SMEs need up to US$50t to meet net-zero transition goals: study

GLOBALLY, small and medium-sized enterprises (SMEs) would require between US$25 trillion and US$50 trillion to decarbonise and deliver net zero supply chains, according to new research from HSBC and Boston Consulting Group (BCG) released on Friday (Oct 29).

The research highlighted a 7-step roadmap for transition to net zero supply chains. The steps are to rethink product design, embrace collaboration, build the capabilities needed for change, invest in climate technology, develop better data structures, think about policy and standards holistically, and lastly to enable financing.

However, the sector focus adds additional layers of complexity, as SMEs typically have less in-house climate expertise and limited access to capital to drive and fund climate transformation.

Addressing these issues goes beyond working collaboratively to coordinate technology, resources and know-hows into real world action, the report noted.

"The bigger challenge might also be the need for wholesale changes in product, business models and organisational culture. As a result, supply chains are seen as key, given the interdependency of firms and the need for a holistic economy-wide transition," the press statement said.

A "leadership crucible" involving large corporates, governments, industry bodies, non-governmental organisations (NGOs), consumers and banks is needed, the research observed.

Large corporates will need to co-invest and provide liquidity through supply chain finance, share transition knowledge and resources, and help propagate innovation and technologies across supply chains to reach scale.

Governments will need to establish incentives or mandate change via policies, while industry bodies and NGOs will need to disseminate knowledge and resources, lobby for change and inform development of industry standards.

Consumers will need to accept compromises in price, form or function, and "vote with their feet". Banks, which are "uniquely positioned" to help both big and small clients, can ring-fence funding to finance the transition as well as use their data and experience to predict impactful projects and inform net-zero management considerations, the research pointed out.

"We cannot reach climate goals without transforming SMEs, and this report offers a road map for that transformation. Forward thinking governments, industries and companies will have an eye on the economic opportunity that exists for those who can inspire and incentivise, and lead the charge from ambition to action," said managing director and senior partner of BCG, Sukand Ramachandram.

Global head of trade and receivables finance at HSBC, Natalie Blyth, said that despite positive signs of more large corporates making net zero commitments, delivering on the "Scope 3" category of greenhouse gas emissions will be "extremely challenging", unless urgent action is taken to support SMEs.

"This report highlights the need for a new front in the battle to combat climate change and to build coalitions, break down barriers across supply chains and stakeholder groups, and transition supply chains holistically," added Blyth.

Read more:

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