Recent Release | 10 Nov 2022

The Climate Impact of SMEs: Evidence from the UK and South Africa

Economic Consulting Team

Oxford Economics

Small and medium-sized enterprises (SMEs) play a critical role in economies around the world, contributing significantly to countries’ gross domestic product (GDP) and employing large numbers of people. This activity also has environmental implications as firms generate emissions and consume resources. There will therefore be a significant role for SMEs as countries seek to reduce their emissions and broader environmental impacts.

Sage and ICC, in commissioning this work, have called attention to both the critical role SMEs play in reducing the climate impact of the economy, and the particular set of challenges that they face. The effects of environmental impact, with climate change amongst the foremost, are already being felt at a global scale today, and are forecasted to intensify in the coming decades.

Addressing these vastly complex and dynamic issues will require contributions from all sections of society. This report has presented evidence explicitly highlighting the significant climate impact of SMEs and therefore their substantial capacity in enabling countries to meet their societal environmental targets, including countries’ nationally determined contributions under the Paris Agreement. However, this impact has not yet been accounted for and SMEs will need further support to achieve their potential.

Unsurprisingly, many of the challenges faced by SMEs are ultimately a function of their small size. This is exacerbated by their limited access to resources, data and expertise compared to larger companies which are more readily able to act on climate ambitions once targets are agreed. Despite their best intentions it would not be reasonable or feasible to expect SMEs to act in the same way as large companies in regard to addressing their environmental footprint. The smaller the SME, the more challenging and relatively expensive (as a proportion of revenue) it can be to identify and progress towards realistic environmental targets.

Similarly, the diversity amongst SMEs – in terms of size and activity – means that a “one-size-fits-all” approach to SME sustainability is unlikely to be appropriate. Support is available, including from technological solutions and government policy, but must go further in considering the specific context of SME’s. Digitisation appears to be an effective mean to addressing many of the SME-specific challenges and in facilitating their climate impact reduction activities.

This study has identified the scale of impact SMEs have using available datasets and economic modelling of business and supply chain activity. It has also collected information directly from SME stakeholders to better understand their experiences via a broad survey and more focused case studies. While informative in and of itself, the fundamental value in generating this evidence is to help point the direction for support to facilitate SMEs in reducing their environmental impact, with digital tools and government policy amongst the most important sources of this support. In general, this support should seek to address the following key themes:

• Improved data solutions to build understanding of individual SME environmental impact.
• Government support via guidance and resources including funding for achieving environmental targets.
• Technological facilitation of access to practical information, such as via knowledge sharing on what others have done.
• Create connections to expertise and support to address specific challenges and innovations for SMEs in different sectors.
• Simplify ability to act collectively via technological support for networks, for example to influence supply chains.

Jake Kuyer

Associate Director, Economics & Sustainability

Matthew Tinsley

Lead Economist, Economics & Sustainability

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