Last week, the Transition Plan Taskforce (TPT) launched a paper authored by Bankers for Net Zero (B4NZ) as part of our chairing the SME Advisory Group to the TPT. 

The report, titled ‘Considerations on SMEs and Transition Plans’ explored the challenges and opportunities of transition plans for SMEs and how future guidance can be developed to allow small businesses to effectively communicate their climate action plans and champion progress towards a climate-resilient future. 

This report gathers a wide range of perspectives, as numerous organisations participated in this process, as well as our Advisory Group members. The SME Advisory Group to the Transition Plan Taskforce, chaired by B4NZ, was set up in July 2023 to consider proportionate sustainability reporting and transition planning activities for SMEs. The working group brought together participants across finance, industry, civil society, Government and regulation to develop guiding principles towards future transition guidance for SMEs. 

The current situation for SME transition planning  

With more than 5.5 million SMEs in the UK, constituting over 99% of private sector businesses in the country, SMEs are at the core of the UK economy. Mobilising SMEs for climate action is crucial at this moment to ensure a fair and robust transition to net zero. Nevertheless, SMEs still face considerable challenges when it comes to implementing net zero initiatives within their organisations. These hurdles include a lack of information and awareness regarding available opportunities, regulatory barriers, and restricted access to networks, knowledge, and financial resources. 

Recommendations to Government, Industry, and SMEs, on the challenges and opportunities of transition plans for SMEs 

As SMEs may anticipate receiving transition plan requests from their banks and buyers in the future, there is a need for them to start navigating and understanding climate requests. Early preparation of transition plans can enable SMEs, particularly those particularly vulnerable to climate-related transition and physical risks, to fulfill the rising demand from stakeholders to showcase decarbonisation progress. Additionally, it positions them to capitalise on new market opportunities emerging from the global transition towards a low-carbon economy. 

Develop a standard framework for reporting GHG emissions for SMEs 

Without dominant frameworks for SME emissions reporting, there is no consistent approach to collecting, measuring, and storing data and no common process for SMEs to report GHG emissions. Larger disclosure standards were developed to account for national and international issues and were modelled after the needs and resources of large companies, not small ones. Disclosure requirements are therefore often complex and disproportionate to each SME’s size and sector.   

The government should engage with standard setters and industry coalitions, like B4NZ, to establish a market-wide carbon reporting framework for SMEs. The establishment of these standards should prioritise proportionality, ensuring that requests are manageable for businesses with limited resources to fulfil; consistency, achieved by clearly defining and simplifying key terms, topics, and metrics across the reporting framework; and materiality, by offering clear guidelines to identify significant topics and metrics for SME reporting. 

Support capacity building for SMEs  

Currently, many SMEs are not aware that they may be expected to produce a transition plan for business partners or regulators, nor are they aware of the impact and value that the transition planning process could bring to their organisation. 

Banks and buyers can leverage existing customer and supply chain relationships to ensure incentives and information reach SMEs as well as provide access to high-quality, reliable transition information.  

Additionally, governments and industry coalitions must champion capacity building through the development of an SME transition plan resource Hub. This initiative should enhance existing industry efforts such as the Broadway Initiative’s UK Carbon Business Hub and SME Climate Hub, aiming to establish a readily accessible index of the most valuable transition planning resources available at no cost. 

As SMEs may continue to face increasing transition plan and emissions disclosure requests from their banks and buyers, it is critical to ensure that trustworthy, credible transition planning resources are available for SMEs access and develop their own climate strategies. 

The Government should work with lenders and investors to develop standardised transition plan disclosure requests from the Government, investors and lenders 

SMEs face irregular demands for climate metrics and transition or carbon reduction plans from banking partners or corporate buyers, who are mandated to report on their Scope 3 emissions. To aid companies in the early stages of developing transition plans, we propose that the Government forms a specialised task force comprising industry coalitions, corporations, and standard setters. This task force would focus on standardising appropriate disclosure requests for SMEs’ transition plans. Leveraging the TPT Disclosure Framework as a foundation, this coalition would collaborate to establish proportionate transition planning principles and disclosures. This effort aims to help SMEs meet transition planning requirements effectively while ensuring consistency across the market. 

SMEs must prioritise engagement with peers and local networks 

Geography in the UK can influence incentives and challenges for SMEs, with regions like Scotland offering more viable opportunities due to developed clean energy infrastructure. Motivations for decarbonisation vary based on SME size and sector, with some industries finding it financially challenging to adopt transition practices. Therefore, it is crucial for SMEs to engage with trade associations, and membership groups.  

SMEs can use the three principles of ‘Ambition’, ‘Action’ and ‘Accountability’ to frame an SME’s understanding of their own transition journey. 

SMEs can begin by leveraging the TPT’s three guiding principles for developing and disclosing transition plans. These principles encompass “Ambition,” outlining objectives and decarbonisation priorities, “Action,” translating ambition into concrete short-term initiatives, and “Accountability,” ensuring plan delivery through robust governance and reporting mechanisms. SMEs can improve their plans, and foster a constructive feedback loop within the ecosystem if they actively seek feedback from key stakeholders such as financial services providers, corporate buyers, and trade associations. 

SMEs can use the TPT’s ‘Strategic & Rounded Approach’ to set out their powerful roles in supporting the economy-wide transition 

This approach could assist SMEs in comprehending and conveying how they can integrate and expedite the transition process while mitigating risks and ensuring sustainable long-term value. It has the potential to illustrate to users of SME disclosures their role in the broader transition, which may not be evident solely through emissions reporting. 

SMEs can use the TPT Disclosure Framework and wider guidance as a strategic thinking tool 

SMEs can internally use the Disclosure Framework to identify relevant aspects for their business model, beyond emissions reporting, aiding their transition journey and long-term value. Additionally, the Transition Planning Cycle offers guidance for steps SMEs can take.  

Empowering SMEs: Driving Climate Action Forward 

This report has explored the challenges and opportunities surrounding transition plans for SMEs, highlighting the need for collaborative efforts from finance, industry, and governments to facilitate effective communication of climate action plans by small businesses. Urgent action is crucial to prevent the exclusion of SMEs from the net zero agenda. 

With a comprehensive net zero policy framework, the UK can leverage the innovative potential of SMEs across sectors. Private sector entities can support SMEs by providing incentives, sharing best practices, and fostering partnerships. However, meaningful progress requires government intervention to set a clear national decarbonisation roadmap, enabling SMEs to accelerate their climate initiatives. 

 

Contact 

Elena Pérez Celis,  

Head of Policy & Public Affairs  

E: elena.perezcelis@bankersfornetzero.co.uk  

T: 07522124532