and financial resources as major internal obstacles. In- sufficient external drivers and incentives, the unsuitability of formal management tools in informal SME structures, the complexity of internationally designed standards and in- struments emerged as major external impediments. Aghelie (2017) explored the drivers and barriers to SMEs sustainable green business practices and uncovered 21 drivers and 35 barriers. The drivers were classified into seven categories among which “social influences”, such as improving company’s image, having long term relation- ships with consumers by earning and returning their trust, were the most important drivers. “Training and knowledge” was the least important driver. The barriers were divided into six groups among which “government and legislation” was found to be the most challenging for SMEs to imple- ment. More specifically, the absence of government support and enforcement or limited budget/financial incentives to support green sustainable projects dissuaded firms from en- gagement in sustainability. The meta-analysis and primary studies reviewed showed that the number of studies conducted on U.S. SMEs 19 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 were only a few compared to many studies conducted in Europe and Asia (Alvarez Jaramillo et al., 2019; Johnson & Schaltegger, 2015; Wiesner et al., 2017). There is a need for much more investigation of U.S. businesses that have a large SME sector and huge sustainability impact, as the U.S. is one of the top polluters in the world. Method We selected the interview method as an exploratory approach in our study. Although there are many studies on drivers and barriers on SMEs’ sustainability adoption, just a few of them have been done in the U.S. All SMEs are unique and so are their internal and external environments that need to be studied. Interviews allowed the researchers to better gain insights on the potential drivers and barriers in SMEs’ sustainable operations in the U.S. The sample of participating SMEs was constructed from mostly local and regional small businesses that were primarily chosen through referrals within the wider network of contacts with researchers (modified snowball) through- out the New York State region (Atkinson & Flint, 2001). Some businesses were also contacted using information provided by the Chamber of Commerce or online business directories and listings, including The Small Business Ad- ministration’s Dynamic Small Business Search database. The SBA’s (2004) database produced a randomized selec- tion of small business contact information based on loca- tion criteria specified by researchers. Seventy-five SMEs participated out of over 100 SMEs invited. The study was conducted over a period of one year and was completed in Spring 2018. Qualitative methods have been used in many studies of SMEs’ sustainability behavior (Aghelie, 2017; Del Giudice et al., 2017; Langwell & Heaton, 2016; Rekik & Bergeron, 2017). Rekik and Bergeron (2017), for example, inter- viewed 15 SMEs from Canada, Tunisia, and Morocco with less than 45 employees, to assess the motivators for sustain- ability practice adoption. As shown in the literature, many external factors, such as government regulations and con- sumer trends, as well as internal factors, such as businesses’ culture and values, are shaped by forces within countries, states, and regions. Therefore, studies should focus on cer- tain geographical boundaries to be able to identify the driv- ers and barriers for SMEs in a region and develop guide- lines that are effective for the corresponding constituencies. We focused on exploring SMEs’ sustainability behavior and strategies in New York and conducted interviews with SMEs in this area. The NY SMEs come from mega, large, and small cities that broadens the mix of the participants in this study. In addition, the NY government supports sustain- able operations and initiatives by SMEs which allows this study to analyze the impact of the government’s role. The researchers who conducted this study are also located in NY and had better access to SMEs in this state. The interview instrument consisted of open-ended questions, which were formally developed after review- ing existing literature along with preliminary discussions with several SME experts, consisting of owners/managers of such companies with long and extensive industry ex- perience as well as industry association and chambers of commerce officials working with such companies. Inter- view questions prompted owners/managers to discuss top- ics including: their familiarity with sustainability and how they learned about it, their implementation of sustainable business practices (e.g., renewable energy, recycling, local sourcing, etc.), their motivations for being sustainable (e.g., values, regulations, incentives, consumer behavior, com- petitors, etc.), barriers preventing adoption of sustainability solutions in their business (e.g., awareness, cost, etc.), fu- ture sustainability plans as well as any other relevant infor- mation they may have liked to share. Data was collected via 75 semi-structured interviews with managers/owners of SMEs operating in New York State. SMEs were defined as small to medium-sized enter- prises with 250 or fewer full-time employees. To improve generalizability, the interviewed businesses varied across industries to include manufacturing, retail, farming, restau- rant, and health. Table 1 shows the sectoral distribution of the 75 participating SMEs. Table 1 SMEs by industry sector Industry Count % Retail Trade 15 20% Accommodation and Food Services 14 19% Manufacturing 12 16% Professional, Scientific and Technical Services 10 13% Construction 5 7% Healthcare and Social Assistance 4 