In today’s increasingly green economy, embracing sustainability makes good economic sense. Small and medium-sized enterprises (SMEs), which represent over 90% of businesses around the world, can save money – and attract new, eco-conscious customers by going green. They can also tap into new green financing options but to do so they must be able to demonstrate their sustainability performance.
Sustainability data for “green” finance
Yet despite the advantages it brings in advertising their green credentials to customers and financiers, sustainability reporting remains a challenge for most SMEs. Investors and finance providers increasingly require detailed data to meet their own reporting needs and develop tailored green and sustainable financing products for SMEs. But data demands from SMEs are often based on reporting frameworks that are designed for larger enterprises, which SMEs struggle to comply with.
SMEs must also navigate requirements that differ widely across banks, markets and jurisdictions, adding complexity. Addressing this issue is an important challenge for regulators and policy makers.
As a result, SMEs currently see sustainability reporting as more of a barrier than an enabler of their green transition. In the 2024 Eurobarometer survey, complex environmental reporting requirements were identified by SMEs as the third largest barrier to SME resource efficiency action (26% of respondents).
New tools for the transition
SMEs need tailored tools and support to respond to these emerging reporting demands. Happily, digital reporting tools and advisory services are becoming more abundant, including tools to help measure greenhouse gas (GHG) emissions, and to help develop climate-related targets and transition plans.
SME agencies, such as the Danish Business Authority, and public development banks, like Bpifrance and Wallonie Entreprendre in Belgium, provide calculators that can help SMEs to measure the carbon footprint of their operations (Scopes 1 and 2), and to estimate greenhouse gas (GHG) emissions from operations across their supply chains (Scope 3). Meanwhile, in Germany, Singapore and the UK, working with the private sector, national authorities are seeking to establish infrastructure and mechanisms to automate and ease the burden of data collection, processing and reporting.
However, SMEs can find it confusing to navigate and choose from among these tools and match their outputs to the requirements of financial institutions. Their continued reliance on large manual data inputs is also complex and resource-intensive for SMEs, and can raise concerns about accuracy of results.
Tools need further development to go beyond simple data tracking for reporting purposes, to provide SMEs with data-driven insights on concrete actions they can undertake to improve their sustainability performance.
Friendlier frameworks
The good news is that there is growing momentum globally to develop simplified reporting frameworks that can make sustainability accessible and actionable for all businesses, big and small. For example, with a mandate from the European Commission, the European Financial Reporting Advisory Group (EFRAG) is developing a voluntary standard for SME reporting that provides a simplified reporting framework for European small businesses.
The Monetary Authority of Singapore has partnered with the United Nations Development Programme (UNDP) and Global Legal Entity Identifier Foundation to establish a set of basic Environmental, Social, and Governance (ESG) metrics for common adoption by SMEs and inclusion in their legal entity identifiers (LEIs).
To support alignment, the OECD Platform on Financing SMEs for Sustainability has launched a multi-stakeholder dialogue to promote convergence in SME reporting demands across entities and jurisdictions, are an important way to bring together the views of all stakeholders and to provide guidance on a streamlined set of core indicators for SME sustainability reporting. It has already identified a common base of indicators as part of initial scoping work for the G20, but much work remains to be done. to reduce SMEs’ reporting burden.
It is our collective responsibility to ensure that sustainability reporting becomes a bridge – rather than a barrier – to funding, market opportunities and growth.
Through simplified frameworks and practical tools, SMEs can not only meet regulatory and supply chain demands, but also build more sustainable and resilient businesses and contribute to innovative solutions for our communities and economies.
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.