According to a new report titled “Financial Innovation for SME Net Zero Transition”, banks and corporate customers who buy from small to medium businesses (SMEs) could and should be doing more to help their transition to net zero.
The research was conducted by the Cambridge Institute for Sustainability Leadership (CISL) in partnership with Business for Social Responsibility (BSR), We Mean Business Coalition, and the SME Climate Hub.
The study highlights some of the challenges that will be faced by SMEs over the next ten years. Around 99% of businesses fall into the SMEs category and although many are tiny, collectively they contribute almost half of all the non-domestic carbon emissions being pumped into the atmosphere.
This poses a problem as the world moves towards net zero. While large companies have the resources to meet their net zero obligations, small businesses don’t have the financial muscle to set and achieve their targets.
A Lack Of Support for SMEs
Evidence from the report reveals, two-thirds of SME business leaders don’t have the skills or knowledge to properly reduce emissions. As a consequence, more than 60% of businesses are delaying their response to the climate crisis, which makes it difficult for policymakers to effectively deliver on their net zero commitments.
As Giulio Berruti, director, climate, BSR said: “Small and medium enterprises make up a significant portion of the world economy, and while their actions are critical to reaching net zero globally, support is currently lacking.”
Governments should be turned to for assistance, depending on the jurisdiction. However, the report’s authors are also calling for a joint response from the business community itself. They argue that banks – who provide much of the funding for SMEs – and corporate buyers are particularly well placed to offer support.
The SME skill gap was also recently highlighted as part of the UK’s Net Zero Review, which recommends the launch of a ‘Help to Grow Green’ campaign for SMEs by 2024 along with a greater transparency from its Green Jobs Taskforce.
The report argues that greater assistance is required.
The report says large organisations have the resources to provide SMEs with knowledge and technology to drive change in business models and behaviours.
The study provides a number of examples from within the UK and around the world. For instance, it points to a “carbon tracker” provided to small business customers by British bank, NatWest. This is designed to give SMEs the information they need to limit emissions. Similarly, Lloyds Bank offers a Green Building Tool, enabling businesses to assess the energy efficiency of their premises.
Renewable resource company Sappi has partnered with sustainable ratings body EcoVadis to help meet the United Nations (UN) Sustainable Development Goals (SDG).
A Net Zero Ecosystem
But why should wealthy corporations expend financial resources and management bandwidth on SME-focused initiatives? Well, you could argue that doing so simply reflects their own responsibilities on the net zero journey.
“Most large companies rely 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 incentivising SME action to net zero,” said Giulio Berruti
Grant Rudgley, Banking Environment Initiative Lead, for CISL argues similarly, “small businesses are the backbone of global economies. Supporting them on their journey to net zero is a key priority of their banks, requiring new financial products and advisory solutions,” he said.
Those SMEs who took part in the research were critical of the net zero resources available to them and they called on banks and customers to provide more useful information and services.
One thing is for sure, all companies will – at some point – have to comply with net zero regulations. Large organisations have the resources to prepare for this. By sharing those resources, they can take their own customers and suppliers with them towards lower emissions. If they will actually do this, however, remains to be seen.
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