Carbon reporting regulations are rising globally. Small businesses need to keep up.

By María Mendiluce, CEO We Mean Business Coalition and Johan Falk, CEO and Co-Founder Exponential Roadmap Initiative

The challenge to keep global warming below 1.5°C is unprecedented in scale. However, the most recent report from the Intergovernmental Panel on Climate Change (IPCC) also left no doubt that feasible, effective, and low-cost options exist to deeply reduce emissions now. It’s essential that these solutions are scaled and rapidly.

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When we discuss scale, we cannot afford to ignore the millions of small and medium sized businesses - or SMEs - that drive global economies and create the fabric of local communities. Despite their low individual carbon footprints, SMEs make up 90% of business worldwide. They supply larger companies with products and resources, which makes SMEs crucial to the efforts of major corporations to slash their overall emissions. As the nimble start-ups and tech leaders, small businesses are also on the frontline of innovating and developing solutions that enable both large companies and consumers to cut down their emissions. To halve emissions by 2030, we need small and medium sized businesses on board.
Measuring and reporting emissions is often the start of the journey for any company that aspires to be a leader on climate action. By evaluating their current emissions, companies can understand where they are causing the most harm, including hotspots like business travel, emissions from heating or electricity and those that arise from transport and shipping. Reporting is also one of the largest drivers towards action, as governments, investors and corporate customers move towards more stringent regulations and expectations.
Earlier this year, the European Union released its Corporate and Social Responsibility Directive (CSRD), which introduced more detailed reporting requirements for EU companies and non-EU companies with substantial business in the region. The new ruling applies to approximately 50,000 companies, and although SMEs are allotted additional time to meet the directive, they are already coming under pressure through the corporations they supply. Larger corporations need to report on the emissions in their value chain, so companies are expected to ask their suppliers to comply with the regulation well before the law explicitly impacts SMEs. The United States is moving in a similar direction, with climate disclosure rules proposed by the US Securities and Exchange Commission (SEC) expected to be finalized this year.
As corporate customers face increasing scrutiny over their supply chain emissions, businesses of all sizes must become more transparent. SMEs cannot be left behind in the net zero transition, or they will face enormous risk in the long term. However, they also cannot be expected to meet this challenge alone. Governments, corporations and industry associations need to support them. SMEs usually lack the time, capacity and know how to engage with complex reporting forms and guidance. A recent survey from the SME Climate Hub found smaller businesses lacked the resources and knowledge to take climate action, with 61% reporting the need for additional tools to measure and monitor emissions.

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This week, the SME Climate Hub, an initiative aimed at small business mobilization, co-founded by the We Mean Business Coalition and the Exponential Roadmap Initiative, released a new reporting tool which seeks to address this challenge. Based on the simplified disclosure framework developed by CDP, the Exponential Roadmap Initiative and Normative, the tool has been specifically designed for SMEs and enables businesses to easily report annual greenhouse gas emissions, the actions they’ve taken to reduce emissions, and the impact of their efforts.
By making it easier for SMEs to measure and report emissions, millions more businesses can start their journey to net zero and bring much needed transparency to global supply chains and networks. There are no longer excuses for businesses of any size to avoid emissions accounting. Corporations should reward their suppliers for taking action and incentivize others to follow suit. Banks and investors should assess climate performance and link lending conditions and investments to these measures. With the ecosystem’s collective support, small and medium sized businesses will be able to stand up and take action.
There is no more time to waste in the global effort to tackle climate change. It’s time to get started.
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