To achieve the global climate goal of halving emissions by 2030, we cannot leave small and medium-sized enterprises (SMEs) behind. But helping them will require the collaboration and support of large companies, which are often the most important customers of SMEs. Climate action is not easy for small businesses. Large companies can help by directing small businesses to the SME Climate Hub, which provides tools and guidance for SMEs to measure emissions and reduce their carbon footprint. Larger companies can also provide more direct support. IKEA, for example, offers support to SMEs in its supply chain to convert to 100% renewable energy by financing on-site investments and enabling the purchase of renewable electricity.
A small sole proprietorship has a relatively low carbon footprint. But together, these companies have a huge impact – both on the planet and on the communities in which they operate. Moreover, many of the key innovations that will enable businesses and consumers to reduce their emissions will almost certainly be developed by small businesses. To achieve the global climate goal of halving emissions by 2030, we cannot leave small and medium-sized enterprises (SMEs) behind. But helping them will require the collaboration and support of large companies, which are often the most important customers of SMEs.
Climate action is not easy for small businesses. The SME Climate Hub recently surveyed SME managers to understand the main obstacles they face in reducing their emissions. The survey found that small businesses are stepping up their fight against climate change, but often lack the resources to invest in their net zero journey. These companies strive to reduce their greenhouse gas emissions through actions such as reducing energy consumption and waste (82%), training employees (64%) and modernizing facilities and equipment (52%), but more than two-thirds of companies surveyed cited a lack of resources as a barrier preventing them from going far enough – or taking action at all.
Large companies have an interest in helping SMEs succeed in their climate transformation. First, incentivizing SMEs to measure and reduce their emissions enables large companies to create more resilient supply chains. As climate-related disasters and other risks such as pandemics become more common, building resilient businesses has never been more important. Ernst and Young recently found that the pandemic had caused severe disruption to 57% of supply chains. When small business suppliers struggle, big business also falters.
Additionally, most of a large company’s greenhouse gas emissions come from its supply chains. In fact, supply chain emissions are on average more than 11 times higher than emissions produced inside a company’s walls, according to CDP.
So how can big business help? As a first step, they can direct small businesses to the SME Climate Hub, where SMEs can find the tools and guidance they need to measure their emissions, access simplified reporting data and reduce their carbon footprint as well as educational resources to get started. The SME Climate Hub partners with 1.5°C Supply Chain Leaders, a group of multinational companies including IKEA, Unilever, Telia, Ericsson, Mastercard and BT, who are working together to drive climate action in global supply chains.
For example, Swedish telecommunications giant Ericsson called on 350 of its high-emitting suppliers to set their own climate targets aligned with 1.5°C, to halve greenhouse gas emissions by 2030 and to report publicly on their progress each year. Microsoft – another member of the initiative – now requires its suppliers to disclose consistent and accurate emissions data across their operations, energy consumption and value chains (referred to as emissions of scope 1, 2 and 3). And increasingly, large companies are setting sustainable sourcing requirements, signaling the value SMEs will have to place on reducing emissions. From 2021, BT has included a clause in commercial contracts with 12 of its main suppliers that commits them to reducing carbon emissions for the duration of the contract.
Large companies can also offer business benefits and financial support to their SME suppliers, incentivizing them to take climate action. Almost half of the companies surveyed cited a lack of external funds as a barrier to reducing their emissions faster. Climate action can lead to short-term cost savings and long-term business resilience, but the upfront costs and effort required to innovate in some areas can be significant. Gucci does this by helping SMEs in its supply chain access soft loans if the supplier improves the sustainability of its operations. IKEA, for example, offers support to SMEs in its supply chain to convert to 100% renewable energy by financing on-site investments and enabling the purchase of renewable electricity.
If the corporate world is serious about halving its emissions by 2030, large companies will need to activate both their suppliers and their customers, regardless of size, industry and region. The more than 2,000 companies currently working towards science-based emissions reduction targets, for example, have pledged to reduce their Scope 3 emissions. But the reality is that many SMEs – especially smaller ones – need help to reduce their own emissions at the rate needed to meet global climate goals. We urge large companies and their SME suppliers to work together to reduce emissions. Unprecedented collaboration will be needed to ensure a viable planet for future generations.