In today's business world, where small and medium-sized enterprises (SMEs) aim to strike a balance between profit and purpose, it's crucial to recognise that this approach is not just about ethics but also about risk mitigation.

Let's explore why SMEs should act promptly to find this balance and reduce potential risks.

1. Regulatory Compliance:

As regulations concerning environmental practices and corporate responsibility become more stringent, SMEs that fail to comply may face legal repercussions. According to a survey by Duff & Phelps, 41% of respondents from the financial services industry view regulatory changes as the most significant risk to their business. To avoid such risks, SMEs must align their operations with evolving regulations.

2. Reputation Management:

A tarnished reputation can be catastrophic for SMEs. Negative publicity related to unethical practices or environmental harm can quickly erode trust and customer loyalty. A study by PwC shows that 88% of consumers surveyed said they were more likely to trust companies that address societal issues. By embracing purpose-driven practices, SMEs can proactively protect their reputation.

3. Economic Resilience:

Economic uncertainties are inherent to business operations. For SMEs, it's essential to be financially prepared for both growth and downturns. A report by McKinsey & Company highlights that organisations with a clear sense of purpose are more resilient during financial crises. By diversifying revenue streams and maintaining prudent financial practices, SMEs can strengthen their economic resilience.

4. Talent Attraction and Retention:

Attracting and retaining top talent is critical for SMEs. Deloitte's Millennial Survey indicates that 53% of millennials consider a company's societal impact when choosing where to work. Moreover, a strong purpose-driven culture can enhance employee motivation and reduce turnover risks.

5. Anticipating Societal Expectations:

Society's expectations of businesses are continuously evolving. A misalignment with changing societal values can lead to reduced customer loyalty and market share. By staying attuned to evolving values through stakeholder engagement and scenario planning, SMEs can minimise the risk of falling out of touch with their customer base.

Conclusion

The urgency for SMEs to balance profit and purpose goes beyond ethics; it's a strategic move for risk mitigation. Addressing regulatory compliance, safeguarding reputation, ensuring economic resilience, attracting talent, and staying in tune with societal expectations are key facets of risk management for SMEs in the ever-changing business landscape. By acting promptly to integrate purpose-driven practices, SMEs can position themselves to navigate these risks successfully and secure their long-term viability.

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