The question in the business environment is: Do SMEs (Small and Medium Sized Enterprises) need more help during the transition to “net zero” and where does this help come from? According to a new report, banks and corporate customers who buy from SMBs could do more to help.
The report, titled “Financial Innovation for a Net Zero Transition for SMEs,” is kind of an important contribution to the debate about weather changes, as it applies specifically to these types of businesses. The survey was conducted by four organisations, including CISL (Cambridge Institute for Sustainability Leadership), BSR (Business for Social Responsibility), We Mean Business Coalition and SME Climate Hub.
For those with the time and inclination to persevere, the study highlights some of the challenges facing SMEs over the next ten years. Challenges that truly cannot be ignored.
As the report points out, when it comes to climate change, small and medium-sized businesses are part of the problem. About 99% of companies around the world fall into the SME category. And although many of them are already small, together they have a huge impact, not only on national economies, but also on the amount of carbon being pumped into the atmosphere. In fact, in the region covered by the Organization for Economic Co-operation and Development (OECD), small and medium enterprises are responsible for 60% of emissions.
This poses a problem as the world moves towards net zero. Large corporations have the resources to handle their zero net liabilities. But small businesses are not so lucky or well resourced.
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 adequately address the need to reduce emissions. As a result, more than 60% of companies default on their tasks. However, without concerted action from this sector of the business community, it will be very difficult for policy makers to effectively meet their net zero commitments. The report says that help is needed.
As Giulio Perotti, Climate Director at BSR, said: “SMEs are an important part of the global economy and while their actions are critical to achieving net zero globally, support is currently lacking.
Governments can be an obvious place to seek help, and depending on the jurisdiction in which you operate a business, help could be just around the corner. However, the report’s authors call for a joint response from the business community itself. They argue that banks – which provide much of the funding for small and medium-sized businesses – and corporate buyers would be particularly well placed to provide support.
So what does that mean practically? Well, the report says that large organizations have the resources to bring knowledge and technology to small and medium businesses, while driving change through recalibration of business models and behaviours.
But this raises a question. What kind of help can small and medium businesses actually receive from banks and large clients? What can reasonably be expected of these organizations?
Indeed, the study offers several examples from the UK and around the world. For example, he points to the “carbon tracker” offered to small business customers by UK bank NatWest. Essentially, this is a knowledge solution, designed to provide small and medium businesses with the information they need to reduce emissions. Similarly, Lloyds Bank offers a green building tool, allowing companies to assess the energy efficiency of their facilities.
Banks can also use their lending policies to drive change. Banco Votorantim, in Brazil, offers better financing conditions to clients who maintain high social and environmental standards. Through its own procedures, Banco Votorantim evaluates borrowers based on their environmental and labor performance. Corporate clients can also do their part. The report cites Asda Supermarket Sustainability and Conservation, a tool designed to increase efficiency when companies interact with small business suppliers.
A net zero ecosystem
But why should rich companies spend time, money and space in their management structures on initiatives focused on small and medium enterprises? Well, you could argue that this simply reflects Zero Zero Flight responsibilities.
Most large companies rely on thousands of SME suppliers, and banks usually serve a large number of SME clients. As such, both banks and large companies play an important role in encouraging the work of small and medium enterprises towards net zero,” said Giulio Perotti.
Grant Rodgley, head of CISL’s Banking Environmental Initiative, agrees and sees a specific role for banks. Small business is the backbone of global economies. Supporting them in their journey towards net zero is a key priority for their banks, and requires new financial products and advisory solutions.
But is there a demand for all this from small and medium businesses? Let’s get to the facts. Survey participants criticized the lack of liquidity, and urged banks and customers to provide more useful information and services.
It must also be said that the report suggests, in a sense, an ideal world scenario in which companies of all sizes would collaborate to achieve climate goals. But in the real world, as SMEs struggle to cope with the economic challenges generated by inflation And from slowing global economies, one could see climate concerns fading in the near future.
But maybe that’s the whole point. All businesses will have to – at some point – comply with net zero regulations. Large organizations have the resources to prepare. By sharing these resources, they can take their customers and suppliers with them to reduce emissions. This is the theory. However, it remains to be seen if this will become a widespread practice.
* Trevor Clawson Contributing journalist to Forbes USA based in the UK. He has worked for BBC World, e-Business Director and PLC Director and is the author of three books, including The Unauthorized Guide to Business the Jamie Oliver Way, translated into five languages.
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