Two years ago, the OECD launched its “No Net Zero Without SMEs” campaign with a blog article by the Korean Ambassador to the OECD. Two years on, the world looks very different. The Russian war of aggression in Ukraine and the energy crisis it provoked, alongside technological advances – including a great leap forward in Artificial Intelligence – have changed the landscape drastically.
But the urgency of SMEs’ engagement in the green transition remains. Our recent estimates show SMEs are responsible for about 40% of business sector greenhouse gas emissions in Europe. In Slovenia, that number reaches 56.6%. The International Trade Centre estimates that the figure reaches 50% globally.
Yet SMEs are also key drivers of green innovation and can provide solutions to all kinds of businesses. In the UK, SMEs make up over 90% of clean tech companies, while in Finland, they represent more than 70%.
The involvement of SMEs in net-zero policies and actions is vital. But many of them do not have greening policies in place, or do not consider a green transition plan to be a priority.
Some SMEs lack the skills to embrace the green transition. Others simply don’t have the time or money to “go green”. So what can policy makers do to help SMEs take action on climate change?
A Government issue?
By mid-2021, there were 6,000 environmental- and energy-policy measures in over 67 countries but fewer than 100 specifically targeted SMEs, and only 150 were directed at startups and entrepreneurs – most national and international climate policies have targeted larger firms over SMEs.
Developing more policies specific to SMEs will be necessary if we are to meet our Net Zero ambitions.
From policy to practice
According to a recent survey, the lack of skills and knowledge – selected by 58% of respondents – is the main barrier SMEs face to take action on climate change. Skills allow SMEs to innovate and adopt more sustainable business models. Combined with lack of knowledge on relevant government supports and grants, SMEs can struggle to put in place effective greening strategies.
Policy makers can help by facilitating exchanges between companies facing similar problems or supporting the development of tools for measuring and monitoring emissions.
Lack of time is another issue cited by SMEs seeking to “go green”. It is therefore important to make the green transition as easy and efficient as possible. Simplifying regulations and reporting requirements could therefore help more SMEs to make the leap towards a greener future.
Financing the future
SMEs cite a lack of funds as a major impediment in their net zero action, and the cost of financing for SMEs is on the rise. Governments can therefore also support SME efforts towards Net Zero through sustainable finance.
There is good news in this regard. Climate considerations are becoming more important for both private and public financial institutions. Some are even offering better conditions for green investments, or dedicated financing programmes.
With the help of both private and public actors, sustainable finance can become more accessible for SMEs, and help them pave their way towards a greener future. This is not without challenges, however, as increasing reporting requirements are hard to meet for SMEs, and limit their capacity to tap into sustainable finance pool – which is an area governments can provide support in.
Bridging the green gap for SMEs
SMEs can also use digital tools, like environmental impact evaluation. Smart appliances, including smart meters that aim to improve SMEs’ understanding of their energy usage, can help SMEs reduce energy use by up to 40% at little or no extra cost. However, a recent survey conducted by the OECD D4SME initiative shows that the uptake of digital tools is not uniform across all geographies. While across European countries like Germany, France, Spain and Italy, 59% of businesses surveyed engage in some form of environmental performance monitoring, in other countries like the USA and Korea that number barely reaches 30%. This geographical disparity shows how international policy co-operation is key in helping knowledge exchange between countries to help SMEs achieve Net-Zero goals.
Beyond the data
Despite the issues, green SMEs are thriving. SMEs are tapping into new markets by selling sustainably sourced products. Many young entrepreneurs are motivated by the goal of supporting the environment. Forthcoming OECD data finds that, on average, green start-up founders launch their companies about 9 years after graduation, which is roughly 10 months earlier than the average for all start-up founders.
So, what now?
As the number of climate disasters rises, and tangible proof of global warming becomes more visible, sustainability has gained even more prominence on the global policy agenda.
The outlook for sustainable SMEs looks hopeful. There has been a rise of awareness on climate concerns, with more than three-quarters of Europeans (78%) agreeing that environmental issues have a direct effect on their daily life and their health. This growing awareness among households and consumers is likely to increase the pressure on SMEs and incentivise them to “go green”.
This year’s theme for the UN international MSME day, “Human-Centered Impact: Advancing the UN SDGs through MSMEs”, reinforces the concept of “No Net Zero Without SMEs”. Hopefully, by the time a third blog piece on this topic graces your computer screens, we’ll be able to say that, thanks to SMEs, we are closer to net zero than ever.
Find out more about OECD work on SMEs here.
Alix Philouze is a communications co-ordinator at the OECD Centre for Entrepreneurship, SMEs, Regions and Cities, where she works with both the SME and Entrepreneurship division and the Cities, Urban Policies and Sustainable Development division. She holds a degree in European Studies from Trinity College Dublin.