Smoothing the way for small and medium-sized businesses to set science-based climate targets

20th Apr 2020

A new, streamlined route will enable SMEs to grasp the benefits that climate action offers for their business

Small- and medium-sized enterprises (SMEs) will play a critical role in the global response to climate change. According to the World Bank , they make up about 90% of businesses and account for 50% of employment worldwide. There is an acute awareness of the risks they face from climate change , and growing interest in the opportunities presented by taking climate action.

As SMEs start responding to climate change, a growing number are turning to the Science Based Targets initiative (SBTi) to demonstrate their commitment to reducing emissions, and to get help with setting robust, credible targets that are in line with climate science. But many SMEs remain concerned that they lack the skills or capacity to set these targets.

In response, the SBTi – a partnership between CDP, the UN Global Compact, World Resources Institute and WWF – is introducing a new, streamlined target-setting route for small and medium-sized companies. But before explaining these changes, it is worth exploring the case for SMEs to take action on climate change.

The whole economy needs to act

Much public and regulatory pressure is being exerted on the world’s largest emitters – who are, after all, the most responsible for driving climate change. However, halting the climate crisis will require action from every individual and enterprise. Meeting economy-wide net-zero emissions targets – such as that adopted by the EU, several US states, and jurisdictions responsible for almost half of global GDP – will require all companies to play their part.

Given that around half the global workforce is employed by SMEs, they have the power to reinforce the message that climate change is everyone’s responsibility.

Cutting carbon can also cut costs

There are costs involved in measuring, monitoring and managing carbon emissions. But the financial opportunities of reducing emissions are clear.

Energy efficiency improvements can deliver attractive returns on investment. Renewable energy can increasingly be purchased for the same price as brown energy, or less. Electric vehicles can deliver lower lifetime costs than fossil-fuelled fleets. Investments that reduce emissions can avoid higher costs from increasingly stringent climate policies.

Larger companies expect their suppliers to take action

A growing number of large companies are setting ambitious climate targets. Many of these include commitments to reduce ‘Scope 3’ emissions – those emissions produced across their value chain. Such commitments are finding their way into procurement processes and requests for proposals; purchasers are requiring suppliers to deliver the same goods or services with lower associated emissions and are expecting them to match their climate ambitions.

Large companies are also looking for evidence that their suppliers will be resilient in the face of climate change and are proactively addressing their risks from changes in markets and regulatory landscapes.

How the SBTi can help SMEs

The SBTi is a powerful ally for companies who are seeking to integrate robust climate targets into their business strategy. The process for companies typically involves committing to set a science-based target, developing a target within 24 months, and submitting that target for approval to the SBTi’s target validation process.

The full target validation process – which remains a requirement for companies with more than 500 employees – guarantees the robustness of companies’ targets and also provides them with some flexibility in how they construct their individual targets. However, aligning a company’s initial plans with the requirements for SBTi validation can be an iterative and relatively resource-intensive process, for which smaller companies often lack capacity.

To address this barrier faced by small and mid-sized companies, the SBTi is introducing a streamlined route to approved SBTs for SMEs. The short target-setting letter simplifies the process, giving SMEs the choice of two targets (aligned with well-below 2°C of warming, or below 1.5°C).

Crucially, the new target-setting route for SMEs also imposes less intensive requirements around Scope 3 emissions. Committing to reduce emissions from the value chain is extremely important. However, setting quantified targets to reduce Scope 3 emissions and monitoring progress against them requires elaborate data collection and analysis that often goes beyond the resources available to smaller companies.

So, under the new approach, SMEs will be required to commit to measure and reduce these emissions, without a strict requirement to set quantified targets. We believe this strikes the right balance between SMEs taking account of the emissions across their value chains, without imposing too great a burden on smaller teams.

We hope that this new streamlined route will enable SMEs to grasp the benefits that climate action offers for their business, without placing an additional strain on their teams at this challenging time.