European SMEs significantly behind on decarbonisation

In contrast to the largest players in business, Europe’s small and medium-sized enterprises (SMEs) still have much work to do in sustainability, with only 11% having initiated a structured decarbonisation plan. That is according to a new study by consulting firm Boston Consulting Group and private equity group Argos Wityu.

Many mid-sized European companies see the value in reducing greenhouse gas (GHG) emissions and are working towards that goal. In fact, 84% of SMEs surveyed by BCG consider the reduction of emissions as ‘important’ or ‘critical’. Though a majority still see the shift as an imperative pushed by new regulation, many also see it as a promising opportunity for their businesses.

The pan-European survey included 700 mid-market companies with less than $1 billion in turnover and fewer than 1,000 employees.

As far as companies’ mindset on the reality of the big changes that will come with the climate transition, 71% saw it as an opportunity, with a mere 6% reporting they see it more as a risk.

“There is no doubt that the decarbonisation of mid-sized businesses can generate strong opportunities in all sectors. Many investors, from family offices to large institutions are willing to support these businesses in their ‘grey to green’ transition and help them become sustainable leaders,” said Simon Guichard, partner at Argos Wityu.

Despite that, only around 11% of SMEs have actually made significant investments into reduce their emissions. These investments require careful planning, which involves measuring an organisation’s carbon footprint and creating a comprehensive roadmap.

Though the top performers only account for a relatively small percentage, 27% nonetheless reported ‘strong investment’ in reducing GHG emissions and 35% reported having already measured their carbon footprints without yet taking significant action.

Part of the reason for this weak ESG action from European SMEs could stem from a failure to identify ways to capitalise on the shift towards sustainability (and to turn it into an opportunity).

In fact, the majority of respondents (70%) said that regulatory changes are their main drive in decarbonisation efforts – in other words, they are only acting because they are forced to act – with smaller numbers citing client pull and pressure from shareholders, competitors, and employees.

Financial headwinds were reported by respondents as the main obstacles to more meaningful emissions reductions. The biggest difficulty reported is reaching the needed amount of investment or difficulty in obtaining funding (57%). A close second, at 55%, is difficulty with regulatory complexity.

“Mid-market companies will need to achieve the EU’s target of reducing net greenhouse gas emissions by at least 55% by 2030. While these companies have not been the primary focus of climate policies, this study shows high awareness and enthusiasm. We now need to help them transform this willingness into structured decarbonisation plans and investments,” said Fabien Hassan of Boston Consulting Group.

Though Brussels has been experiencing some turbulence in its drive to push the European Green Deal forward, everyone is already keenly aware that major changes are coming relatively soon. In a nutshell: It’s complicated – but it appears the EU is attempting to go big with its commitments in the run up to COP28 with pretty ambitious targets. For example, the EU’s Scientific Advisory Board is calling for emissions cuts of up to 95% by 2040.

And it is not just Europe: A previous report showed how businesses around the world were seriously behind in cutting scope 3 emissions, those ‘indirect’ emissions that can occur upstream and downstream in a company’s supply chain.