Tuesday, June 18, 2024

HomeEntrepreneurSMEs Often Struggle With Net Zero Strategies, So Should Banks And Corporations...

SMEs Often Struggle With Net Zero Strategies, So Should Banks And Corporations Do More To Help?

Do small and medium-sized businesses need more help as they transition to “net zero” and where does that assistance come from? According to a new report, banks and the corporate customers who buy from SMEs could and should be doing more to help.

Titled “Financial Innovation for SME Net Zero Transition,” the report is something of a heavyweight 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 pull the research together.

But for those who have the time and inclination to persevere, the study highlights some of the challenges faced by SMEs over the next ten years. Challenges that can’t really be ignored.

As the report points out, when it comes to climate change, SMEs are part of the problem. Worldwide, around 99% of businesses fall into the small and medium-sized category and although many are tiny, collectively they have a major impact, not just on national economies but also on the amount of carbon being pumped into the atmosphere. Indeed, within the zone covered by the OECD, SMEs account 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 obligations. Small businesses aren’t so lucky or so well endowed.

A Lack Of Skills

According to the report, two-thirds of SME business leaders worry that they don’t have the skills or knowledge to properly address the need to reduce emissions. In consequence, more than 60 per cent of businesses are delaying their response. And yet, without concerted action from this quarter of the business community, it will be very hard for policymakers to effectively deliver on their net zero commitments. The report argues that assistance is required.

As Giulio Berruti, Director, Climate, BSR put it: “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.

An obvious place to turn to for assistance might be governments and depending on the jurisdiction you happen to be running a business in, help might well be forthcoming. However, the report’s authors are calling for a joined-up 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.

Business Models

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

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

Actually, the study provides a number of examples from within the U.K. and around the world. For instance, it points to a “carbon tracker” provided to small business customers by British Bank, NatWest. Essentially, this is a knowledge solution, 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.

Banks can also use their own lending policies to drive change. Brazil’s Banco Votorantim offers better financing terms to clients that maintain high social and environmental standards. Using its own procedures, Banco Votorantim scores borrowers based on their environmental and labor performance. Corporate customers can play their part too. The report cites supermarket Asda’s Sustain and Save, a tool designed to promote efficiencies when corporates interact with small business suppliers.

A Net Zero Ecosystem

But why should wealthy corporations expend time, money 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 agrees and sees a particular role for banks. “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.

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

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

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