What it takes for small and growing businesses to transition to Net ZeroPamela Jouven, Director of the SME Climate Hub, and Saipriya Salla and Ananya Saini, Program Associates at the Aspen Network of Development Entrepreneurs
This post first appeared in The Economic Times.
Anand runs a small enterprise that focuses on last-mile logistics in rural parts of the Indian states of Karnataka and Andhra Pradesh. He’s been working to build this service for the past 7 years, and now has a team of 50 employees and a fleet of approximately 100 vehicles to support companies with delivery logistics. He recently attended a webinar focused on ‘net-zero’, or achieving a balance between the amount of greenhouse gas produced and the amount removed from the atmosphere. The webinar emphasized that the Indian government aims to achieve ‘net-zero’ nationwide by 2070, and many businesses, governments and individuals are targeting 2050 or sooner.
These timelines felt so far in the future that Anand was unsure what this meant for his small organization. He and his team explored purchasing more electric vehicles to build a business that’s better for the planet, and to take advantage of government tax breaks. The infrastructure to deploy these vehicles was still minimal in their regions of operation, and he needed additional resources to fully make the transition. Nonetheless, it became increasingly evident that investors, governments and the business community alike are calling on small and growing businesses (SGBs) to become more sustainable – with a few going even further by providing the vital support SGBs need to meet these expectations.
In India alone, there are over 60 million microbusinesses and small and medium sized businesses (SMEs) — and they employ over 110 million people . They play a vital role in the local economy, and they are responsible for the functioning and creation of products and services used within the value chains of large multinational corporations around the world. Value chains primarily consist of SGBs and can account for up to 90% of a business’ total emissions. We cannot keep global temperature rise below 1.5°C and avoid the worst effects of climate change without bringing small businesses on the journey to net zero, and providing the necessary support for the transition.
SMEs are still recovering from the debilitating effects of the pandemic, and with limited funding available for sustainable shifts, they often find themselves stuck between a rock and a hard place. Though taking action will benefit their business financially and provide long term stability through future systemic shocks, it’s getting to net zero that’s the uphill battle.
Intermediaries have a responsibility – and an opportunity – to create a supportive environment to transition towards a more sustainable future. With the right support, the SGB sector can play a huge role in cutting global emissions and helping to achieve national climate and energy goals. Intermediaries – from finance, government and NGOs – must come together to facilitate action:
1) Equip SGBs with tools to navigate the net-zero transition: Take the SME Climate Hub, for example. The initiative brings together organizations across government, finance, nonprofit, education and corporate sectors to simplify climate action for SMEs through free tools and resources. The initiative recently launched the Business Carbon Calculator to help SMEs measure their carbon footprint and identify emissions hotspots. The resulting footprint helps SMEs establish a baseline from which they can best take action to reduce emissions through the suite of SME Climate Hub tools available. Easy-to-use resources must be the rule, not the exception.
2) Advocate for – and implement – a conducive policy environment: SGBs need incentives to prioritize climate action — and governments must help by offering benefits, such as tax breaks and greater visibility on government marketplaces. The Singapore Green Labelling Scheme (SGLS) and Eco-Certifications are laudable examples of urging small and growing businesses to think about sustainability actively. The SGLS endorses industrial and consumer products that are produced in an environmentally-friendly manner, and the country has around 10 different kinds of eco-certifications that can be availed by small businesses after undergoing the relevant audit and meeting environmental standards defined.
3) Make sustainability a requirement when considering investments, and before providing funding: According to a study by the Harvard Business Review, environmental, social, and corporate governance (ESG) is a top priority for investment decisions. Aavishkar Group, for example, incubates social entrepreneurs in Asia and Africa to create beneficiaries across SDGs. According to the group’s impact report, their investments have resulted in the reduction of 1.5 million MT of CO2 emissions, the creation of 85,000 jobs, and the provision of essential services to 28 million people. Sustainability as a requirement before funding can lead to scaling of climate-positive impacts.
4) Build platforms and networks for small and growing businesses to support each other: Network organisations provide support, feedback, insights, and resources to SGBs that may lack the financial means to take action alone. They also enable peer-to-peer learning, which helps scale business and foster innovation. For example, in India, the Clean Energy Access Network (CLEAN) unifies and strengthens clean energy enterprises by providing access to finance, knowledge and other resources. Moreover, network organisations can help SGBs come together to voice the financial and policy support they require to enable an effective transition.