5% Administration, Business Support and Waste Management 3 4% Arts, Entertainment and Recreation 3 4% Other Services 9 12% Interviews were conducted over the phone, in per- son or through video conference and were up to an hour in length depending on how much information the inter- viewees wanted to or were able to share, their awareness or knowledge of sustainability, or the extent of sustainable 20 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 solutions implemented by their business. Prior to the inter- views, participants were provided a brief overview of the study, the interview questionnaire and the informed consent forms so that they could acknowledge their understanding of the purpose and the voluntary nature of the participation in our research. Utilizing the interview guidelines that de- tailed potential responses and follow-up questions, inter- views were conducted by researchers. After interviews were conducted, content analysis of the interview transcripts was completed by the researchers. This was done by carefully reading through the transcripts and coding responses to each question into a spreadsheet, organized into columns for each of the open-ended ques- tions and sub-questions asked in the interviews. MS Excel was used to conduct the content analysis of the interviews. Using the Grounded Theory approach, researchers identified several categories in the data as they emerged in the interviews themselves to create coded terms (Strauss & Corbin, 1990; Williamson et al., 2006). When researchers discovered a response within a transcript that did not fit any of the already defined terms, they defined a new term to describe the response. Terms were defined by the research- ers to match common interviewee statements. For example, many interviewees mentioned that the costs of sustainable solutions were too high, so researchers coded such state- ments with the term “cost”. Researchers mainly identified categories and terms by reviewing the terminology used in prior research regarding business sustainability (Robin- son & Stubberud, 2013; Wiesner et al., 2017). Terms were coded on the basis of whether they related to or impacted “environmental sustainability”, defined as “being profit- able through well-planned, socially, and environmentally sensitive practices” (Wiesner et al., 2017). For instance, the term “feel good” was adopted in the current study to describe sustainable solutions that had paid off for busi- nesses through intrinsic and personal benefits (Robinson & Stubberud, 2013). Each new term and its definition were recorded in a shared list between researchers to improve the inter-rater reliability of the researchers’ coding. Initially, 115 terms were defined to identify recurring concepts within the interviews such as “Family Influence”, “Cost”, and “Limited Resources”. Recognizing the over- lap in the definitions of some of the terms, the researchers grouped the related terms into categories, reducing the total number of terms to 85 in an iterative process. Findings Types of Sustainability Solutions Adopted Among the nearly 10 sustainable solutions presented, the most frequently adopted was Recycling / Waste Reduc- tion. In total, 78% of the respondents, 62 engaged in “recy- cling efforts or took initiatives to reduce waste generation” (Figure 1). Below are a few qualitative remarks from our interviews in this area: Figure 1. Implemented Solutions by New York State SMEs The second most prevalent solution was Renewable/ Efficient Energy. In total, 63% of respondents, 50 noted “uti- lizing efficient energy technologies such as LEDs, reducing energy consumption, or implementing renewable energy technologies.” New York State, excluding Ithaca and New York City, were above average in this category with a 74% “We recycle everything. The recycling center here … really helps with that. We don’t have to do much sorting (plastic sheeting, paper, cans, plastic jars all go together). And there is composting- we do most of it ourselves, and some of it is brought to the re- cycling plant.” “We are always trying to reduce our waste stream, and we’ve worked with … Solid Waste, to change our practices. For example, wax-cardboard used to not be recyclable, which we have managed to get into the compost stream. So now we are at the point where only 6% of our waste is landfill. Everything else is either composted or recycled. And our faci- lities manager measures this and keeps track of all of that.” “I am constantly doing the math on how to reduce waste on my job site. (…) I try to get my guys to take the products out in a way that makes them reu- sable and salvageable for people.” 0 10 20 30 40 50 60 70 Support Other Sustainable Businesses Reduce Carbon Footprint Organic/Natural Products Sustainable Suppliers Reduce/Reuse Water Technology Improvements External Evaluation Thinking Local Reusable Materials Renewable/Efficient Energy Recycling/Waste Reduction Implemented Solutions 21 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 (29) engagement rate. Following are select comments from the participating SMEs justifying their focus on this area: Drivers of Sustainability Strategies As noted in the literature review, a variety of internal and external factors such as owners/managers’ education, businesses’ self-motivation and regulations are among the major drivers behind small businesses’ decisions to imple- ment sustainability (Johnson & Schaltegger, 2015; Parker et al. 2009; Tilley, 1999; Walker et al., 2008). At the same time, studies have shown several barriers such as the cost of implementing sustainable solutions and resource limitations often preventing SMEs from utilizing such solutions. Be- low we discuss the key findings of our study with respect to the prominent drivers