SMEs require US$50 trillion investment to meet global net-zero transition goals
SMEs require US$50 trillion investment to meet global net-zero transition goals
Up to half of the estimated US$100 trillion investment needed to deliver net-zero supply chains will have to be directed towards small and medium enterprises (SMEs) – highlighting the need for a new front in the battle to combat climate change, according to new research published today by HSBC and Boston Consulting Group (BCG).
The research “Delivering Net Zero Supply Chains” calculated that as much as US$25-50 trillion is needed by SMEs globally but that this sector-focus adds additional layers of complexity to the climate challenge, with SMEs typically having less in-house climate expertise, and more limited access to capital to drive and fund climate transformation.
The research found that addressing these issues will go beyond giving SMEs incentives to work collaboratively to marshal technology, resources and know-how and turn them into real-world action. The bigger challenge might also be the need for wholesale changes in product, business models and organisational culture. As a result, supply chains are seen as key – given the interdependency of firms and the need for a holistic economy-wide transition.
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The research identified a need for a ‘leadership crucible’ involving multiple actors. It found large corporates cannot just mandate new standards and ‘demand more’ of their suppliers as this would lead to limited progress and missed goals. Rather, they will need to co-invest and provide liquidity through supply chain finance, share transition knowledge and resources, and help propagate innovation and technologies across supply chains to reach scale.
Governments will need to establish incentives to rebalance the economic equation or mandate change via policies in areas such as disclosure while ensuring cross-jurisdictional alignment. Industry bodies and NGOs will need to disseminate knowledge and resources, lobby for change - using their field-expertise to support suppliers and inform development of industry standards. And, consumers will need to accept compromise in price, form or function and vote with their feet, even if that means changing habits.
Banks will be uniquely positioned to support clients big and small. They can ring-fence funding to finance the transition and use their wealth of data and experience to predict impactful projects and inform net-zero risk-management considerations. Additionally, they can partner with clients on sustainable supply chain finance programmes to lower the cost of borrowing for SMEs, and while they can continue to facilitate investment through capital markets and syndication, they will also need to partner more with governments and development banks on public-private-partnerships (PPPs) to be able to fund more.
Commenting on the findings, Natalie Blyth, HSBC’s Global Head of Trade and Receivables Finance, said: “Despite the positivity of increasing numbers of large corporates making net zero commitments, the reality is that delivering on ‘Scope 3’ emissions will be extremely challenging unless urgent action to support SMEs is taken now. This report highlights the need for a new front in the battle to combat climate change and to build coalitions, break-down barriers across supply chains and stakeholder groups, and transition supply chains holistically.”
The research was based on an in-depth study of the automobile and textiles sectors since they represent two ends of the supply chain spectrum. While levers vary from one sector to the next, seven principles recommended by the report seem to apply to all as a roadmap to move towards emissions-free supply chains: rethink product design, embrace collaboration, build the capabilities needed for change, invest in climate tech, develop better data structures, think about policy and standards holistically, enable financing.
