To meet the global climate target of halving emissions by 2030, we must not leave small and medium-sized enterprises (SMEs) behind. But to help them, collaboration and support is needed from the large companies that are often the main customers of the SMB. Taking climate action is not easy for small businesses. Large companies can help by referring small businesses to the SME Climate Hub, which provides SMEs with tools and guidelines to measure emissions and reduce their carbon footprint. Large companies can also offer more direct support. For example, IKEA supports SMEs in its supply chain to switch to 100% renewable energy by financing investments on site and enabling the purchase of renewable electricity.
An individual small business has a relatively small carbon footprint. But together, these companies have a huge impact – both on the planet and the communities in which they operate. In addition, many of the key innovations that enable businesses and consumers to reduce their emissions will almost certainly be developed by small businesses. To meet the global climate target of halving emissions by 2030, we must not leave small and medium-sized enterprises (SMEs) behind. But to help them, collaboration and support is needed from the large companies that are often the main customers of the SMB.
Taking climate action is not easy for small businesses. The SME Climate Hub recently surveyed SME leaders to understand the key barriers they face in reducing their emissions. The survey found that small businesses are stepping up the fight against climate change, but often lack the resources needed to invest in their journey to net zero. These companies are making efforts to reduce their greenhouse gas emissions through actions such as reducing energy consumption and waste (82%), employee training (64%) and upgrades of facilities and equipment (52%), but more than two a third of companies surveyed cited a lack of resources as a barrier preventing them from going far enough — or taking no action at all.
Large companies have an interest in helping SMEs succeed in their climate transformation. First, encouraging SMEs to measure and reduce their emissions enables large companies to create more resilient supply chains. With climate-related disasters and other risks such as pandemics becoming more common, building resilient businesses has never been more important. Ernst and Young recently found that the pandemic has caused serious disruptions in 57% of supply chains. When small business suppliers struggle, larger operations falter.
In addition, most of a large company’s greenhouse gas emissions come from their supply chains. According to CDP, supply chain emissions are on average more than 11 times higher than emissions produced within a company’s own walls.
So how can big companies help? As a first step, they can refer 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 the educational resources to to get started. The SME Climate Hub works with the 1.5°C Supply Chain Leaders, a group of multinationals including IKEA, Unilever, Telia, Ericsson, Mastercard and BT, who are working together to drive climate action in global supply chains.
Swedish telecommunications giant Ericsson, for example, called on 350 of its high-emission suppliers to set their own 1.5°C aligned climate targets, halve greenhouse gas emissions by 2030 and report publicly on their progress annually. Microsoft – another member of the initiative – is now requiring its suppliers to disclose consistent and accurate emissions data across their operations, power consumption and value chains (called Scope 1, 2, and 3 emissions). And increasingly large companies are setting sustainability purchasing requirements, which indicate the value SMEs should attach to emission reductions. From 2021, BT included a clause in commercial contracts with 12 of its main suppliers that obliges them to reduce CO2 emissions over the term of the contract.
Large companies can also offer their SME suppliers business benefits and financial support, incentivising them to take climate action. Nearly half of the companies surveyed cited a lack of external resources as a barrier to reducing their emissions more quickly. Climate action can deliver cost-saving benefits in the short term and make the enterprise resilient in the long run, but the initial costs and effort required to innovate in certain areas can be significant. Gucci does this by supporting SMEs in its supply chain to obtain loans on favorable terms as the supplier improves the sustainability of its operations. For example, IKEA supports SMEs in its supply chain to switch to 100% renewable energy by financing investments on site and enabling the purchase of renewable electricity.
If business is serious about halving emissions by 2030, large companies will need to activate both their suppliers and customers, regardless of size, industry and region. For example, the more than 2,000 companies now working on science-based emission reduction targets have committed to reducing their Scope 3 emissions. But the reality is that many SMEs – especially the smaller ones – need support to reduce their own emissions at the pace needed to meet global climate goals. We urge large companies and their SME suppliers to work together to reduce emissions. An unprecedented partnership is needed to secure a livable planet for future generations.
This post How big companies can help their suppliers reduce emissions was original published at “https://hbr.org/2022/04/how-big-businesses-can-help-their-suppliers-cut-emissions”