and barriers identified by New York State SMEs. Environmental Awareness Fifty percent of our interviewees noted that education, whether formal or informal (e.g., professional seminars, schooling, journal articles), contributed to their decision to implement sustainable solutions. In addition to education, 31% stated that their communities or networks allowed them to learn about adopting sustainable solutions (Figure 2). Some other notable sustainable solutions that partic- ipants engaged in included Reusable Materials (“using materials or products that can be reused”) was mentioned by 38% of respondents, Thinking Local (“Working to im- prove local community, sourcing from local suppliers, or supporting local economy”) by 34%, and Utilizing External Evaluations (“Utilizing third-party sustainability audits or achieving sustainability-related accreditations”) by 23%. Other solutions included such activities as Technology Im- provements, Reducing / Reusing Water, Incorporating Sus- tainable Suppliers into the Supply Chain, and Switching to Organic / Natural Products. The following comments provide a few specific ex- amples of how our responding SMEs went about executing these strategies: “… solid waste will come in and evaluate, so they did the evaluation of the recycling and all that. And when you meet their criteria, then you can become a re-business partner, and then they will start sharing; you get on an e-mail list and they share ideas and try to keep track of you to make sure that you stay on track.” “[We] also get some of their fruit like peaches and berries from local gardens. Another interesting thing that [we] participate in is the use of other lo- cal businesses’ products. The ice cream served at the restaurant comes from [a local ice cream shop], which also is a known user of local ingredients from … farms.” “We’ve replaced all old refrigerators in the past 10 years and are planning to replace all those refrigera- tors within the next 2 years to obtain our Green Chill certification.”“Most recently we purchased our own solar farm, that will cover about 11% of power use. The other 89% is accounted for by purchasing solar certificates (purchase solar power). So basically, all our energy is renewable, which is very expensive, but that is the cost of doing business.” “Lighting is a huge thing for sure, and it’s a huge energy draw, and I’m pretty sure we have gone a long way in changing the lights to LED and stuff like that – but that would have been the big thing.” “Our entire office is also made to be environmentally sustainable and operate in an energy efficient man- ner. The lights, bathrooms, resources of wood, and manufacturing process for our products use energy conservations methods.” 0 10 20 30 40 50 Job Requirement Employee Suggestions Community/Networks Education Sources of Learning Figure 2. Sources of Learning about Sustainability by SME Managers/Owners As with typical knowledge-gaining activities, individ- uals turn towards formal or informal educational outlets such as colleges and journal articles as well as their peers to 22 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 obtain knowledge. This was evident across several respon- dents’ comments such as the following: “I learned about sustainability in class.” “Because you’re subjected to a community of con- versation that supports that modality [sustainabi- lity], it makes it a lot easier (…). We are highly suggestive creatures, and you have to conform with your community.” “In the news, you hear talk about how small busi- nesses are trying to wean themselves off non-sus- tainable resources and still keep costs down. The- re’s no one source to learn from – it’s a societal effort that’s been in the spotlight for a while.” Values The most common motivators identified by our re- sponding SMEs’ for implementing sustainability strategies related to their personal values and moral cognitions, gen- eral company values, and acting upon what they perceived to be their firms’ environmental/social responsibility, in that order. Growing consumer demand for sustainable products and services seems to have also reinforced and further mo- tivated owner/managers’ quest for adoption of sustainable solutions (Figure 3). 0 10 20 30 40 E/S Responsibility Personal Interest Company Values Consumer Demand (+) Morals/Values (P) Values Figure 3. Values Impacting SME Sustainable Solution Implementation “I worked with our board of directors to come up with our mission statement which is our triple bot- tom line mission to enhance community, economy, and environment, through reuse. We saw our core activity to keep stuff out of the landfill, and that it also had other positive impacts.” “Our motivations come from the promise of rea- lizing a return on investment quickly. We always watch our bottom line, and we obey the law.” “I do this because it’s the right thing to do. (…) You can’t just take the easy way out, and the world is beginning to notice.” Competitive Advantage Among the 66 owners/managers responding to this question, 59% noted that competition had no impact on their decisions to adopt sustainable solutions while 41% stated that it did. Although it may appear that the actions of com- petitors in terms of sustainability does not impact SMEs’ decisions to implement sustainable solutions, the concept of maintaining competitive advantage may still apply. In relation to this research, it does not appear that adoption of sustainable solutions is impacted heavily by competition, but rather that sustainable solutions are used to inspire the competition. This can be found through comments such as: “No [our competitors’ adoption of sustainability has not motivated us], I actually look at it like I hope we motivate other people to