194 Parties committed to the Paris Agreement which entered into force in 2016. The stated terms were to reduce carbon emissions by 45% by 2030 and reach net zero carbon emissions by 2050. Reaching these ambitious global targets requires the collaborative effort of all parties, including governments, NGOs, and businesses both large and small. While large corporations have the resources and capital to implement initiatives to achieve these goals, small and medium enterprises (SMEs) face an uphill challenge. SMEs must get involved and decarbonize as pressure mounts from customers—often large corporations—and risks of inaction in the face of climate change grow. However, SMEs are often constrained by skills and resource gaps.
Small Businesses are Essential to Net-Zero Goals
Small businesses are the reliable workhorse in both established and emerging economies. While big corporate entities have name recognition, SMEs represent 90% of worldwide businesses. They are also responsible for 60-70% of global carbon emissions. It is impossible to reach net-zero carbon goals without small and medium enterprises’ participation. However, it’s disproportionately harder for SMEs to contribute.
Small businesses typically operate on smaller margins. Pandemic and post-pandemic recession conditions have created additional budgetary strain. Plus, site managers responsible for adopting carbon reduction practices are pressed for time and resources. And if financial and stakeholder pressure weren’t enough, smaller businesses face a steep learning curve to complete time-consuming applications such as government rebates or programs for assistance and more resources. Small businesses overwhelmingly agree that working toward net zero is a strategic priority. At the same time, more than 60% feel that addressing that need is an insurmountable challenge. As a result, their work toward decarbonization moves down in priority behind urgent matters that are core to the business. Plainly put—they care but feel there isn’t enough money or time to address the problem.
The Clock is Counting Down to Net-Zero
The failure of SMEs to act on climate change is an economy-wide issue. Small and medium-sized businesses are the backbone of the supply chain that corporate enterprises rely on. Reporting requirements include Scope 3 emissions—or all indirect emissions created from a company’s value chain. Across all sectors, Scope 3 accounts for an average of 75% of total emissions, which is why PepsiCo, Walmart, GSK, and Schneider Electric are actively engaging companies to accelerate their decarbonization efforts in their supply chain. If SMEs delay, they not only risk losing business from big name customers, but they also miss out on valuable opportunities to collaborate and gain economies of scale.
Climate change impact is also accelerating—and that can hurt the bottom line. To withstand the increasingly dramatic climate-related weather events, SMEs must adopt practices that promote greater resilience. For example, in 2022, Harvard Business Review released an analysis of 2017 Hurricane Harvey’s economic impact. The report uncovered that damage was 30% worse than previous events due to climate change. Of affected small and medium size enterprises surveyed, 90% experienced lost revenue and had expensive property damages. The authors concluded that risk management must be top-of-mind for small businesses to survive continued climate-related pressures.
Moving From Ambition to Impact
The market consensus is clear: when it comes to climate action, sitting on the sidelines is a losing game. With pressures mounting and few manageable solutions, it’s hard to blame SMEs for despairing. Luckily, there are positive signals on the horizon. SMEs can confidently move in the right direction with several new resources:
- Green initiative financing
- Digital tools
- Partnerships
Green Initiative Financing
Many global banks and corporations seem increasingly aware that small businesses can’t do it alone. These international organizations are stepping up to help. Investing in downstream supply chains is an investment in meeting their goals.
Similarly, other banks and businesses like Ikea offer financial incentives to suppliers who invest in sustainability efforts or offer loans to help them achieve their goals. These frontrunners set up a helpful precedent, but more large organizations need to join them to sustain effective impact.
Digital Tools
Digitization is a significant hurdle to reaching emissions goals for businesses of all sizes, including SMEs. Small businesses can’t measure, offset, or report carbon emissions without digital tools. Measurement is the first essential step to regulatory compliance and climate action commitments. SMEs should look for digital tools that help them calculate, measure, and analyze their impact and track progress. Companies that demonstrate they can measure and sustain decarbonization efforts over time could gain a competitive advantage and earn loyalty from upstream partners. Zeigo Activate enables SMEs to track and minimize their environmental impact by providing the tools needed to swiftly move from sustainability ambition to action. Business owners can use our intuitive software to set straightforward, achievable decarbonization goals and follow customized action plans to reduce emissions.
Partnership
Finally, the World Economic Forum recommends that SMEs look for strategic partners to expand their resources and spread costs. This tactic is even more impactful for small businesses operating under significant financial pressure. Building a coalition can help with opportunities to engage with policymakers, navigate change easily, and encourage collaborative innovation.
Initiatives like Walmart’s Project Gigaton provide suppliers with resources to ease reporting processes. And the corresponding “Gigaton PPA (Power Purchase Agreement)” project, designed and delivered by Schneider Electric, is connecting Walmart’s suppliers with opportunities to procure renewable energy to accelerate the broader program’s decarbonization goals.
The suite of Zeigo software and services accelerates decarbonization for companies of all sizes. Created by industry experts, our intuitive, impactful digital solutions light the path toward a carbon-free future. For small and medium enterprises who are interested in starting their decarbonization journey, visit activate.zeigo.com to set up your free account.
This article originally appeared on Schneider Electric’s Perspectives blog.
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