What drives environmental practices of SMEs?

The objective of this paper is to develop a better understanding of what drives small and medium-sized enterprises (SMEs) to engage in environmental practices, and whether the drivers differ across types of practices. Two types of environmental practices are distinguished: practices related to production processes (greening processes) and practices related to products and services (greening product and service offerings). Despite a growing literature on socially responsible behavior of large firms, the role of SMEs remains underexposed. This neglect is remarkable given the substantial impact of SMEs on the economy and the natural environment. By using unique data for almost 8,000 SMEs across 12 sectors in 36 countries, we study the influence of firm characteristics on SMEs’ environmental behavior. Our results suggest that different characteristics have dissimilar influences on both types of environmental practices such as the type of customers served. Stringent environmental legislation encourages firms to actively take on environmental activities, but only in case of green products and services. Moreover, the dominant idea that small firms are reluctant to invest in environmental practices is clearly more nuanced: firm size matters most for engagement in greening processes. Finally, SMEs active in tangible sectors and that receive financial support are more involved in either type of environmental practices.