We’ll only beat climate change if we help small businesses cut emissions ‒ and fast
Jesper Brodin, CEO, Ingka Group & María Mendiluce, CEO, We Mean Business Coalition
This article originally appeared on Reuters Sustainable Business Review.
Climate change is no longer a distant threat. It is a living reality affecting societies, businesses of all sizes and ‒ foremost ‒ people. Big businesses are serious about tackling climate change. Net zero, sustainability and ESG (environmental, social and governance) issues have become mainstream business strategy for multinationals, many of which are now figuring out how to deliver on their climate commitments.
However, leaders of small- and medium-sized businesses (SMEs), who care just as deeply about the climate, often cannot prioritize climate action due to more pressing issues, like rising energy costs and inflation.
Given that SMEs make up 90% of business globally, employ 70% of the world’s workforce and contribute over 50% of global GDP, their role in achieving the world’s climate goals is key. Small businesses are a vital part of our economies and societies: the local shops we depend on, our favourite neighbourhood cafes and the trusted garages where we get our cars fixed. But as extreme weather continues to batter communities worldwide, small businesses like these are particularly vulnerable since they tend to rely heavily upon fewer suppliers, local employees and require a functioning local community.
Up to 90% of large companies’ emissions sit in their value chains, much of which is made up of SMEs. Each step of a product’s journey ‒ from sourcing raw materials right through to the retailers who sell them ‒ carries a carbon footprint. These are known as Scope 3 emissions, and are notoriously difficult to both measure and cut. Helping SMEs in their value chains to start cutting their emissions is a sure-fire way for a large company to ensure its Scope 3 emissions go down.
If big businesses and governments don’t support SMEs to cut emissions ‒ and quickly ‒ we will ultimately miss the target of halving global emissions by 2030 and fail to avoid the most catastrophic impacts of the climate crisis. It remains in our hands to have a positive impact, and together we need to support SMEs to take climate action. Doing so will help large companies and nation states meet their emissions reduction goals, build more resilient and sustainable local communities and future-proof companies of all sizes for the green industrial revolution already underway.
Encouragingly, a recent survey by the SME Climate Hub revealed that 41% of small business leaders are already working to cut their emissions because it’s good for the planet and for their business. Companies from the SME Climate Hub community have told us how climate change has impacted them first-hand.
But SMEs can’t do it alone. The survey also found that SMEs are struggling with insufficient finance and knowledge to cut emissions as fast they would like to.
SMEs can’t afford sustainability teams, and while free resources are available, such as through the SME Climate Hub, small businesses are constrained by factors beyond their control. For example, two of the most effective ways to reduce emissions are switching to renewable energy and increasing energy efficiency of buildings. Both should be easy, since the technology is available. However, there’s not yet enough renewable energy to meet the demand from industry, and energy-efficiency retrofits remain expensive.
National governments, who consistently talk about the importance of their domestic small business community, can support SMEs to cut their emissions. If governments redirected environmentally harmful subsidies to the clean energy transition ‒ for example by implementing business-friendly policies and investments to streamline permitting processes for renewables, roll out grid infrastructure, and incentivize reduced energy use and energy efficiency ‒ it would help SMEs enormously to cut their emissions.
Such policies must be implemented with the needs of people at their heart to ensure the transition away from fossil fuels is just and inclusive. This will help governments achieve their own climate targets and build the resilience of SMEs and the communities in which they operate.
The moral imperative for supporting SMEs is clear, and from a pure business perspective, climate action is better for business. If big business supports SMEs it will help maintain stable low-carbon and efficient supply chains and customer bases that will, in turn, create more prosperous markets, economies and societies.
Working together with SMEs, we can limit global temperature rise to within 1.5°C. If governments and big business prioritize the right policies and support for small businesses to reach net zero, it will go a long way to building a more sustainable, resilient, and prosperous future for local communities around the world.
Jesper Brodin is president and CEO of Ingka Group, formerly known as IKEA Group.
María Mendiluce is CEO of the We Mean Business Coalition.