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This paper aims to examine social licence in the context of small and medium-sized enterprises (SMEs). Social and economic actors can assist in protecting the environment by granting firms a social licence. The social licence is regarded as a regulatory trigger, which some claim can improve organisational practices and possibly induce beyond compliance behaviour.

The paper uses data from interviews with the owners and managers of 110 manufacturing SMEs.

Social licence pressures are generally weak, while traditional regulation remains essential for encouraging and sustaining environmental activity. That said, the data show important differences across firms, for some SMEs are influenced by and responsive to social licence pressures. Typically, these pressures derive from stakeholders who pursue a relatively narrow self-interest (rather than public interest) mandate, and focus on particular issues rather than broader objectives of environmental responsibility. When responding to pressures, SMEs are likely to take specific and focused actions that address specific stakeholder concerns.

Fresh insights are provided into the social licence and smaller firms. Contrary to previous views, there are circumstances where the social licence provides a limited and tailored regulatory tool for initiating change, and it typically leads to firms making alterations to business practices that tend to be low-cost and easy to implement. The social licence can provide a consensual micro-social contract and limited public interest service, and, subject to supporting circumstances, it may be extendable to other types of smaller firms.

The paper presents fresh insights into the relationship between SMEs and social and economic stakeholders.

The paper provides new insights into how relevant stakeholders can influence the environmental behaviour of small firms.

Presents the findings of a UK‐based study into the environmental practices of SMEs (i.e. small and medium‐sized enterprises employing up to 250 people). The firms were found to be environmentally “reactive”, and this is explained by reference to a system of interconnected and negatively reinforcing practices. This is corroborated by organisational self‐assessments, with firms accepting that they have a low commitment to environmental issues. It was apparent that the firms would like to improve their environmental performance, but the authors argue that meaningful progress will be achieved only if there is a shift to a more proactive model of environmental practices.

This paper seeks to examine the introduction, in the UK, of reporting on social and environmental matters in the Companies Act 1985 (Operating and Financial Review and Directors' Report etc.) Regulations 2005 and the subsequent changes embodied in the Companies Act 2006. It aims to explore the potential impact of these reporting requirements on corporate legitimacy. Legitimacy is important because it reflects, and arises out of, society's support for the activities of the company.

The paper compares the Companies Act 1985 (Operating and Financial Review and Directors' Report etc.) Regulations 2005 with the Companies Act 2006. A postal survey was used to collect data from 79 companies that were affected by the operating and financial review. The reactions of different stakeholder groups to the changes in the law are assessed using secondary data sources, and issues surrounding legitimacy are analyzed using appropriate literature.

Companies that had to comply with the requirements of the operating and financial review were sufficiently prepared for its implementation and, given the choice, preferred the operating and financial review to be statutory. The authors therefore argue that the reasons for repealing the operating and financial review were overstated. Also, legitimacy theory indicates that the new reporting requirements are unlikely to meet the information needs of all stakeholders.

The paper provides a valuable analysis of how corporate social responsibility, which is deemed to be important for sustainable development, has been incorporated in law. It also provides a valuable analysis of how the law will affect corporate legitimacy.