start doing more.” “I would say it’s a mutually inspiring under- taking, and we sort of inspire each other. There is healthy competition (…) but it’s not competi- tion in the sense that we don’t want to see them go under or out. We don’t want to put them out. We want to see a synergy.” “Sustainability is not a feature that competitors differentiate themselves in our line of business.” New York State SMEs appear to be driven by the belief that businesses and individuals have an obligation to reduce their negative impact on the environment and society. Ad- ditionally, SMEs feel as though engaging in such activities will allow them to improve their bottom line in the long term. This can be surmised from transcript excerpts such as the following: As to the role of consumer demand and social trends as possible external drivers for the adoption of sustainability solutions, approximately 19% and 25% respectively of the owners/managers whom we interviewed mentioned these as key influencers. There was a geographic difference in this regard; more SME owners/managers in smaller cities high- lighted the importance of these forces than their counter- parts in bigger cities such as New York or Buffalo. 23 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 Regulations, Compliance and Incentives In the opinion of our interviewees, government regu- lations and incentives did not greatly impact their decision to engage in sustainability. Of the 57 owners/managers who responded to this question, about 39% noted government regulations had an impact on their decision. At the same time, 41% of the 59 interviewees who commented on the role of government incentives, viewed it as an inducement. In terms of regulatory compliance, 81% of the 54 owners/ managers stated that it had no impact. Overall, it appears that government programs, held little to no effect on adop- tion of sustainability solution. Furthermore, the percentage of respondents stating lesser impact of these three areas to their sustainability decisions were much higher in the small- er cities than the bigger urban areas. For example, whereas 70% of the SMEs in Ithaca believed that incentives offered by government, at all levels, played no part in their sustain- ability engagement decisions; the corresponding percent for SMEs in New York City or Buffalo was between 44 to 50. A cautionary note is in order here in that the when grouped by clusters of geographical locations, or by industry for that matter, the sample size and corresponding number of re- sponding owners/managers become too small for any mean- ingful statistical analysis and generalization. Although municipal, state, or federal regulations or support can impact a business’s operations, it appears that these factors do not have a major impact on New York State SMEs in terms of implementing sustainable solutions. The following comment by one of the participating managers echoed views of few others who downplayed the impact of government regulations or support programs in initiating sustainability solutions: by some owner/managers; these constraints are consistent with evidence from recent studies (Alvarez Jaramillo et al., 2019) 0 10 20 30 Insufficient Technology Want to Learn/Be Educated Type of Business Limited Resources Cost Barriers The following comments corroborates the role of cost and resource constraints: Figure 4. Barriers Impacting SME Sustainable Solution Implementation “Not at all, I haven’t received any kind of specific notice as to plans I should follow or things I can change about my sustainability from the govern- ment.” Barriers to Implementation As shown in Figure 4, among our responding firms, cost rose to the top among the barriers to sustainability im- plementation, with 73% who noted it as a major concern. Limited resources were mentioned as the next major barrier to reduce or defer their implementation. Inadequate knowl- edge and expertise about specific activities to improve their companies’ sustainability performance and hence the desire to learn more on how to improve, be it through peer edu- cation or local government programs, was also mentioned “We are always concerned with the cost of sus- tainable solutions as they are quite expensive. Especially utility costs of purchasing renewable certificates are 150% more expensive.” “Yes, entirely, it [adopting sustainable practices] is more time consuming and way more expensi- ve, it’s often not practical for a small business.” “We definitely wanted more energy efficiency in our space, but like I mention we are not in con- trol of our building. It would be really great to have more energy efficient vehicles, but they are not necessarily available or affordable.” Pay Off When asked if the sustainability solution(s) they ad- opted had paid off, 68% of our interviewees responded affirmatively. In some cases, they were more specific by adding that their sustainable initiatives had resulted in re- duced costs or increased profitability (Figure 5). However, it was not clear if payoff had occurred in other ways such as increased sales, improved customer relations, or enhanced firms’ reputation for sustainability. Below are few represen- tative responses on the extent and nature of such payoffs: 24 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 Figure 5. SMES that have Stated their Sustainable Solu- tions have Paid Off Discussion Our findings in the context of earlier studies highlight the commonalities and areas that our research contributes. The key motivators and barriers to sustainability engage- ment as noted by the earlier research and our study are dis- cussed below. Environmental Awareness When first considering implementing sustainable solu- tions in business operations, it is necessary for small