Climate action by businesses: The difference between big and small

Patrick Schroeder, Kartika Anggraeni and Uwe Weber, SWITCH-Asia Network Facility

Many of the world’s leading companies were present this week in Paris, some of which are hoping for an ambitious climate change deal. Their motivation for advocating a strong signal from the world’s political leaders is obvious: For low-carbon business strategies to thrive, certainty about current and future climate change policy development is a necessary condition. The low-carbon economy can mean big business for many large corporations and investors that commit to leadership on climate action. They are taking action because doing so offers tremendous opportunities for prosperity, and hence creating jobs. Given those opportunities, it is surprising that so far only a rather small number of large multinationals have come forward to announce their proactive stances, targets and concrete actions on climate change. For instance, only 53 multinationals have joined the RE100 initiative and committed to source 100 per cent renewable power for their operations. While this is a big commitment, it is only carried forward by a relatively small number of companies compared to the 40,000+ multinationals operating worldwide.

Another field in which companies need to do much more is reporting against their corporate climate change mitigation and adaptation performance. So far mainstream corporate reports lack comprehensive information and comparable climate change related data. The current information gap on CO2 equivalent emissions and energy use from companies limits the effectiveness with which investors can allocate their capital to its most effective uses.

Green supply chain management represents a further relevant activity. For example, several multinationals have committed to remove commodity-driven deforestation from their supply chains. This will help to reduce a significant source of CO2 emissions, counter biodiversity loss and render their supply chains more sustainable and resilient in the long-term.

All this is easier said than done, as it requires the active involvement of small and medium-sized enterprises (SMEs) as essential elements of global supply chains when multinationals implement low-carbon business models beyond their in-house operations. Already for the average European SME, which is not directly involved in the low-carbon technology business, the situation post-COP21 can become quite challenging as their in-house capacity to develop and implement low carbon strategies is limited. In Europe, SMEs represent 99 per cent of all enterprises, employing 66 per cent of the whole workforce and generating over 50 per cent of GDP. Therefore, additional support from governments and their big corporate customers will be necessary to move swiftly towards a low-carbon economy.

The situation for a large number of SMEs operating in the developing countries is even tougher. Being forced by big players in the volatile global market to produce at the lowest possible costs, lacking management capacity and technical skills, having low awareness on climate change, and suffering from shortage of human resources and green finance, most SMEs in the developing world are – if at all – only marginally involved in low-carbon development.  These are real barriers for SMEs, preventing them from joining the low-carbon economy movement.

Consequently SMEs are one of the main target groups of the SWITCH-Asia Programme, funded by the European Union since 2007, with the objective of promoting sustainable production and sustainable consumption (SCP) practices in Asia. To date, SWITCH-Asia has supported more than 80 grant projects that directly and indirectly, via industry associations, work with thousands of SMEs in 16 developing countries in Asia, across a wide spectrum of sectors, ranging from textiles to food, from construction to manufacturing, and more. Through this avenue, SWITCH-Asia has reached out to and improved the environmental and social performance of thousands of Asian SMEs, enhancing their contribution to climate change mitigation, local economic development and livelihoods. A number of SMEs involved in the SWITCH-Asia Programme also stand out for their innovation potential and CO2 emission reduction solutions, which, for example, have been implemented to create zero-carbon resorts in the Philippines and Thailand, install biogas equipment in Sri Lanka, or deliver low energy housing districts in China.

More work is needed to support Asian and European SMEs in the transition to realise the benefits of low-carbon business and scale-up low-carbon innovations. Large multinationals, if serious about their climate change commitments, are in an excellent position to make a big difference by working with their SME suppliers to decarbonise the supply chains of their products. In this context, the SWITCH-Asia projects and their SMEs can provide a starting point for large companies to green their supply chains.