December 1, 2023

Do small and medium-sized businesses need more help as they move to “net zero” and where will the help come from? According to a new report, banks and corporate customers buying from SMEs can and should do more to help.

Titled “Financial Innovation for SME Net Zero Transition,” the report is something of a weighty contribution to the climate change debate as it applies to small companies. For those who care to count, it took four organizations – namely, the Cambridge Institute for Sustainability Leadership (CISL), Business for Social Responsibility (BSR), the We Mean Business Coalition and the SME Climate Hub – to come together. the research.

But for those with the time and inclination to persevere, the study highlights some of the challenges facing SMEs in the next ten years. Challenges that cannot be ignored.

As the report points out, when it comes to climate change, SMEs are part of the problem. Around the world, about 99% of businesses fall into the small and medium-sized category and although many are small, overall they have a large impact, not only on national economies but also on the amount of carbon that is pumped into the atmosphere. In fact, within the zone covered by the OECD, SMEs account for 60% of emissions.

And that poses little problem as the world moves toward net zero. Large companies have the resources to meet their net zero obligations. Small businesses are not so lucky or so 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 respond to the need to reduce emissions. As a result, more than 60 percent of businesses delayed their response. And yet, without concerted action from this quarter of the business community, it will be very difficult for policymakers to effectively deliver on their net zero commitments. The report argues that help is needed.

As Giulio Berruti, Director, Climate, BSR said: “Small and medium enterprises make up a significant part of the world economy, and while their actions are critical to achieving net zero worldwide, current support is lacking.

An obvious place to go for help would be the governments and depending on the jurisdiction in which you operate a business, help may be forthcoming. However, the authors of the report called for a unified response from the business community itself. They argue that banks – which provide much of the funding for SMEs – and corporate buyers are particularly well placed to provide support.

Business Models

So what does that mean in practice? Well, the report says that large organizations have the resources to provide SMEs with knowledge and technology, while also driving change by recalibrating business models and practices.

But that begs the question. What help can small businesses expect to receive from banks and large customers? And what can those organizations reasonably be expected to do?

Indeed, the study provides many examples from within the UK and around the world. For example, it points to a “carbon tracker” provided to small business customers by the British Bank, NatWest. Basically, it is a knowledge solution, designed to give SMEs the information they need to limit emissions. Similarly, Lloyds Bank offers a Green Building Tool, which enables businesses to assess the energy efficiency of their premises.

Banks can also use their own lending policies to encourage innovation. Banco Votorantim in Brazil offers better financing terms to clients who maintain high social and environmental standards. Using its own methods, Banco Votorantim scores borrowers based on their environmental and labor performance. Corporate customers can also play their part. The report mentions supermarket Asda’s Sustain and Save, a tool designed to improve efficiency when corporations engage with small business suppliers.

A Net Zero Ecosystem

But why should wealthy corporations spend time, money and bandwidth on managing SME-oriented initiatives? Well, you could argue that doing so simply reflects their own net zero travel responsibilities. “Most large companies rely on several thousand SME suppliers, and banks often serve many SME customers. Thus, banks and large companies have an important role to play in encouraging action in SME at net zero,” said Giulio Berruti

Grant Rudgley, Banking Environment Initiative Lead, for CISL agreed and saw a particular role for banks. “Small businesses are the backbone of the global economy. Supporting them on their journey to net zero is a key priority for their banks, which require new financial products and advisory solutions,” he said.

But is there a need for all this on the part of SMEs? The report thinks so. Those who participated 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.

Now it must be said that the report to some extent points to an ideal world scenario where businesses of all sizes work together to deliver climate goals. The real world where SMEs are struggling to deal with economic challenges caused by inflation and slowing global economies may see concerns about the climate sidelined for the foreseeable future. But maybe that’s the point. All companies – at some point – must comply with net zero regulations. Large organizations have the resources to prepare. By sharing resources, they can take their own customers and suppliers with them towards lower emissions. That’s the theory. Whether this becomes widespread practice remains to be seen.

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