busi- ness owners or managers to have some level of knowledge, awareness, or understanding as to how. This aligns with the rise of sustainability-related courses and educational oppor- tunities offered at colleges and universities around the U.S, which expose business owners and managers to the subject (Christensen et al., 2007). Our finding is in concert with several previous studies which showed SME owners/man- agers or employees’ knowledge about how to engage in en- vironment improvement was one of the key motivators for adoption of sustainability solutions (Gadenne et al., 2008; Giri et al., 2015; Meqdadi et al., 2012; Parker et al., 2009; Walker et al., 2008). As these social sources have been linked to opportu- nity recognition to remain competitive with larger firms, it is plausible to conclude that learned opportunities such as reducing costs or improving customer relations seem to have impacted SMEs’ business owners/managers’ decisions to implement sustainable solutions (Ozgen & Baron, 2007). Values Although businesses may differ in their motivations depending on industry or market segment, their underlying motivations to engage in sustainability appear to be simi- lar. Lozano (2015) notes that SMEs can be motivated by a variety of factors such as organizational culture and values, customer expectations, and regulations. As it relates to management values, earlier studies have noted both the dismissive predisposition by some who do not see environmental issues or the need to act responsi- bly as significant for their business, believing that their im- pact is small or insignificant. On the other hand, some other studies found managers who believe they have a responsi- bility to engage in environmental improvement, proactive- ly undertake such actions and view their business having an environmental impact (Parker et al., 2009; Schaefer et al., 2020; Walker et al., 2008). Our findings underscore the role and importance of SME owners/managers’ values and demonstrate that their commitments to sustainability en- gagement have made a significant difference in the adoption of sustainability by a firm. Competitive Advantage With 30.2 million SMEs in the U.S., individual busi- nesses operate in a vastly competitive environment (SBA Office of Advocacy, 2018). As a result, staying competitive or diversifying one’s product line or services is a top priority for business owners and managers. As it has been noted, en- gaging in effective sustainable efforts that help reduce costs, “Yes, it has paid off. (…) We feel good about what we do and know that our products are of the best quality. As far as a monetary pay off, well…no one will ever look at our products and point out bad ingredients, or bad business practices, or say that we pollute too much. They can only say something good. In the long run, that is priceless.” “Yes! The composting machine has definitely paid for itself already with only three years of operation and all the money we have saved on taking out the waste. Yeah it’s a big expense up front but of cou- rse, so is opening up any business. And not only economically but we feel like we’re doing our part in helping the planet.” “We’ve tracked a lot of data through the arch of our growth, and so we have kind of this data driven history. Including tons diverted, dollar sales, we’ve had a monthly trends document that we’ve had sin- ce 2009. (…) And I feel like we are not even close to reaching our full potential, so we have long ways to go.” 0 10 20 30 40 50 60 Feel Good (P) Too Soon to Tell Profit Cost Reduction Yes Sustainability Solutions Paying Off 25 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 increase innovation/creativity, improve risk management and optimize business operations have led to strong com- petitive advantages (Aghelie, 2017; Fink & Whelan, 2016; Laszlo & Zhexembayeva, 2017; Meqdadi et al., 2012). While some of the earlier studies on external drivers of sustainability adoption have identified the necessity to keep up with the key competitors’ business practices (Can- tele & Zardini, 2018), based on our findings, we believe this to have been traditionally the case more so with the larger companies. As the competitive landscape broadens and consumers obtain greater power in influencing business decisions, it has become essential for firms wishing to re- main competitive to engage in corporate social responsibili- ty activities such as giving back to the community, sourcing from sustainable suppliers, or providing adequate living wages (Juščius & Snieška, 2008). Coupled with a contin- uous growth in the environmental movement since the mid 1900s, business owners and managers have become more aware of the necessity of intertwining their operations with sustainability to limit negative impact while maximizing their operations (Dunlap & Mertig, 2014). As sustainabil- ity engagement becomes more mainstream among SMEs, competitive positioning and innovations in differentiation with other competitors, small or large, is bound to gain mo- mentum among SMEs. Regulations, Compliance and Incentives Over the past few decades, there has been an increase in government assistance provided to businesses not only for general economic growth purposes, but also for sus- tainability activities such as climate investments (Stiglitz, 2016). However, New York State SMEs did not appear to consider the regulations having a key role in their adoption of sustainability. Findings of the earlier studies on the role of government regulations, compliance, and incentives in companies’ sustainability decisions have been mixed. For example, Parker et al. (2009) found extensive regulations to force SMEs sustainability improvement, financial support to offset the costs, or penalties