To reap the rewards of a successful climate transition, all enterprises must be enabled to play their part. This includes the millions of small and medium-sized enterprises (SMEs) around the globe.
New OECD estimates show that SMEs in Europe account for about 40% of total greenhouse gas (GHG) emissions of the business sector. According to the International Trade Centre, this figure rises to about 50% when considering the SME population globally.
The evidence is clear: there can be no net zero without SMEs – both those driving the green transition through the development of innovative green solutions, and those adopting greener business models and practices.
Finance is a critical enabler, but also an important challenge. Banks and other financial institutions have a central role to play in financing SMEs’ green and sustainable investments.
According to a new OECD survey, public and private financial institutions are stepping up efforts to accompany SMEs on the net-zero journey through financial and non-financial support. 73% of surveyed institutions provide green/sustainable finance to SMEs, and the vast majority offer small businesses non-financial support through workshops, training, tools and other means. But they face some hurdles.
The devil is in the data
Emerging sustainability reporting requirements are a new reality for financial institutions and large enterprises, with implications for SME access to finance and markets. As the saying goes, “if you cannot measure it, you cannot manage it”. In the absence of data, large enterprises and financial institutions cannot accurately and credibly assess the environmental impact of their own SME operations and value chains. Nor can they develop tailored financing or other solutions for their SME clients or partners.
In the OECD survey, the data challenge was the biggest constraint to the integration of climate considerations in SME operations.
Key challenges that financial institutions face in integrating climate in financing and investment decisions (% of respondents identifying item as a constraint)
As a result, financial institutions are increasingly relying on company-specific sustainability data, placing new demands on SMEs. Nearly 70% of surveyed institutions obtain these data directly from SMEs or through intermediaries, such as other financial institutions or rating and data providers.
Financial institutions obtaining sustainability data from SME clients (% of respondents)
Without credible data, there is a serious risk of reduced access to finance for SMEs, in a context where funding is already constrained by high interest rates. Likewise, regulators and policy makers need reliable data to monitor progress towards net zero, and to provide the right incentives to align capital allocation with climate goals. Sound data also helps avoid “greenwashing”.
SMEs are not calling for exemptions, but for enablers. That means data demands should be simple and easy to respond to, so that they do not undermine ongoing policy efforts to level the playing field for SMEs. We do not want SMEs to crumble under an enormous reporting burden, or to reduce their ambitions in the area of greening.
Towards a holistic approach to sustainable finance for SMEs
We cannot afford a piecemeal approach or duplication of efforts. A number of steps can be taken to foster coherence and strengthen the ecosystem for SMEs.
Streamline reporting requirements for SMEs. SMEs should not have to provide a large number of different data points to each financial institution or value chain partner. Promoting inter-operability of definitions, data, taxonomies, and methodologies, and considering proportionality in sustainability reporting requirements, in line with the 2023 OECD Recommendation on SME Financing, are critical. We need to move towards convergence on the core data and information different actors need from SMEs.
Promote the development of innovative solutions and support the dissemination of tools to help SMEs measure their environmental footprint. Using digital or other solutions to help automate or simplify the measurement or provision of relevant data for SMEs can help bridge the data gaps without creating an undue burden on small businesses.
Identify good practices in financial and non-financial support to accelerate the SME green transition. We need to identify and scale up proven financing solutions and non-financial support for SMEs. Understanding how to combine different types of support is also key to accelerating SMEs’ transition.
Mobilise all actors in the SME sustainable finance ecosystem. Policy makers, regulators, standard setters, public and private finance providers, advisory and digital services and the business community need to work together to help SMEs navigate the transition.
The OECD Platform on Financing SMEs for Sustainability will continue its work to share knowledge and identify operational solutions, to enable SMEs to accelerate greening and to thrive in a net-zero economy.
Further reading:
OECD (2023), “Financing SMEs for sustainability – Financial institution strategies and approaches: Results of an OECD survey of public and private financial institutions”, OECD SME and Entrepreneurship Papers, No. 46, OECD Publishing, Paris, https://doi.org/10.1787/b3fe3647-en.
OECD (2022), “Financing SMEs for sustainability: Drivers, Constraints and Policies”, OECD SME and Entrepreneurship Papers, No. 35, OECD Publishing, Paris, https://doi.org/10.1787/a5e94d92-en.
OECD (2023), “Assessing greenhouse gas emissions and energy consumption in SMEs: Towards a pilot dashboard of SME greening and green entrepreneurship indicators”, OECD SME and Entrepreneurship Papers, No. 42, OECD Publishing, Paris, https://doi.org/10.1787/ac8e6450-en.
Ms. Miriam Koreen is the Senior Counsellor on SMEs and Head of the SME and Entrepreneurship Finance Unit at the Centre for Entrepreneurship, SMEs, Regions and Cities of the Organisation for Economic Co‑operation and Development (OECD). She leads the OECD Platform on Financing SMEs for Sustainability. From 2011 to 2018, she was Deputy Director of the Centre and Head of the SME and Entrepreneurship Division. Ms. Koreen has worked at the OECD since 2000, when she joined the OECD as an analyst on entrepreneurship and SME policies. She has served as Counsellor to the Trade Directorate, Advisor in the Office of the Secretary-General and Senior Project Manager for the OECD Innovation Strategy. She also chaired the OECD Procurement Board from 2011 to 2015. Ms. Koreen holds a M.Sc. in Development Studies from the London School of Economics and Political Science.
Marija Kuzmanovic is a Policy Analyst and Project Coordinator in the SME and Entrepreneurship Unit of the OECD Centre for Entrepreneurship, SMEs, Regions and Cities (CFE). In her current role, Marija co-coordinates the OECD Platform on Financing SMEs for Sustainability and conducts analytical work on SME sustainable finance. Prior to joining CFE, Marija provided analytical and capacity building support on competitiveness and private sector development to OECD partner countries in the OECD Development Centre and Global Relations Secretariat. Marija has also worked as a macroeconomic analyst at the EBRD Office of the Chief Economist as well as a junior professional associate at the World Bank’s Environment and Social Development Department. She has a Master’s degree in Development Economics from the Harvard Kennedy School and a Master’s degree in Finance from LSE.