Do SMBs need more help transitioning to Net Zero? Where does this help come from? Banks and corporate clients who buy from SMEs can and should do more to help, according to a new report.
The report, “Financial innovation for net-zero transition for SMEs”, is a heavyweight contribution to the climate change debate as it applies to small firms. For those who care about computing, it takes four organizations – the Cambridge Institute for Sustainability Leadership (CISL), Business for Social Responsibility (BSR), We Mean Business Coalition and the SME Climate Hub – to bring the research together .
But for those with the time and inclination to persevere, the research highlights some of the challenges SMEs face in the next decade. A real challenge that cannot be ignored.
As the report notes, when it comes to climate change, SMEs are part of the problem. Globally, approximately 99% of all businesses are small and medium-sized enterprises, and although many are small, collectively they have a significant impact, not only on national economies but also on the amount of carbon emitted into the atmosphere. In fact, SMEs account for 60% of emissions across the OECD area.
As the world moves toward net zero, this poses some problems. Large companies have the resources to address their net zero obligations. Small businesses have not been as lucky, nor have they fared so well.
lack of skills
According to the report, two-thirds of SME business leaders are concerned that they do not have the skills or knowledge to properly address the need to reduce emissions. As a result, over 60% of businesses delayed responding. However, without concerted action by this quarter of the business community, it will be difficult for policymakers to effectively deliver on their net-zero commitments. The report finds that assistance is needed.
As Giulio Berruti, BSR’s Climate Director, puts it: “Small and small enterprises play an important role in the world economy, and while their actions are critical to achieving global net-zero emissions, there is currently a lack of support.
An obvious place to look for help might be the government, and depending on the jurisdiction in which you happen to do business, help is likely to be on the horizon. However, the report’s authors called for a joint response from the business community itself. They argue that banks and corporate buyers, which provide most of the funding for SMEs, are particularly well placed to provide support.
So what does this mean in practice? Well, the report says large organizations have the resources to provide knowledge and technology to SMEs, while also driving change by realigning business models and behaviours.
But this raises a question. What can small businesses really expect from banks and large clients? What can these organizations reasonably be expected to do?
In fact, this research offers many examples from the UK and around the world. For example, it points to NatWest’s “carbon tracker” for small business customers. Essentially, it is a knowledge solution designed to provide SMEs with the information they need to limit emissions. Similarly, Lloyds Bank offers a green building tool that enables businesses to assess the energy efficiency of their premises.
Banks can also use their own lending policies to drive change. Brazil’s Banco Votorantim offers better financing terms to clients who maintain high social and environmental standards. Banco Votorantim uses its own program to score borrowers based on their environmental and labor performance. Enterprise customers also have a role to play. The report cites supermarket Asda’s Sustain and Save, a tool designed to make businesses more efficient when interacting with small business suppliers.
Net Zero Ecosystem
But why would wealthy corporations spend time, money, and administrative bandwidth on an SMB-centric initiative? Well, you could argue that doing so simply reflects their own responsibility on the net zero journey. “Most large companies rely on thousands of SME suppliers, and banks typically serve a large number of SME customers. Therefore, both banks and large companies can play an important role in incentivizing SMEs to take action to achieve net zero,” said Juli Giulio Berruti says
Grant Rudgley, head of banking environmental initiatives at CISL, agrees and sees a special role for banks. “Small businesses are the backbone of the global economy. Supporting them to achieve net zero emissions is a priority for their banks and requires new financial products and advisory solutions,” he said.
But do SMEs have this demand? The report thinks so. Those involved in the study were critical of the net zero resources available to them, calling for more useful information and services from banks and customers.
Now it has to be said that the report somewhat points to an ideal world scenario where businesses of all sizes collaborate to achieve climate goals. In the real world, SMEs are grappling with economic challenges brought on by inflation and a slowing global economy, likely to see climate concerns in the near future. But maybe that’s the point. All companies will – at some point – have to comply with net zero regulations. Large organizations have the resources to be prepared. By sharing these resources, they can engage their own customers and suppliers to join them in achieving low emissions. That’s the theory. Whether it will become common practice remains to be seen.