to discourage negative en- vironmental impact were all impactful on companies’ sus- tainability decisions. Johnson and Schaltegger (2015) and Aghelie’s (2017), on the other hand, found that the absence of government support or limited financial incentives of- fered to support green sustainable projects were among the major barriers to the firms’ adoption of sustainability. Government intervention and involvement in business practices have been prevalent in the U.S. for quite some time. Graafland and Smid (2017) argues that direct govern- ment regulations and involvement, although helping to im- prove environmental performance, should be used in con- junction with other factors such as social license pressures in order to be effective. Barriers to Implementation Aside from the various motivations that encourage SMEs to implement sustainable solutions, there also exists barriers that inhibit sustainability implementation. Luthra et al. (2015) identified 28 barriers to sustainability for SMEs across seven core dimensions including economical and fi- nancial, market, awareness and information, technical, eco- logical and geographical, cultural and behavioral, and polit- ical and government issues. The high cost of environmental programs and lack of financial resources have been among the most frequently cited barriers to the adoption of sus- tainability programs, particularly among the SMEs making such investment unaffordable and/or highly risky (Aghe- lie, 2017; Chan, 2011; Chasse & Boiral, 2017; Johnson & Schaltegger, 2015; Meath et al., 2016; Meqdadi et al., 2012; Walker et al.,2008). For the New York State SMEs who participated in this study, these barriers, though unique to each organization based on size and industry, primarily included costs due to the capital intensity of sustainable solutions, such as solar panels, and a general lack of resources, such as time and space or employees. These top barriers are also listed as major impediments in the most recent findings by Alvarez Jaramillo et al. (2019), Bakos et al. (2020) and Shields and Shelleman (2017). Shields and Shelleman’s (2017) study indicated that unclear or delayed payback and resource con- straints (financial, time, staff, technology expertise, orga- nizational) are major barriers. However, some barriers dis- cussed in the literature did not emerge as such in our study. For example, lack of education and awareness is listed as a top barrier in both Alvarez Jaramillo et al. (2019) and Bakos et al. (2020) studies, specifically shown in the developing countries. The New York State SMEs, even those who had not implemented sustainability, did not find the lack of edu- cation and awareness as barriers. Conclusion The U.S. SMEs have not been adequately studied in the literature. This study took a comprehensive approach by investigating the drivers and barriers of SMEs’ sustainabil- ity in the U.S. Through in-depth interviews with 75 SMEs across different sectors, our goal was to understand U.S. SMEs’ strategies and the environment in which they make their sustainability decisions. Our research identified important internal and external drivers of the sustainability adoption in U.S. SMEs. Inter- 26 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 nal drivers, such as a sense of moral obligation to reduce negative environmental impacts, lower costs and potential future liabilities (cleanup costs), or the possibility of lower long-term operating costs, like the cost of gas or electricity, were all positively influencing adoption decisions of SMEs. Among external drivers, majority of SMEs did not consider competitive advantage, regulatory compliances, or financial incentives as important influencers of sustainability adop- tion strategies. Further analysis of this finding can help public policy makers to either extend the government reg- ulations or make them more effective in advancing SMEs’ sustainability engagement. Meanwhile, social trends, such as customers valuing socially responsible products, were considered important factors. In addition, any formal or fa- cilitated education as external drivers, such as workshops, seminars, conferences, or environmental audits, played a positive role. This calls for planning and developing more formal education at colleges and universities or informal programs at places, such as chamber of commerce, that can strengthen SMEs’ ability to adopt sustainable solutions. Our study also identified the barriers such as cost and limited resources that prevent SMEs’ adoption of sustainability. With its focus on one state’s SMEs only and given the methodology and the sample size used in this study, the generalizability of our results is clearly limited. We con- ducted a qualitative research study to explore and under- stand important factors influencing New York State SMEs’ sustainability behavior. Our results are based on analytical and not statistical inferences. One possible direction for future research would be to develop an online survey and collect data from hundreds of SMEs across New York State and/or other states and further analyze the data by firms’ size, age, industry and location (e.g., urban vs. rural), among others. The online survey would gather more objective structured data to con- duct statistical analysis of the importance of various factors and their relationships that should lead to gaining deeper insights on SMEs’ sustainability behavior. Acknowledgements We would like to thank all students at Ithaca College who helped us in this research. 