Report: $100trn needed to get global supply chains to net-zero and up to half must go to SMEs
Up to half of the estimated $100trn investment needed to get global supply chains to net-zero by 2050 will need to go to SMEs, a new analysis from HSBC and Boston Consulting Group has concluded.
The final report from the joint research on delivering net-zero supply chains states that SMEs globally will need at least $25trn and as much as $50trn of combined investment in decarbonising operations and supply chains. This figure combines public and private investment.
It states that, while corporates often have complex, multinational supply chains and will be more likely than SMEs to have made sizeable historic investments in high-carbon technologies, SMEs will need significant support too, as they typically have less in-house climate expertise and more limited access to capital for decarbonisation.
While large corporates are generally moving to mandate new standards of their supplier base, the report warns that they must back these requirements with co-investment and knowledge and resource-sharing, lest they risk missing goals and passing the problem suppliers on to other businesses. Technology incubation and roll-outs are also important next steps.
With this in mind – and accounting for the fact that, in many developed economies including the UK, SMEs account for more than 90% of the total number of businesses – the report calls for more support from Governments and from private finance targeted at SMEs wishing to make the net-zero transition.
Governments can play a role, the report states, by increasing climate disclosure requirements for businesses of all sizes and sectors and supporting SMEs to meet these mandates. Here in the UK, the Government has confirmed this week that large firms will need to report in line with the recommendations of the Task Force on Climate-Related Disclosures (TCFD) from next year, with a rollout to smaller firms set to begin from 2025.
Governments should also, the report recommends, offer clear incentive programmes and practical resources for SMEs, and ensure that the approach is joined-up between government departments and in relations with regions, states and cities.
“A historic lack of consistency in policies, standards and market practices has resulted in businesses being held to ever-changing requirements by their partners – driving up complexity and cost,” the report summarises. “Momentum in delivering consistency needs accelerating. Supply chains across national borders and need policies that hold all to a high but workable common standard.”
The report then acknowledges that the bulk of the finance needed is likely to come from the private sector rather than government coffers. As well as ring-fencing funding to finance the net-zero transition in general, they can develop targeted products to support SMEs and partner with clients to lower the cost of borrowing, and/or use syndication to the same ends. They can also use their “wealth of” data to help create “comparable and consistent” sustainability metrics.
As for businesses themselves, the report urges them to think beyond the need to optimise existing ‘business-as-usual’ practices and to prepare for product redesign, upskilling and reskilling and greater collaboration. This is particularly key for large businesses with in-house capacity, who can then pass these learnings on to SMEs in the supply chain.
The majority (76%) of the survey respondents’ businesses are yet to implement comprehensive decarbonisation strategies. Key challenges include a lack of knowledge around what net-zero will mean for them, limited finance and resources.
The report from the British Business Bank echoes findings from similar surveys by organisations including O2 and the British Chamber of Commerce, Lloyds Banking Group and the Zero Carbon Business Partnership.