Sage and the International Chamber of Commerce (ICC) have released a new report analysing the global green finance opportunities for SMEs (small and medium-sized enterprises). The research finds that $789 billion in green finance presently remains untapped, despite SMEs saying that environmental action is important to their business.
The researchers suggest that despite this vast potential, a significant gap exists between SMEs’ sustainability ambitions and their ability to secure funding for green initiatives, with less than 3% of these businesses applying for sustainability-related finance.
Whilst almost 9 in 10 SMEs surveyed in the report (86%) said that sustainability is important to their business, fewer than 1 in 10 (9.1%) formally report on their impact. The issue is that even though 73% of banks want to offer green finance to small businesses, they require SMEs to report on emissions data to measure returns, with 84% of financial institutions saying that data challenges are a huge barrier to offering green loans. Further hurdles preventing SMEs from unlocking green finance include complex application processes and stringent reporting standards.
The research authors describe what they term a “virtuous circle” between sustainability reporting, green finance and climate action, whereby SMEs that report on their environmental impact are subsequently more likely to secure funding towards achieving sustainability, which in turn helps them take further steps towards net-zero. Currently, however, only 1.2% of SMEs are leveraging this virtuous circle to grow sustainably.
Surinder Sond, Executive Vice President of Sustainability & Society at Sage said: “For years, we’ve been championing the tools SMEs need to embrace sustainability. This report’s ‘virtuous circle’ offers a powerful way forward to build prosperous businesses and sustainable communities—through simplified reporting and accessible finance enabling climate action.”[i]
Given that SMEs account for more than 90% of businesses and over 50% of employment worldwide, supporting them on their sustainability journey is crucial. Presently 89% of those SMEs currently using green finance say it is vital to their sustainability goals, but only 2.8% of SMEs have applied for it in the last three years. To help SMEs, Sage and the ICC recommend the following:
· Simplify sustainability reporting – Implement proportionate and streamlined reporting standards tailored to SMEs, making it easier for them to access green finance.
· Expand access to digital tools – Equip SMEs with affordable, automated tools to track emissions and streamline reporting.
· Increase financial incentives – Offer tax credits, grants, and favourable loan terms to motivate SMEs to measure their environmental impacts and invest in sustainable practices.
John W.H. Denton AO, Secretary General at ICC added: “We believe that SMEs are a crucial, and often overlooked, community in conversations about net-zero. We strongly support the report’s call for simplified, standardised sustainability reporting and the development of accessible digital tools to help them get started on their sustainability journey.”[ii]
[i] Sage report reveals $789 billion green finance opportunity for SMEs
[ii] Ibid
Lauren has extensive experience as an analyst and market researcher in the digital technology and travel sectors. She has a background in researching and forecasting emerging technologies, with a particular passion for the Videogames and eSports industries. She joined the Critical Information Group as Head of Reports and Market Research at GRC World Forums, and leads the content and data research team at the Zero Carbon Academy. “What drew me to the academy is the opportunity to add content and commentary around sustainability across a wealth of industries and sectors.”
