Do small and medium-sized businesses need more help transitioning to “net zero” and where is that help coming from? Banks and corporate customers buying from SMEs could and should do more to help, according to a new report.
Entitled “Financial Innovation for SMEs Net Zero Transition,” the report is something of a heavyweight contribution to the climate change debate as it applies to small businesses. For those who want to count, it took four organizations – namely the Cambridge Institute for Sustainability Leadership (CISL), Entrepreneurship for Corporate Social Responsibility (BSR), the We mean corporate coalition and the SME Climate Hub – to bring the research together.
But for those with the time and inclination to persevere, the study highlights some of the challenges SMEs will face over the next decade. Challenges that cannot be ignored.
As the report points out, SMEs are part of the problem when it comes to climate change. Globally, about 99% of companies fall into the small and medium size category and while many are small, together they have a major impact not only on national economies but also on the amount of carbon pumped into the atmosphere. Indeed, within the zone covered by the OECD, SMEs are responsible for 60% of emissions.
And that poses a bit of a problem as the world moves towards net zero. Large companies have the resources to address their net zero liabilities. Small businesses are not so lucky or well endowed.
A 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, more than 60 percent of companies are delaying their response. And yet, without coordinated action from this part of the business community, it will be very difficult for policymakers to effectively meet their net-zero commitments. The report states that help is needed.
As Giulio Berruti, Director, Climate, BSR put it: “Small and medium-sized enterprises are a significant part of the global economy, and while their actions are critical to achieving net zero globally, support is currently lacking.
An obvious place to ask for help might be governments and depending on the jurisdiction you run a business in, help may arrive. However, the report’s authors are calling for a concerted response from industry itself. They argue that banks – which provide much of the financing for SMEs – and corporate buyers are particularly well placed to provide support.
So what does that mean in practice? Well, the report says large organizations have the resources to bring knowledge and technology to SMEs, while driving change by recalibrating business models and behaviors.
But that raises a question. What help can small businesses really expect from banks and major clients? And what can reasonably be expected of those organizations?
In fact, the study provides a number of examples from the UK and around the world. For example, it refers to a “carbon tracker” provided by British Bank, NatWest, to small business customers. Essentially, this is a knowledge solution, designed to give SMEs the information they need to reduce emissions. Similarly, Lloyds Bank offers a Green Building Tool, which allows companies to assess the energy efficiency of their buildings.
Banks can also use their own credit policies to drive change. Brazil’s Banco Votorantim offers better financing terms to clients who have high social and environmental standards. Using its own procedures, Banco Votorantim scores borrowers based on their environmental and labor performance. Business customers can also contribute. The report cites supermarket Asda’s Sustain and Save, a tool designed to promote efficiency when businesses deal with small business suppliers.
A Net Zero Ecosystem
But why should high net worth companies spend time, money and management bandwidth on SME-focused initiatives? Well, you could argue that this simply reflects their own net zero trip responsibilities. “Most large companies depend on several thousand SME suppliers and banks often serve large numbers of SME customers. As such, both banks and large companies have an important role to play in driving SMEs’ actions to net zero,” said Giulio Berruti
Grant Rudgley, Banking Environment Initiative Lead, for CISL agrees and sees a special role for banks. “Small businesses are the backbone of the global economy. Supporting them on their journey to net zero is a top priority for their banks, requiring new financial products and advisory solutions,” he said.
But is there a demand for all this from SMEs? The report thinks so. Those who took part in the survey were critical of the net zero funds available and called on banks and customers to provide more useful information and services.
Now it must be said that the report points to some extent to an ideal world scenario in which companies of all sizes work together to meet climate goals. In the real world, where SMEs struggle to meet the economic challenges posed by inflation and slowing global economies, climate concerns can be put aside for the foreseeable future. But maybe that’s the point. All companies will – at some point – have to comply with the net zero regulations. Large organizations have the resources to prepare. By sharing those resources, they can take their own customers and suppliers to lower emissions. That’s the theory. Whether it becomes a widespread practice remains to be seen.