Summary.    To reach the global climate goal of halving emissions by 2030, we can’t leave behind small-to-medium-sized enterprises (SMEs). But helping them will require collaboration and support from the large corporations that are often SME’s most important...

An individual small business has a relatively small carbon footprint. But together, these businesses have a huge impact — both on the planet and on the communities in which they operate. What’s more, many of the key innovations that will enable businesses and consumers to cut their emissions will almost certainly be developed by small businesses. To reach the global climate goal of halving emissions by 2030, we can’t leave behind small-to-medium-sized enterprises (SMEs). But helping them will require collaboration and support from the large corporations that are often SME’s most important clients.

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 cutting their emissions. The survey found that small businesses are stepping up in the fight against climate change, but often lack the resources needed to invest in their journey to net zero. These businesses are making efforts to cut their greenhouse gas emissions through actions like reducing energy consumption and waste (82%), employee education (64%), and upgrades to facilities and equipment (52%), but more than two-thirds of the surveyed businesses cited a lack of resources as a barrier preventing them from going far enough — or from taking action at all.

Big business has an interest in helping SMEs succeed in their climate transformation. First, incentivizing SMEs to measure and cut their emissions allows big corporate players to create more resilient supply chains. As climate related disasters and other risks such as pandemics become increasingly common, building resilient businesses has never been more important. Ernst and Young recently found that the pandemic caused serious disruptions to 57% of supply chains. When small business suppliers struggle, larger operations falter too.

What’s more, most of a large corporation’s greenhouse gas emissions come from their supply chains. In fact, supply chain emissions are on average over 11 times higher than the emissions produced within a corporation’s own walls, according to CDP.

So how can big business help? As a first step, they can direct 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 get started. The SME Climate Hub partners with the 1.5°C Supply Chain Leaders, a group of multinationals including IKEA, Unilever, Telia, Ericsson, Mastercard and BT, that work together to drive climate action throughout global supply chains.

For example, Swedish telecommunications giant Ericsson called on 350 of its high emitting suppliers to set their own 1.5°C aligned climate targets, halving greenhouse gas emissions by 2030, and publicly reporting on their progress yearly. Microsoft — another member of the initiative — now requires its suppliers to disclose consistent and accurate emissions data across their operations, power use and value chains (so-called Scope 1, 2, and 3 emissions). And increasingly, large corporations are setting sustainability procurement requirements, signaling the value SMEs will need to place on emissions reduction. As of 2021, BT included a clause in commercial contracts with 12 of its key suppliers that commits them to reduce carbon emissions over the term of the contract.

Large businesses can also provide business advantages and financial support to their SME suppliers, incentivizing them  to take climate action. Nearly half of surveyed businesses cited a lack of external funds as a barrier to reducing their emissions faster. Climate action can have short-term cost saving benefits, and allow for long-term business resilience, but the upfront costs and effort required to innovate in certain areas can be considerable. Gucci is doing this by supporting SMEs in its supply chain to access loans at favorable terms and conditions if the supplier improves the sustainability of its operations. IKEA, for example, offers SMEs in its supply chain support to convert to 100% renewable energy through financing on-site investments and enabling the purchase of renewable electricity.

If the corporate world is serious about halving emissions by 2030, then large businesses will need to activate both their suppliers and customers across size, industry and region. The 2,000+ companies now working towards science-based emissions reduction targets for example are committed to reducing their Scope 3 emissions. But the reality is that many SMEs – especially the smaller ones – need support to cut their own emissions at the pace necessary to meet global climate goals. We urge large companies and their SME suppliers to work together on cutting emissions. Unprecedented collaboration will be needed to secure a livable planet for future generations.