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Two Steps Forward

Net zero’s big challenge for small business

While the big guys have their consultants and advisers — not to mention Wall Street-caliber budgets — smaller firms are mostly left to their own scrappy devices.

Small business - Big business


Small may be beautiful when it comes to planetary impact but not necessarily when it comes to reducing those impacts. For a small or midsize company, the journey to net zero can be nearly as difficult as for the world’s largest companies.

The opportunity itself is no small thing. There are nearly 32 million small and midsize businesses in the United States — SMEs for short — defined as those with fewer than 500 employees, according to the U.S Small Business Administration. Together, they employ nearly half — 47.1 percent — of American workers. (True, those stats are from 2020, so there has been some pandemic-related carnage yet to be measured, but it’s still a large number.) Globally, the World Bank estimates that as many as 90 percent of all businesses are SMEs, which it defines as those with up to 250 employees.

And while the big guys have their PwCs and ERMs and 1,001 other consultants and advisers — not to mention Wall Street-caliber budgets — smaller firms are mostly left to their own scrappy devices, taking on net-zero commitments with few if any resources. Or, for some, not taking on those commitments, paralyzed by the challenges of doing so.

As the world moves toward meeting the net-zero targets set by the Paris Agreement, the role of SMEs is gaining increasingly more attention.

As the world moves toward meeting the net-zero targets set by the Paris Agreement, the role of SMEs is gaining increasingly more attention. And because many of these firms are part of the supply chains — or customer base — of their much larger corporate brethren, there’s a role for bigger firms to help smaller ones reduce their individual and collective footprint.

The path to net zero for smaller firms may seem easy, but it’s not. On the one hand, most have a modest physical footprint, short supply chains, few employees to commute and travel and so on. That makes addressing net zero seemingly simple.

But SMEs typically don’t own their facilities or, in some cases, pay their own energy bills, making efficiency upgrades difficult. They may contract out manufacturing and other key functions. They are far less likely to have dedicated staff to deploy on environmental issues, at least beyond compliance-related matters, making net zero someone’s extracurricular activity. And SMEs lack the buying power that can help drive down the cost of such things as renewable energy or alternative packaging materials.

Another challenge is educating these entrepreneurs on how to set and achieve sustainability goals. Consider: Google "small business" and "climate change" and you are overwhelmed with more than 9 million hits, as of this past weekend, and a hodgepodge of articles and tips. A search for "small business" and "net zero" yields a seemingly more manageable list — a mere 644,000 hits.

Most of those hits focus on the things you’d expect: buy green energy; drive EVs; upgrade energy-using equipment; decrease business travel; reduce office waste; turn off lights; plant trees; adjust thermostats; reduce food waste; educate employees.

What, not how

All good. But not good enough. These laundry lists — some comprehensive, others far less so — tell SMEs what to do, but don’t show how to do it. As a result, SME owners can find themselves overwhelmed and confused about where to start and what to prioritize. No wonder sustainability often gets pushed down the to-do list, or dropped altogether.

That’s changing. A small but growing library of resources is aimed at helping smaller companies get from here to zero.

This month, for example, Moody’s launched a tool that provides estimates of environmental, social, governance, carbon emissions footprint, transition and physical risk management scores for any company, including SMEs.

Moody’s ESG Score Predictor "leverages state-of-the-art advanced analytics to provide 56 ESG scores and subscores for any given company using location, sector and size," according to its website. The model incorporates such factors as a company’s assets, employees and geography, including "regional-level drivers, such as economic, social, natural and human capital indicators in the location where a company operates." A detailed methodology can be found here.

True, this is another "what to do," not "how to do it" resource, but the level of detail the tool seems to offer can help business owners drill down more quickly from the generic to the specific.

Another useful resource is the SME Climate Hub, launched last fall by the We Mean Business Coalition, the International Chamber of Commerce, the Exponential Roadmap Initiative and the Race to Zero Campaign.

"The idea behind it is to be that one-stop shop, that all-encompassing place to make a credible climate commitment that's aligned with the science and meets what the scientists are saying are the minimum requirements," explained Dean Cambridge, director of corporate net zero at We Mean Business, during a webinar I moderated last week. "And then to move from that ambition-setting piece to the action to deliver on that commitment." The webinar was hosted by the nonprofit Climate Collaborative, a five-year-old organization working with around 700 companies primarily in the natural products industry "to be a catalyst for bold climate action," as Nancy Hirshberg, one of its founders, explained. Most of those companies are SMEs. (Note: I’m an unpaid adviser to the collaborative.)

The SME hub delves more into the "how" and "why" of net zero than most other resources I’ve seen. Of particular note is the 1.5°C Business Playbook, a compact, 32-page downloadable PDF that takes SMEs through the process of establishing a climate strategy, defining targets, setting requirements for suppliers and "aligning value propositions with a 1.5-degree and net-zero ambition."

An early user of the hub is Numi Organic Tea, a privately held firm with just under 50 employees. In last week’s webinar, Jane Franch, Numi’s vice president of strategic sourcing and sustainability, described her firm’s net-zero journey. Like many smaller firms, Numi’s Scope 1 and 2 emissions — its energy purchases and use — are relatively small, with the lion’s share residing in its supply chain — Scope 3, in sustainability speak.

As it began to measure its footprint, one thing the company discovered is that some of its biggest impacts were not what it had expected.

"We really could have spent a lot of time investing in farming methodologies when, in fact, our supply partners are doing really well there," Franch explained. "They actually need support on processing equipment and how to transition these pieces of machinery." One supplier farm, in South Africa, used a tobacco cutter dating from the 1950s that ran on diesel. It needed to be upgraded to be more efficient and less polluting.

"Those are the kinds of challenges that we're facing and that we unearthed through the measurement process," she said.

Mentoring, B-to-B style

Bigger companies can play a role in helping to mentor SMEs on climate issues, as members of the Climate Collaborative have shown. For example, there’s United Natural Foods Inc., better known as UNFI, North America's largest publicly traded wholesale food distributor, with about 19,000 employees and sales "in the $27 billion range," according to Nate Lapides, the company’s climate program manager. It sources from around 10,000 suppliers and distributes to 15,000 markets, including being the main supplier to Whole Foods.

"We know we have to do a better job engaging with our supply chain on climate," Lapides said in last week’s webinar. "It's a delicate balance for us. We have to try to provide some information but also provide the best opportunities that already exist so that we're not duplicating efforts and we're really amplifying the work that is already happening." The company will soon roll out its own Climate Action Hub, bringing together the best resources, as part of its supplier and customer engagement.

The idea of business-to-business environmental mentoring isn’t new (I wrote a handbook on the topic more than 20 years ago), but it remains an underused resource. Can big companies play a catalytic role in helping smaller firms — their customers, suppliers and neighbors — achieve net zero? It’s an open question but one that needs far more exploration if the business world is to fully address its contributions to the climate crisis.

If only the big guys take the net-zero plunge — and there’s a long way to go before even that happens — we’ll risk leaving behind the overwhelming majority of companies. That would be a lost opportunity — for small businesses, of course, but also for larger ones, not to mention the planet.

I invite you to follow me on Twitter, subscribe to my Monday morning newsletter, GreenBuzz, from which this was reprinted, and listen to GreenBiz 350, my weekly podcast, co-hosted with Heather Clancy.

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