A survey conducted by SME climate hub reveals that two-third of SMEs lack the skills and the knowledge needed to take climate action (SME climate hub,2022). This blog aims to help SMEs to understand in detail about carbon management and how to take action steps in making the company’s processes more sustainable. 95% of total industry units in India are SMEs and on India’s mission to achieve net zero by 2070, the SMEs will play a crucial role as they provide raw materials to major industries and while the economy of the country also thrives largely on the SMEs.
Business value for SMEs
The first and foremost that comes while talking about taking climate action at the SME level is, ‘What is the business value in taking climate action or becoming more sustainable ?’. This question is common with most business owners and the decision makers at SMEs. This section will brief on the business value of taking climate action as a SME and how it helps in addressing the larger issue of climate change at the company level.
Retention of customers
“On 10th May 2021, the SEBI introduced a new ESG reporting structure by the name Business Responsibility and Sustainability Report (BRSR). Under BRSR, listed entities (top 1000) need to provide an overview of the entity’s material ESG risks and opportunities, approach to mitigate or adapt to the risks along with financial implications of the same”
To be in accordance with the SEBI mandate, large companies that fall under this regulation in India are working on ESG frameworks to disclose their identified ESG risks and opportunities. As part of it, most companies are setting a sustainable procurement policy and strategies. This means the larger companies are asking their current suppliers to meet the procurement standards set by them. As most SMEs are suppliers to the large companies in order to retain their customers they are needed to reduce their climate and environment impacts.
As companies are looking at suppliers who are taking climate action as part of their sustainable procurement policy, being a company that is transparent on their environmental impact disclosure and having strategies in place to reduce their impacts gives a huge competitive advantage. There are few SMEs that have such mitigation strategies and having one in the company gives an edge over the others in the market.
Taking action steps to become sustainable eventually result in cost reduction and making your processes more efficient. Take recycling waste for example, it yields additional cash or some companies make products out of their own recycled waste which saves cost at the end of the day. Switching to renewable energy does have a long-term effect in reducing the overall cost spent on energy. The company can strategize well and carry out projects related to sustainability or climate risk mitigation in such a way that either increases the topline or affects the bottom line.
How to take climate action and reduce environmental impacts as an SME?
As an organisation, looking at the overall strategy, setting up goals and targets, measuring impacts, identifying KPIs and integrating sustainability across the business operations and the entire supply might be quite a daunting task. The following section briefs on how an organisation could start with it and some simple steps to start the initial step in the process.
Becoming climate neutral, it is not a switch that you could turn on, it’s a process and climate neutrality is a destination to reach and the process is the journey you go through as an organisation. Taking climate action could be divided into three major stages for the ease of operation and progress from one stage to another.
This stage is majorly measuring the environmental impacts of your organisation and setting up systems to capture & analyse data. The following things could be done as a process within the organisation during this phase
- Understand where you stand
The first step is to understand the environmental impacts of your organisation and gathering data to measure the current. Some organisations might already have few systems and processes in place or might have few standards set to follow government compliances. Making an audit of where you stand could be the initial step.
- Set baselines & KPIs
Based on the understanding of where the current systems for measurement are, the company could setup a baselines to which they want to compare the reduction in the future. The company could also identify KPIs across different operations and departments to measure their impacts.
- Setting systems
Once KPIs are set, the company could go about setting up systems to capture data across departments on a routine basis.
- Carry out the analysis
Based on the captured data, the company shall perform environmental impact analysis to identify their impacts on the ecosystems, carbon emissions and even their water footprint. They could choose to follow global standards that are being followed to measure and report their impacts.
- Monitor the systems
Once the system is set and a basic analysis is being performed, the company could fo continuous monitoring of measuring their data and perform the impact analysis on a routine basis
The next stage of the process is the reduction phase. The company shall make strategies to reduce their overall environmental impacts by carrying out different projects or making chances in their processes to make them more sustainable
- Setting goals and targets
The first step in the reduction phase could be to set goals and targets based on the baselines identified by the company. The company could set short term and long-term goals to reduce their overall environmental impacts.
- Projects to reduce impacts
Based on the set goals and targets, the company can design projects to reduce the impacts on the identified areas. The projects could be specific to the industry they work and the process the company follows. Some of the common areas could be shifting to renewable power, having an energy management system, reducing and recycling waste, reducing carbon footprint of their logistics, looking to procure raw materials in a sustainable manner etc.
Offsetting the impacts of the organization is always the last resort. While it take time for the organization to become entirely sustainable, the company could offset their impacts to balance it out. The company funds offset projects like planting trees, renewable energy projects to offset the equivalent amount of their carbon emissions. There are companies that do offset their plastic usage as well.
Government support to incentivise MSMEs
As mentioned earlier in the articles the transition towards becoming more sustainable is a journey and it might take huge capital investment to do so. The government of India has few schemes to help companies to go through this transition. The government of India provides a subsidy for companies switching solar power, providing a support on reducing their total CAPEX expenditure. To understand more about how the government support SMEs and schemes, you can find it here.
SMEs in India operate in a competitive landscape especially the companies that are in the manufacturing sector. It takes strong leadership and long-term thinking to see what is coming and an important shift that’ll happen in this decade within the country is the shift towards becoming more sustainable. To stay relevant and competitive, this will be a crucial phase for organizations to make their shift towards becoming more sustainable and as we have seen in this blog, becoming more planet friendly does have a huge business value in the long-term.
As a human race, we are at the crucial point of survival on this planet whose ecosystems are reaching tipping points. It is important that companies take responsibility for their actions if not we don’t have a planet to do business with. The earlier companies jump into the bandwagon of sustainability and integrate it across their business units, the better it is for their business if not there will come a point where they will be forced to do it with compliance and hefty pay.
About the author
Hari Prasad | Hari discovered his ikigai was to become a social entrepreneur and make a difference in combating climate change. He went on to pursue his masters in the Netherlands and worked on a peatland restoration project called ,’Carbon connects’ which aims to help farmers restore peatlands and aiding them with equivalent water purification and carbon credits. This experience helped him in his entrepreneurial journey and thus the idea he had took shape in the form of ‘Livabl’ along with his co-founder and their team.