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Sustainable Living Q1 2022

No small matter: the challenge of greening SMEs

iStock / Getty Images Plus / Ruslana Velychko

Lucia Cusmano

Senior Economist and Deputy Head Entrepreneurship, SME and Tourism Division
OECD Centre for Entrepreneurship, Small and Medium-sized Enterprises,
Regions and Cities (CFE)

In the quest for sustainability, we need to act quickly, as the clock is ticking on the big challenge of greening SMEs. There will be no net zero without them.

Policy makers and large businesses alike are making loud pledges and commitments to reach net zero. Yet achieving net zero targets will also require action from small businesses. For too long, policy makers have sought ways of relieving SMEs of the costs of complying with environmental rules by applying exemptions. We can no longer afford to do so. While the environmental footprint of individual SMEs may be small, they collectively account for 60-70% of industrial emissions.

The business case for greening

Greening and meeting environmental standards have a cost for SMEs, but evidence is mounting on the business – as well as the environmental – case for action.

The changing preferences of consumers, investors and business partners are creating growing markets for green products and services. Innovative SMEs and young firms are seizing on the opportunity. In the UK and Finland, for example, SMEs represent more than 90% and 70% of clean-tech companies respectively.

There are also gains to be made for more traditional SMEs to take action. Greener practices can unlock access to markets, global value chains and strategic resources, from talent to finance, which depend increasingly on environmental credentials. They can also drive down costs: improving energy efficiency in SMEs can reduce their energy demand by 10-30%. It also boosts resilience as they are less exposed to energy price volatility and uncertainty, which is a particularly vexing concern at present for many businesses.

Yet in Europe, only half of SMEs are taking action to reduce the consumption of natural resources. Too few are aware of the options – and the benefits – on offer. Even when entrepreneurs are aware of the potential to improve environmental performance for increased competitiveness, they can be held back by a lack of appropriate skills and expertise. They also face financial constraints: high up-front costs for the longer-term benefits can be off-putting for owners and financiers alike.

While the environmental footprint of individual SMEs may be small, they collectively account for 60-70% of industrial emissions.

Enabling the transition

Supporting SMEs to seize the opportunities from the green transition demands a change in perspective, from exempting to enabling. Greening SMEs means taking their needs and constraints into account upstream in regulatory processes and environmental policy.

Most important of all, SMEs and entrepreneurs need to move to centre stage in the debate. Often they are perceived as side actors or passive followers. Governments, regulators, financial institutions and all those engaged in the quest for sustainability need to act quickly to achieve net zero.

To find out more about OECD work on Greening SMEs, visit the OECD site.

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