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Sustainable Investing 2021

SMEs need sustainable finance to reach net zero

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Miriam Koreen

Senior Counsellor on SMEs, OECD Centre for Entrepreneurship, SMEs, Regions and Cities

Small and medium-sized enterprises (SMEs) are important drivers of green innovation, but also leave a significant environmental footprint. On the heels of COP26, we need to develop better solutions to finance their green transition.

In Europe, SMEs account for just over 50% of GDP but are responsible for 60-70% of industrial pollution.1 They face many obstacles to greening, including low awareness, lack of skills and – critically – insufficient financial resources. 

Raising awareness, offering operational solutions

Most SMEs are still at the early stages of their green transition. While awareness is increasing, most have yet to take concrete actions to increase knowledge and capabilities. In the UK, 53% are not ready to prioritise decarbonisation.2

Many SMEs implement basic solutions, such as installing light sensors, but fewer undertake more advanced measures, like eco-design or zero waste business models.3 We must strengthen the SME business case for greening and step up operational guidance.

Access to finance ranks high among the challenges entrepreneurs face in the journey to net zero.

Sustainable finance to unlock SME greening

Access to finance ranks high among the challenges entrepreneurs face in the journey to net zero. They are less able than larger firms to absorb up-front costs of developing green products or investments, where benefits take time to materialise. 

With less than 3% of funds currently devoted to SME greening, national recovery packages won’t address the gaps in financing SMEs for sustainability.4 A range of instruments5 and incentives – including grants, debt, equity and tax incentives – is needed for SMEs in different sectors and contexts. We also need to build knowledge and skills for SME compliance with environmental, social and governance (ESG) requirements.

Mobilising international co-operation

Governments, public and private financial institutions can learn from each other about designing and implementing financial and non-financial services for SME sustainability. International knowledge sharing initiatives like the OECD Platform on Financing SMEs for Sustainability6 can help catalyse good practices. Without the full engagement of smaller businesses, climate commitments will not be met. Together, we can unleash their potential to drive action locally, nationally and globally.

Explore OECD work on Financing SMEs for Sustainability here: www.oecd.org/cfe/smes/financing-smes-sustainability.htm

[1] OECD (2021), “No net zero without SMEs: Exploring the key issues for greening SMEs and green entrepreneurship”, https://doi.org/10.1787/bab63915-en.
[2] British Business Bank (2021), Smaller businesses and the transition to net zero.
[4] Business Development Bank of Canada (2021), A transformation in progress: How Canadian entrepreneurs are taking on the environmental challenge.
[5] OECD (forthcoming), Financing SMEs and Entrepreneurs 2022: An OECD Scoreboard, OECD Publishing, Paris.
[6] G20/OECD High-Level Principles on SME Financing, https://www.oecd.org/finance/G20-OECD-High-Level-Principles-on-SME-Financing.pdf.

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