In 2018, Mantis World, a small UK-based textile wholesaler made a bold commitment. It would halve its carbon footprint by 2030. Remarkably, thanks to their persistence in delivering greener solutions to their business model, they met their target in just 2 years rather than 12.
We all hope that Mantis World’s efforts become more widespread among small and medium-sized Enterprises (SMEs). According to new estimates produced by the OECD, SMEs account for around 40% of business carbon emissions at the EU level. Their role is vital in meeting global climate commitments.
Building a Green Machine
Yet SMEs’ progress is hard to measure given that sustainability reporting tends to be mainly undertaken by large firms. As part of the OECD’s efforts to fill this data gap, we joined forces with the start-up ISTARI.AI to create a new indicator of environmental engagement. We assigned machine-learning algorithms, a task that humans would take 65 years of non-stop reading to complete. They scanned over 1 million websites and 10 billion words across 15 OECD countries to understand which SMEs are going green. We also taught the machine to distinguish between text describing concrete and accountable actions from more generic statements that may lean toward “greenwashing”.
Encouragingly, our results show that many SMEs are busy greening their businesses. Half of medium-sized firms, nearly one-third of small, and 10% of micro-sized firms mention concrete actions related to greening. We also find big differences across countries. More than half of SMEs are greening in Belgium, France, and Slovenia, but less than one-third in Finland, Baltic, and Eastern European countries.
Larger SMEs are more likely to declare their greening efforts
Share of greening firms by country and size group in 2022
What are SMEs doing to improve their environmental footprint? A range of things, including adjusting their production process, to making greener products. SMEs recycle, use renewables (especially solar) in their energy consumption and strive for energy efficiency. Around 15% of greening SMEs write about solar energy on their website. The share is even higher in Belgium, Latvia, and Spain. Recycling is especially prominent among SMEs in the UK, France, and Finland. Around one-fifth of greening firms recycle in these countries.
Solar, recycling and renewables are the most frequent greening strategies
Share of environmentally engaged firms that mention the keyword on their website in 2022
Based on 327 000 observations of firms, which were also identified as environmentally engaged.
The keywords are considered in all languages. The keyword “Electric car” includes the keyword “Electric vehicle”; “Circular” includes the keyword “Cradle to cradle”; “Energy efficiency” includes also mentions of “Energy efficient”.
Source: OECD calculations based on OECD-Orbis database and ISTARI.ai web-scraped data.
A policy push
There are many ways the policy ecosystem can support this movement. Some entrepreneurs, such as Prama Bhardwaj, the CEO of Mantis World, advocate for requiring firms to disclose the environmental impact of their production process to allow consumers to factor it in their choices. France has already taken steps in this direction. Large clothing brands must provide supply chain transparency information from 2023. Smaller brands will follow suit over the next two years.
However it is important that regulatory and reporting requirements take into account the unique challenges SMEs face. Too many rules and reporting requirements are designed for large corporations, and these can become unmanageable burdens for smaller players. It will therefore be vital that SMEs are engaged in the design and testing of disclosure requirements.
Prama also emphasises the importance of fiscal incentives for small firms in the transition to greener operations. Belgium’s Build Back Circular is a notable scheme that funds circular economy initiatives, offering up to two million euro per project. This substantial support brings to life a range of projects, from eco-design to chemical substitution, empowering SMEs and startups to innovate sustainably.
Policies can also offer guidance for firms on how to lower their carbon footprint. For instance, the UK’s campaign Together for our Planet allow small firms to gain access to climate experts’ advice, training programmes, and practical resources to understand their emissions and take effective action.
Ideally, Prama thinks, the policy maker should combine the growing number of voluntary initiatives into few mandatory programmes. As she puts it, “It is not complicated. We all know that we produce too much and consume too much given our planet’s resources”.
Lenka Wildnerova is a former junior economist at the Economic Analysis, Data and Statistics Division of the OECD Centre for SMEs, Regions, and Cities. Her work focused on the analysis of firm performance using firm and employee data. She holds a PhD degree from Universite Paris-Saclay in international economics.
Carlo is an Economist at the Economic Analysis, Data and Statistics Division of the OECD Centre for SMEs, Regions, and Cities. His areas of expertise are micro-data analysis, business dynamics, innovation, regional and urban economics, and policy evaluation. Carlo first joined the OECD in 2011 and also held positions at the Central Bank of Italy and at Laterite, a fast-growing research company operating in East Africa. He authored several highly cited academic publications and OECD working papers. Carlo holds a PhD from the London School of Economics and Political Science, UK, and graduate and undergraduate degrees in Economics for the Ca’ Foscari University of Venice, Italy.