Grant Rugley says helping SMEs tackle net zero is a key priority for banks
Do small and medium-sized enterprises need more help in transitioning to “net zero” and where does this help come from? Banks and corporate clients buying from SMEs could and should be doing more to help, according to a new report.
Entitled “Financial Innovations for the Net Zero Transition of SMEs”, the report makes a significant contribution to the climate change debate as it relates to small businesses. For those who want to do the math, it took four organizations – the Cambridge Institute for Sustainability Leadership (CISL), Business for Social Responsibility (BSR), the We Mean Business Coalition and the SME Climate Hub – to jointly conduct the research.
But for those with the time and will to persevere, the study highlights some of the challenges SMEs will face over the next ten years. Challenges that really 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 companies fall into the small and medium category and although many are small, together they have a large impact, not only on national economies but also on the amount of carbon emitted into the atmosphere. Indeed, within the zone covered by the OECD, small and medium-sized enterprises account for 60% of emissions.
And that presents a bit of a problem as the world moves toward net zero. Large companies have the resources to address their net zero liabilities. Small businesses are not so lucky or so well endowed.
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 businesses delay their response. And yet, without concerted action from this quarter of the business community, it will be very difficult for policymakers to effectively meet their net zero commitments. The report argues that help is needed.
As Giulio Berruti, Director, Climate, BSR, said: “SMEs make up a significant part of the world economy, and while their actions are crucial to achieving net zero globally, support is currently lacking.
The obvious place to turn for help might be governments, and depending on the jurisdiction in which you operate a business, help may be forthcoming. However, the authors of the report call for a joint 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 this mean in practice? Well, the report says large organizations have the resources to provide SMEs with knowledge and technology, while also driving change through recalibration of business models and behaviours.
But that begs the question. What help can small businesses really expect from banks and large clients? And what can these organizations reasonably be expected to do?
In fact, the study provides numerous examples from the UK and the world. For example, he points to the “carbon tracer” offered to small business customers by the British bank, NatWest. In essence, this is a knowledge solution, designed to give SMEs the information they need to limit emissions. Similarly, Lloyds Bank offers a green building tool, which allows businesses to assess the energy efficiency of their premises.
Banks can also use their own lending policies to encourage change. Brazil’s Banco Votorantim offers better financing conditions to clients who maintain high social and environmental standards. Using its own procedures, Banco Votorantim evaluates borrowers based on their environmental and operational performance. Corporate users can also play a role. The report outlines supermarket Asda’s Sustain and Save, a tool designed to promote efficiency when businesses interact with small business suppliers.
A net zero ecosystem
But why should wealthy corporations spend time, money and management bandwidth on initiatives aimed at SMEs? Well, you could argue that it simply reflects their own responsibilities on the road to net zero. “Most large companies rely on several thousand SME suppliers, and banks often serve a large number of SME clients. As such, both banks and large companies have an important role to play in encouraging SMEs to go net zero,” said Giulio Berruti.
Grant Rudgley, head of the Banking Environment Initiative for CISL, agrees and sees a special role for banks. “Small businesses are the backbone of global economies. Supporting them on their journey to zero net worth is a key priority of their banks, which requires new financial products and advisory solutions,” he said.
But is there a demand for all this from SMEs? The report thinks so. Those who participated in the survey were critical of the net zero resources available to them and called on banks and customers to provide more useful information and services.
Now it should be said that the report goes some way towards an ideal world scenario where companies of all sizes work together to achieve climate goals. In a real world where SMEs are struggling to deal with the economic challenges posed by inflation and slowing global economies, climate concerns may be relegated to the immediate future. But maybe 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 these resources, they can take their customers and suppliers with them towards lower emissions. That’s a theory. Whether this will become a widespread practice remains to be seen.