SMEs and climate change: a vital partnership for net zero goals
In today's rapidly changing world, the conversation around climate change often centres on large corporations and their ambitious net zero targets. However, the vital role of small and medium-sized enterprises (SMEs) in this narrative cannot be overlooked. According to the World Bank, SMEs account for 90% of the world's business and 50% of global employment. This article explores the important role of SMEs in the fight against climate change, how they can calculate their greenhouse gas emissions (carbon footprints) and the steps they can take to align with sustainability goals, turning potential challenges into avenues for innovation and growth.
Why SMEs matter
SMEs may have smaller individual carbon footprints, but nonetheless, they face significant climate risks and play an essential part in the supply chains of larger companies. As pressure mounts for these large corporates to account for their emissions, SMEs find themselves at a pivotal crossroads - where opportunity meets responsibility. As a result, SME CFOs can expect inquiries from their clients regarding their net-zero commitments, greenhouse gas (GHG) emissions data and decarbonisation plans. Additionally, various initiatives aimed at combating climate change present SMEs with opportunities to innovate and introduce sustainable services, as SMEs are essential to the supply chains of larger companies.
Where to start: raising awareness
SMEs are run by people, and one major barrier to achieving net zero is the lack of education and awareness among SME leaders. Most educational efforts have focused on large corporations. All internal and external stakeholders of SMEs should understand the climate change risks and the role SMEs can play in mitigating them. This shift in awareness is part of change management, where shareholders must recognise that their interests are no longer the sole priority. The focus should expand to include the interests of all stakeholders, including society and the environment. Awareness sessions for the board, shareholders and employees should emphasise this holistic perspective.
How to calculate an SME’s carbon footprint
The second step is to know the business’ carbon emissions. Calculating the carbon emissions of an SME follows a process similar to that of larger corporations, though it is less complex. The critical first step is establishing a baseline for greenhouse gas emissions. While complete data may not be available initially, especially for scope 3, starting the process is essential. The carbon footprint typically includes the following categories:
Tools for assistance
SMEs can calculate their emissions manually if their operations are less complex. However, leveraging technology can streamline this process. There are a wide range of carbon calculators available, offering updated conversion factors for Scopes 1–3. Consultants can also assist SMEs in this process, as accurate and complete data is crucial for calculating total GHG emissions, especially in the first baseline year.
Decarbonisation strategy
Once an SME calculates its greenhouse gas emissions for the first baseline year the next step is to develop a strategy to lower and eventually eliminate these emissions. This strategy should include setting net zero targets, for example through organisations like the Science Based Targets Initiative (SBTi) or the SME Climate Hub. Governments and banks need to support SMEs in their decarbonisation plans. A good example is the UK Business Climate Hub launched in 2023, which aims to assist 5.5 million SMEs in reducing energy costs and emissions as part of their transition to net zero.
Reporting
Calculating - and understanding - your carbon footprint and developing a decarbonisation strategy is only the beginning. Reporting to stakeholders is crucial. SMEs may feel overwhelmed when selecting a reporting framework, as most frameworks cater to larger corporations. Nonetheless, the Corporate Sustainability Reporting Directive (CSRD), although mandatory for EU-based organisations initially, is increasingly seen as the ‘gold standard’ for reporting and being followed by many organisations. Read more here.
The Voluntary European Sustainability Reporting Standards (VSME) are being developed specifically for non-listed SMEs in the EU to enhance sustainability reporting. This flexible and voluntary framework allows SMEs to engage in sustainability practices at their discretion, serving as a useful guide for climate reporting each year. Other organisations such as SME Climate Hub provide reporting tools for SMEs to publish their annual carbon emissions and mitigations.
Conclusion
The global economy is shifting towards sustainability and the urgency to act is greater than ever. Companies – of all sizes - that fail to integrate ESG into their core strategies risk falling behind. As the world races toward a sustainable future, SMEs hold the key to unlocking significant transformation in the fight against climate change. By embracing their role and actively participating in sustainability efforts, these enterprises not only contribute to global net zero targets but also encourage innovation and build resilience within their communities. The path to decarbonisation may seem daunting but, with the right knowledge, tools and support, SMEs can transform challenges into opportunities. Together, we can build a greener, more sustainable world - one SME at a time.
BDO supports SMEs embarking on their net zero journey by helping them calculate their carbon footprint, develop comprehensive decarbonisation plans, assist with ESG reporting and offer a range of ESG-related services. Find out about how BDO can help, specifically around Activating your Sustainability journey and Calculating an organisation's baseline year carbon footprint Please also feel free to reach out to our sustainability experts tagged on this page for more information about your sustainability needs.
