By Tzoulianna Leventi


With their entrepreneurship and innovation, smaller companies have exited the Covid pandemic in a stronger position than before, gaining market share and pricing power, and with many now leading in the field of sustainability. As the painter Vincent Van Gogh observed:"Great things are not done by impulse, but by a series of small things brought together."

In emerging economies, small and medium-sized enterprises have a particularly important role to play. There, they represent approximately 90 per cent of businesses, provide more than 50% of employment and contribute around 40% to GDP.

To further encourage the efforts made by SMEs in sustainable development, the UN recently held a dedicated day to highlight their growing contribution. More certainly needs to be done as currently engagement with the UN’s sustainable development goals by smaller companies is more limited than it could be.

Reasons for this include the "small-cap syndrome" that leads smaller-scale companies to believe they are not in a position to drive change. Due to limited resources, they may lack awareness both of their existing positive contribution and of their footprint. It can also be challenging for smaller companies to bring in impact initiatives because of the overwhelming amount of information available, the plethora of disclosure mechanisms and lack of uniformity across different regions.

However, the very nature of these smaller companies means they have the potential to quickly transform into leaders in the field of sustainability. As businesses they tend to be more agile and adaptable than their larger peers, and can quickly adjust to global developments. They are closer to stakeholders and local communities and research suggests that SMEs tend to listen more openly to the needs of their employees and local communities around the issue of corporate social responsibility.

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As investors in small-cap companies, we are focused on finding the businesses that are already making a difference. Founder and family-run firms often have a unique connection with local communities and actively support their wellbeing.

Take, for example, the Italian luxury brand Brunello Cucinelli. In Umbria, the company is a key employer and places substantial importance on addressing local needs by recruiting from nearby and engaging with suppliers and other institutions. This means it aligns with sustainable development goal number eight (for decent work and economic growth).

The company provides opportunities for young people to work and advance in the business. It established the School of Arts and Crafts in Solomeo, which pays students a monthly wage.

Another interesting founder-run example is Dermapharm, a leading German manufacturer in patent-free branded pharmaceuticals. The business has five core segments: dermatologics, systemic corticoids, women’s healthcare, ophthalmologic products and vitamins. It is focused on providing affordable medicines to patients.

In the area of water conservation and green energy, Kornit comes to mind. Kornit is an Israeli company leading in the digital transformation of textile printing.

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Digital printing has many environmental and economic benefits over traditional analogue printing – reducing water usage, water waste and carbon emissions. The company is also using more eco-friendly dyes.

Radical change is needed in the textile and fashion industry, which generates 92 million tons of waste every year and 8-10% of global carbon emissions, and Kornit recognises how it can lead the transition. By 2026, Kornit aims to enable around 2.5 billion items of clothing to be produced responsibly, saving 4.3 trillion litres of water and 17.2 billion kilos of greenhouse gas emissions.

Achieving the UN’s objectives will require a huge amount of financing and investment, with World Bank estimates at more than $80 trillion and $200 trillion respectively. Investors have an important role to play by providing access to financial services and credit, and by investing in assets best-placed to benefit from the sustainable economy and the transition towards a net zero world.

All of the companies mentioned, despite their smaller size, lead in their industries. They aim to be future-proof and they recognise the importance of conducting business responsibly and sustainably. Smaller companies are making a difference and have an important role to play in supporting the sustainability agenda. Great things can indeed be achieved by a series of small things brought together.

Tzoulianna Leventi is an investment and ESG analyst with abrdn.