Small and medium-sized businesses across the world are anchored in their communities and benefit society through their enterprise, agility and innovation. They are the lifeblood of the world economy. In the UK, 5.5 million small and medium-sized businesses account for 99.9% of the total business population. They employ 16 million people and account for 50% of economic output.
All the indicators are pointing in the same direction
There can be no route to net zero without bringing smaller businesses with us. Some will enable the transition directly, as suppliers of low-carbon goods and services, and all will participate in the unprecedented changes that will be necessary over the next few decades. The case for decarbonisation is well established. The environmental and economic risks of our reliance on fossil fuels are no longer in doubt.
The upfront costs of investment needed to enable this transition remain sizeable, with uncertain outcomes and long payback periods on green investment. Low-carbon technologies are maturing at pace, but the sheer range of options means it can be hard for entrepreneurs to cut through the noise and find the right choice for their business. And all of this comes at a time when businesses are facing difficult decisions on rising input costs, salaries and energy bills. A new OECD report on Financing SMEs for Sustainability provides guidance to governments to overcome the financial constraints SMEs face in greening.
Access to finance is a key constraint to SME greening
Sustainable finance is the key to unlocking SME investments necessary to reach sustainability goals
Finance providers can also be an important source of advice and information for businesses, helping to demystify the technologies available and explain the benefits – both environmental and economic – that these investments can provide.
Individual banks and finance providers are at the front line of this mission, as are national governments. They have already stepped up their efforts to accompany SMEs on the journey to net zero. Public banks are providing direct financing for SMEs at concessional terms to incentivise their greening actions; the Industrial Bank of Korea provides a good example. They are also implementing solutions to mobilise private sector financing for the green and energy transition, for example through green guarantees to support energy efficiency investments by SMEs.
The private sector is also responding to growing demand for sustainable finance products and emerging regulatory requirements, rolling out dedicated green and ESG-linked instruments.
A range of novel initiatives to boost knowledge among SMEs through the provision of non-financial support are underway. These are delivered by public actors, including the British Business Bank, the Business Development Bank of Canada and Bpifrance, and initiatives such as the SME Climate Hub.
However, no one country or actor can go it alone. It is a global challenge that requires a global response. International co-operation is critical to gain a better understanding of SME needs. They can: share good practices on how banks can engage them on the journey; inform about which instruments can be deployed; and adapt policy responses to strengthen SME investments for net zero.
Initiatives such as the OECD Platform on Financing SMEs for Sustainability, launched during COP26 in Glasgow, brings the relevant actors together to advance this agenda. The Platform’s new global survey of financial institutions will help benchmark strategies and approaches to SMEs and sustainable finance, and provide a basis to measure progress going forward.
By bringing the individual strengths of each actor in the sustainable finance ecosystem to the table, collectively we can accelerate financing SMEs for sustainability.
Read more on the work on SMES of the OECD.