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Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 Appendix # Term Definition 1 Ahead Consider themselves ahead or usually ahead of regulations or competition 2 Community/ Networks Learn from other businesses, past employers, or organized groups of businesses they are a part of; Supported by/learn from the community 3 Company Values Mention of impact from mission statement or company goals; Founded for sustaina- bility 4 Competitors They are motivated by their competitors (want a competitive advantage, learn from them, partner with them, and/or use them as a comparison for evaluating their sustai- nability 5 Complex Solutions Solutions are too complex/difficult to understand to implement 6 Consumer Demand (Negative) Consumers are not currently interested or concerned with their solution or service; Customers are not willing to commit to such endeavors at this time; Customers want certain products that cannot be made sustainably 7 Consumer Demand (Positive) Customers want/expect certain sustainable or environmentally friendly products/ser- vices; Customers suggest/inform business about sustainable options 8 Consumer Price Sensitivity Consumers are concerned with cost of adoption and/or the product because it may impact sales and make profit difficult to obtain 9 Convenience Adopting certain sustainable practices was made convenient for their business or was more convenient than other alternatives 10 Cost Solutions are too expensive; Cost is too high 11 Cost Reduction Want to reduce costs; Sustainable practices have paid off by actually lowering expen- ses 12 Cost Will Decline Believe the price of implementing solutions will go down over time 13 Customer Incentives They give consumers incentives to be more sustainable 14 Customer Retention Has increased customer base and retention from sustainability 15 Customer Satisfaction Value customer satisfaction; feel that their sustainability efforts have improved custo- mer satisfaction 16 Data Driven Motivated by measurement/data to reach goals or maximize potential 17 Different Priorities/ Goals They are focused on other goals or have other priorities that are keeping them from improving sustainability 18 Environmental/ Social Responsibility The company takes on responsibility for the impact they have on the environment and society because they feel that it is important as a business to contribute 19 Educating Sustainability The business or their customers feel that it is important to include labels on products to show/educate consumers about product’s sustainability; Provide educational oppor- tunities for individuals, companies, or communities to learn more about sustainabili- ty; view education about sustainability as important 20 Education Attended (and maybe influenced by) conferences and/or presentations that educated them on sustainability; Have a degree or have taken courses that relate to sustainabi- lity or the environment; Conducted external research that is either informal (books, internet, magazines, etc.) or formal (literature reviews, published journals; Learned about sustainable practices from advertisements, motivated by relevant ads they have seen, and/or have learned about sustainable practices on tv, etc. 30 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 21 Employee Satisfaction Employees are happy with sustainability efforts 22 Employee Suggestions Other employees/interns suggest/inform business about sustainable options 23 External Evaluation They have received accreditations or similar forms of formal recognition; They have assessed their sustainable practices through formal evaluations (such as energy con- sumption, usage, and recycling system evaluations); They perform/receive periodic environmental audits (by choice or because it is mandated) 24 Family Influence Learned from family members; Influenced/motivated by family 25 Farming Property Tax Returns They benefit from getting tax returns from farming property 26 Federal Influenced Influenced by federal laws, regulations, incentives, etc. 27 Feel Good Feel satisfied/happy with what they have done for the environment; Feel like they have made a positive impact 28 Government Info Learn about sustainability from info shared by any level of government (regulations, recommendations, etc.) 29 Green Financial Services Provide solutions for businesses to value environmental costs/impact and apply it to financial statements 30 Growth Opportunity Paid off financially so they were able to expand (new locations, more employees, etc.); Gain (real or perceived) opportunities from adopting sustainable practices 31 Health Code Regulations Influenced by health code regulations (particularly relevant to food/farming industry) 32 Health/Safety Concerns Use environmentally friendly products primarily because they are safer for consumers (not necessarily because they are more sustainable) 33 Image Enhancement Want to improve company image by supporting/engaging in sustainable practices; Enhanced their image through sustainable practices 34 Impact They believe they have an impact on the environment, but may not do anything fur- ther to reduce their impact 35 Improve/Invent Sustainable Practices They want to be innovative and create new/improve sustainable solutions for their own business or for other businesses to adopt 36 Incentives Policies relating to incentives are a motivating factor (tax incentives, accreditations, networking opportunities) 37 Incentives Don’t Apply Feel that most incentives don’t apply to their business (incentives aren’t motivating) 38 Increase Impact (Positive) Do more good, not less bad 39 Industry Trends Motivated by trends in their specific industry 40 Insufficient Technology Do not have the necessary technology for solutions they want to implement 41 Job Requirement There is an expectation to be sustainable; Sustainability is part of job description or part of what they do in work 42 Lack of Control (Leasing) Business