A lot has been made of large organisations reducing their carbon footprints, but Frederik Dahlmann argues it would also be sensible for SMEs to follow in their footsteps.
Ever since the inception of the Carbon Disclosure Project (now simply CDP) in the early 2000s, large institutional investors have been using the CDP’s annual survey to request detailed information on large companies’ responses to the strategic challenge of climate change.
In particular, companies were asked to disclose their assessments of the risks and opportunities arising from climate change legislation, shifting customer demand and physical impacts from the changing environment.
More importantly, for the first time in history, the CDP gave corporations that were not already legally mandated the opportunity to begin the process of voluntarily and systematically accounting for and reporting their data on greenhouse gas emissions in line with the global greenhouse gas protocol. Since then the number of global firms annually reporting has increased to more than 5,500.
Why should SMEs reduce their carbon footprint?
Such activities, however, appear remote for small and medium sized enterprises whose ownership structure, public visibility, financial and other resources may limit, if not completely prohibit, any engagement with climate change issues.
Yet at the same time, the potential benefits from proactive efforts on their behalf may provide valuable benefits. First, while the CDP actively targets large, publically owned companies, since 2010 it has also begun to target firms’ wider supply chains with a very similar annual survey.
The aim is to encourage companies to engage with their buyers and customers to address carbon footprints across the supply and value chains. As part of Scope 3 emissions, these emissions caused by the wider networks of supply chains are increasingly becoming a key concern for large corporations keen to implement change beyond the company’s organisational boundaries.
Any small or medium sized firm engaging with this process now and supplying larger customers can, therefore, demonstrate proactive commitment. In a world where supply chain relationships increasingly go beyond simple costs factors, SMEs are therefore at a competitive advantage in the tender selection and contracting process if they can show how they are reducing their emissions as well.
Second, even for firms not directly supplying B2B buyers, the simple engagement with carbon footprints may result in unexpected benefits.
The first step, however, requires SMEs to initiate the process of accounting for their emissions. Depending on their organisational complexity, this may require upfront commitments in terms of time, staff resources, and costs when external advice, auditing and certification are sought.
What can SMEs do to reduce their carbon footprint?
Once the process has started, however, a clear picture of the major direct and indirect sources of emissions emerges: do they come from on-site combustion processes, the use of fuel oils, and/or from the purchase of electricity?
As SMEs begin to understand the impact their firm is having on the environment, they can then start the process of looking for alternatives and improvements.
More efficient technologies and operating processes may be available, in which case grants, subsidies or other forms of financial support may exist.
Is the company using standard electricity contracts or may renewable supply contracts help with reducing emissions? Are there opportunities for generating electricity from renewable energies on site?
There may well be trade-offs and a need for more long-term strategic and financial planning but in a world committed through the Paris Agreement to reduce global emissions below a 2C degree threshold, legislation, regulations and wider societal expectations are unlikely going to disappear.
What are the benefits in reducing carbon footprint for SMEs?
Finally, beyond the operational and financial benefits, SMEs engaging in active efforts to reduce their CO2 emissions should also seek to highlight their plans (and hopefully achievements) to customers, owners and the local community.
While much of these benefits may appear intangible at first, their engagement should over time increase goodwill, positive perceptions and potentially wider network effects.
These may materialise in form of business model and technological innovations, improved staff recruitment and retention, more repeat customer business, and possibly even reduced insurance premiums.
At the very least, SMEs can be sure they are collectively contributing their bit towards a global challenge that can only be addressed if everyone plays their part.
Fred Dahlmann teaches Sustainability and Business Implementation on the Full-time MBA.