Author: Charles Tungwarara
Head of Business Process, ESG & Sustainability, BDO UAE
In today's rapidly changing world, the conversation around climate change often centres on large corporations and their ambitious net zero targets. However, the vital role of small and medium-sized enterprises (SMEs) in this narrative cannot be overlooked. According to the World Bank, SMEs account for 90% of the world's business and 50% of global employment. This article explores the important role of SMEs in the fight against climate change, how they can calculate their greenhouse gas emissions (carbon footprints) and the steps they can take to align with sustainability goals, turning potential challenges into avenues for innovation and growth.
Why SMEs matter
SMEs may have smaller individual carbon footprints, but nonetheless, they face significant climate risks and play an essential part in the supply chains of larger companies. As pressure mounts for these large corporates to account for their emissions, SMEs find themselves at a pivotal crossroads - where opportunity meets responsibility. As a result, SME CFOs can expect inquiries from their clients regarding their net-zero commitments, greenhouse gas (GHG) emissions data and decarbonisation plans. Additionally, various initiatives aimed at combating climate change present SMEs with opportunities to innovate and introduce sustainable services, as SMEs are essential to the supply chains of larger companies.
Where to start: raising awareness
SMEs are run by people, and one major barrier to achieving net zero is the lack of education and awareness among SME leaders. Most educational efforts have focused on large corporations. All internal and external stakeholders of SMEs should understand the climate change risks and the role SMEs can play in mitigating them. This shift in awareness is part of change management, where shareholders must recognise that their interests are no longer the sole priority. The focus should expand to include the interests of all stakeholders, including society and the environment. Awareness sessions for the board, shareholders and employees should emphasise this holistic perspective.
How to calculate an SME’s carbon footprint
The second step is to know the business’ carbon emissions. Calculating the carbon emissions of an SME follows a process similar to that of larger corporations, though it is less complex. The critical first step is establishing a baseline for greenhouse gas emissions. While complete data may not be available initially, especially for scope 3, starting the process is essential. The carbon footprint typically includes the following categories:
- Scope 1: Direct emissions from processes or activities within the company, such as on-site fuel combustion, company-owned vehicles or refrigerant leaks
- Scope 2: Indirect emissions resulting from energy purchased by the company, usually in the form of electricity, heat or steam
- Scope 3: All other indirect emissions related to business activities, including emissions from purchased raw materials, production, transportation and product disposal. This category covers a wide range of sources in a company's value chain.
Tools for assistance
SMEs can calculate their emissions manually if their operations are less complex. However, leveraging technology can streamline this process. There are a wide range of carbon calculators available, offering updated conversion factors for Scopes 1–3. Consultants can also assist SMEs in this process, as accurate and complete data is crucial for calculating total GHG emissions, especially in the first baseline year.
Decarbonisation strategy
Once an SME calculates its greenhouse gas emissions for the first baseline year the next step is to develop a strategy to lower and eventually eliminate these emissions. This strategy should include setting net zero targets, for example through organisations like the Science Based Targets Initiative (SBTi) or the SME Climate Hub. Governments and banks need to support SMEs in their decarbonisation plans. A good example is the UK Business Climate Hub launched in 2023, which aims to assist 5.5 million SMEs in reducing energy costs and emissions as part of their transition to net zero.
Reporting
Calculating - and understanding - your carbon footprint and developing a decarbonisation strategy is only the beginning. Reporting to stakeholders is crucial. SMEs may feel overwhelmed when selecting a reporting framework, as most frameworks cater to larger corporations. Nonetheless, the Corporate Sustainability Reporting Directive (CSRD), although mandatory for EU-based organisations initially, is increasingly seen as the ‘gold standard’ for reporting and being followed by many organisations. Read more here.
The Voluntary European Sustainability Reporting Standards (VSME) are being developed specifically for non-listed SMEs in the EU to enhance sustainability reporting. This flexible and voluntary framework allows SMEs to engage in sustainability practices at their discretion, serving as a useful guide for climate reporting each year. Other organisations such as SME Climate Hub provide reporting tools for SMEs to publish their annual carbon emissions and mitigations.
Conclusion
The global economy is shifting towards sustainability and the urgency to act is greater than ever. Companies – of all sizes - that fail to integrate ESG into their core strategies risk falling behind. As the world races toward a sustainable future, SMEs hold the key to unlocking significant transformation in the fight against climate change. By embracing their role and actively participating in sustainability efforts, these enterprises not only contribute to global net zero targets but also encourage innovation and build resilience within their communities. The path to decarbonisation may seem daunting but, with the right knowledge, tools and support, SMEs can transform challenges into opportunities. Together, we can build a greener, more sustainable world - one SME at a time.
BDO supports SMEs embarking on their net zero journey by helping them calculate their carbon footprint, develop comprehensive decarbonisation plans, assist with ESG reporting and offer a range of ESG-related services. Find out about how BDO can help, specifically around Activating your Sustainability journey and Calculating an organisation's baseline year carbon footprint Please also feel free to reach out to our sustainability experts tagged on this page for more information about your sustainability needs.
Author: Charles Tungwarara
Head of Business Process, ESG & Sustainability, BDO UAE