feels like they cannot be in control of all sustainable practices because they are renting or leasing their property 43 Lack of New Solutions Not aware of new solutions that are available or that they are capable of implemen- ting 31 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 44 Limited Resources Have a limited capacity in regard to available resources (space, materials, time, mo- ney, etc.) 45 Little/No Impact Feel as though their business has little to no impact on the environment or that imple- menting sustainable practices will have little to no impact 46 Loans/Grants Motivated by grant support they receive or intend to receive; Limited by the loans/ grants they cannot receive 47 Local Policies Influenced mostly by local policies (over state or federal) 48 Morals/Values Motivated by own personal beliefs, morals, or values 49 More Involvement Want more businesses and municipalities to commit to sustainability 50 Negative/Limiting View View regulations as limiting to their practices; Have a negative view/opinion of regu- lations 51 New Recommendations Get recommendations from outside sources (term used if outside source was not specified) 52 No Machines They do not use machines for production 53 Not Aware of Re- gulations/ Incentives They aren’t aware of or haven’t heard of any regulations or incentives to influence their decisions 54 Organic/Natural Products Ingredients/products have no chemicals or are naturally/organically made 55 Other Businesses They learn from or are influenced by other businesses that aren’t competitors; they don’t explicitly say that these businesses are part of their community or network 56 Performance Want business to be successful based on performance in terms of sales, productivity, etc. 57 Personal Interest Interested in sustainability for reasons other than morals/values; May have an educa- tional interest or fascination with sustainability 58 Previous Work Experience Learned about sustainable practices through previous jobs/work experiences 59 Product Redesign Redesigned their product(s) to be more sustainable 60 Profit Motivated by the profit they make; has paid off in profits 61 Quality Create products that are higher quality, so they last longer; Sustainability paid off because they believe that their products are of the highest qua- lity (since they are sustainable/natural) 62 Recycling/Waste Reduction They compost, recycle electronics/basic materials (paper, plastic, cardboard, etc.); “Upcycle” (resell used/refurbished goods); Used term if they talked about “reducing waste” in general 63 Reduce Carbon Footprint They have reduced emissions or pollution; Used term if they specifically said they reduce carbon footprint without elaborating 64 Reduce Impact Have a primary goal to reduce the impact that they have on the environment (can be a personal or business goal) 65 Reduce/Reuse Water Reduce how much water they use; They reuse water (i.e. save rainwater) 66 Regulations Influenced by regulations to not be sustainable 67 Regulations Don’t Apply Feel that some regulations don’t apply to their business or don’t really affect them (regulations aren’t motivating) 68 Renewable/ Efficient Energy Use renewable forms of energy (i.e. wind, solar power); They have made their energy more efficient or reduced energy consumption (i.e. improved lighting, better heating) 69 Reusable Materials They reuse their materials or choose to use reusable materials 32 N. Kasiri, H. Movassaghi, & S. Lamoureux Journal of Small Business Strategy / Vol. 30, No. 3 (2020) / 16-32 70 Scale Reduction Reduced size of operations to reduce impact/waste 71 Small/Delayed Pay Off They believe that implementing sustainable solutions is not necessarily worth it be- cause the benefits/pay off would not be immediate or would be too small 72 Social Trends Feel obligated to adopt sustainable practices because of local culture, social media, other trends; Pressure to conform 73 State Influenced Influenced by specifically state laws, regulations, incentives, or other form of motiva- tor 74 Support Other Sus- tainable Businesses They support other sustainable businesses by exchanging ideas or resources for sus- tainable solutions 75 Sustainability Leadership Educate/inspire community; Model for other businesses/people; View their business as a leader in sustainability; View business as successful in inspiring other businesses/consumers to be more sustainable; Inspire consumers to be more sustainable or to support sustainable practices 76 Sustainable Suppliers Source goods from suppliers that have sustainable practices 77 Sustainable Wages They believe in paying their employees enough to live in current market/economy (certain living standard based on need) 78 Technology Improvements Bought better/more efficient machines; Improved technology in a way that is more efficient/sustainable 79 Thinking Local Have a positive impact on the local community; Products/materials are made locally or within the country; They think it is important to support their local economy (buy locally and offer/share sustainable solutions with other local businesses) 80 Too Soon to Tell Company is not able to gauge the success of sustainable initiatives yet 81 Transportation Improvements Improved distribution methods 82 Type of Business They feel that the type of business they are in prevents them from being able to adopt more or any sustainable solutions 83 Unnecessary They feel as though implementing sustainable solutions is unnecessary for the success of their business 84 Want to Learn/Be Educated They want to learn more about sustainable practices because they value sustainability, but don’t know how to improve 85 Way of Life Have always been interested in sustainability, doing sustainable practices