Small and Medium Enterprises (SMEs) are defined as non-subsidiary, independent firms which employ less than a given number of employees. This number varies between countries, with the most frequent upper limit being 250 employees, as in the European Union. However, some countries set the limit at 200 employees, while the United States uses 500 employees. Small firms are generally those with fewer than 50 employees, while micro-enterprises have at most ten, or in some cases five workers. Financial assets can also used to define SMEs; in the European Union, SMEs must have an annual turnover of EUR 40 million or less and/or a balance-sheet valuation not exceeding EUR 27 million.
The approximately 400 million SMEs are the backbone of economies around the world. They are the main source of job creation globally, accounting for over 95% of firms and 60%-70% of employment. SMEs generate a large share of new jobs in OECD economies, and even more in the EU, where they represent approximately 99% of all businesses, create around 85% of new jobs and provide two-thirds of the total private sector employment. Similarly, in the Global South, growth in overall employment is generally connected to the development of SMEs. [see, OECD Responsible Business Conduct in Georgia]. Considered key to ensuring economic growth, innovation, job creation, and social integration, not least thanks to their close relations with employees, the local community, business partners, for example, they also make an integral part of global supply chains, both as buyers and suppliers [e.g., European Commission: SME portal]. The IFC estimates that globally there are roughly 9.34 formal million women-owned SMEs in over 140 assessed countries and also notes that the credit gap for formal women-owned SMEs across all regions is roughly $2872 billion, which is 30 percent of the total credit gap for SMEs.+ Read more
At the same time, SMEs have specific strengths and weaknesses that may require special policy responses. As new technologies and globalisation reduce the importance of economies of scale in many activities, the potential contribution of smaller firms is enhanced, with many of them being at the forefront of innovative solutions of relevance to human rights (e.g., The LifeStraw). However, many of the traditional problems facing SMEs – lack of financing, difficulties in exploiting technology, constrained managerial capabilities, low productivity, regulatory burdens – become more acute in a globalised, technology-driven environment.
The UN Guiding Principles on Business and Human Rights (UNGPs), Guiding Principle 14, states:
“The responsibility of business enterprises to respect human rights applies to all enterprises regardless of their size, sector, operational context, ownership and structure. Nevertheless, the scale and complexity of the means through which enterprises meet that responsibility may vary according to these factors and with the severity of the enterprise’s adverse human rights impacts.”
The Commentary to Guiding Principle 14 states that:
“[T]he means through which a business enterprise meets its responsibility to respect human rights will be proportional to, among other factors, its size. Small and medium-sized enterprises may have less capacity as well as more informal processes and management structures than larger companies, so their respective policies and processes will take on different forms. But some small and medium-sized enterprises can have severe human rights impacts, which will require corresponding measures regardless of their size. Severity of impacts will be judged by their scale, scope and irremediable character. The means through which a business enterprise meets its responsibility to respect human rights may also vary depending on whether, and the extent to which, it conducts business through a corporate group or individually. However, the responsibility to respect human rights applies fully and equally to all business enterprises.”
Despite clear references in the UNGPs and the role they play in the global economy, the importance of SMEs and their key role in creating a paradigm shift in how business is being done, has been largely neglected in the debate on business and human rights [e.g., ILO report.] Only more recently is attention being paid to the support needed by SMEs to improve working conditions and develop more mature labour relations, such as inexpensive provision of working capital for investment in working conditions and other business practices, as well as training on occupational health and safety standards [e.g., recording of the 2015 UN Forum on Business and Human Rights session on “SMEs, informality and human rights: challenges and solutions”; WebTV].
At the same time, while for being part of the global supply chains, SMEs are often required to integrate and comply with their business partners’ Codes of Conducts, also contributing to behavioral change.
While the majority of the guidance to business is better suited for large corporations, various actors undertook efforts to develop materials and guidance aimed particularly at the SMEs, with the purpose of raising awareness, building capacity and to understand the advantages of respecting human rights, for example, cost reduction or retaining and attracting the best staff or improving productivity and performance, or safeguarding the business’ reputation.
The UK Equality and Human Rights Commission developed guides tailored to the specific needs of small and medium-sized businesses: “The Equality Act: Guidance for Small Businesses” and “Guide to Business and Human Rights”. In 2012, the European Commission published in all EU languages, “My Business and Human Rights: A Guide to Human Rights for Small and Medium-sized Enterprises”. Additionally, the United Nations Global Compact launched the Communication on Progress (COP) to help small and medium-sized enterprises with limited resources to regularly disclose progress on sustainability within their means. In May 2019, Switzerland published the Making Success Sustainable through Responsible Business Conduct: Human Rights Due Diligence of Swiss SMEs. It provides information for human rights risk assessments and an overview of the steps required to implement human rights due diligence.
In order to support women’s empowerment, in 2008, the Dominican Republic adopted a law setting out a program of preferential purchasing to support SMEs and legislated that 20% of purchases through this program should be from businesses run by women.
Under the 2030 Agenda for Sustainable Development, small & medium-sized enterprises are crucial for the achievement of a number of SDGs including SDG 8 on decent work and economic growth, SDG 9 (industry, innovation and infrastructure) and SDG 12 o(responsible consumption and production). They are also relevant for other SDGs aimed at ensuring poverty reduction and access to markets (e.g., SDG 2 (no hunger)), or decent work (SDG 8) among others. Some countries have already launched support programmes for SMEs. These include financial support and guidelines such as Japan’s management plan, for SMEs that also help companies link their actions to SDG implementation; and Denmark’s SDG Acceleration for SMEs established in cooperation with UNDP.