Are Science Based Targets the Answer to SMEs Feeling the Squeeze on the Road to Net Zero?

Since the Paris accord, those following the media would be hard pressed to avoid noticing the accumulation of big corporates announcing their net zero measures and schemes like Science Based Targets initiative (SBTi) rising up the media agenda.

But what of the smaller businesses? Shane Hughes, Carbon Consulting Lead, Ramboll explains that sustainability and climate change isn’t just for the well-known brands. There is no minimum size requirement either. The race for net zero is not a queue for a theme park ride. Effort and commitment from SMEs are vital if the UK is to achieve its net zero targets given that SMEs make up more than 90% of the UK business population.

Why now?

Environmental policy making is only going one way. Whether the speed of this policy making will be sufficient to meet the challenges society could face is another debate entirely, but it is clear Government regulation will only become more restrictive. One example, among others, is September’s launch of the Procurement Policy Notice (PPN) 06/21. This PPN stipulates that any company who wants more than £5 million of government spending must have a net zero strategy in place. It’s not just government either, as major buyers have started to require change within their supply chain too: Network Rail has committed that 75% of its suppliers (by emission) will have an Science Based Target (SBT) by 2025; Nando’s Chickenland Limited committed to reduce value chain emissions by 42% per meal by 2030; Canary Warf Group committed to 60% of its suppliers having have an SBT by 2025.

Contracts are becoming dependent on environmental compliance and good sustainability performance is fast becoming the new face of opportunity, sometimes dictating a business’ bottom line. See the boom in sustainability criteria linked to finance and investment, or the food packet in your cupboard now proclaiming its carbon footprint. A recent study into consumer behaviours and sustainability by Deloitte has shown that nearly 1 in 3 consumers say they have stopped purchasing certain brands or products because of sustainability or ethical concerns.

Most importantly the science showing the risks of a climate catastrophe has become unequivocable. The centre of gravity has shifted and even staff are starting to become more vocal about their desire to work for companies that are taking their climate response seriously, a powerful call to action at a time when the employment market is fluid and staff retention has become a huge and immediate challenge.

How?

In all likelihood, the above are arguments most have already been won over by. The real challenge for small businesses now is the question of how to act, rather than should they act. What does a credible net zero strategy look like given there’s so much greenwashing and uncertainty? Is it just too much for any company to take on?

SBTs have been the main route for big corporates to demonstrate credible ambition but, suprising to some, achieving an approved SBT, isn’t just the preserve of the big corporates.  Often smaller companies avoid processes like SBT because they don’t have a sustainability department and the admin burdern of managing such a scheme is disproportionate. Ramboll sees this with lots of certification schemes. An approved SBT is actually very acheivable for SMEs with a five step pragmatic approach to start delivering the change needed to meet the challenges of climate change:

Step 1

Big or small, any company setting a carbon reduction target, will need to calculate their scope 1 and 2 CO2 emissions (e.g. gas, electricity and fuel used in owned vehicles) for the selected base year (e.g. 2019 or 2020). This should be relatively straight forward and luckily there are plenty of free  resources available, such as this Carbon Trust net zero journey planner and this carbon calculator. One expert tip is that in most cases selecting market based reporting for scope 2 electricity will be the preferred approach, especially when you have limited capacity to install onsite renewables and will need to rely on the purchase of green electricity tarrifs to decarbonise your electricity consumption.

Step 2

The emissions calculating process gets far more time and cost intensive when calculating value chain scope 3 emissions (e.g. business travel or emissions from the use of your products or from your purchased goods and services). However, unlike larger companies, the SBTi does not require SMEs to set scope 3 targets. So go for it! Complete step 1 and submit your CO2 emissions numbers and select a 1.5°C target (which equates to 4.2% reduction p.a). There’s an option for a well below 2°C target (2.5% reductions p.a.) but that option is not typically recommend for companies wanting to demonstrate credible levels of climate commitments to staff, customers and regulators alike. SMEs have a dedicated ‘streamlined route’ to an approved SBT, which will cost only $1,000 instead of $9,500.

Step 3

SME’s don’t need to submit a scope 3 target, however, they do need to commit to measure and reduce their scope 3 emissions. This gives them some time to gradually invest in upskilling and building capacity and learning more about this critically important window into the value chain. Start by creating an estimate for all 15 scope 3 emissions using the GHG Protocol Quantis tool. The tool has some unesecessary inaccuracies and uses proxy data from the US so Ramboll have developed a slightly more refined and country specific version to use with clients, but that said, the free to use tool is good enough to get a business started. As it has been sactioned by the GHG Protocol, it has credibility.

Step 4

SMEs should use the estimation process to identify which are their largest sources of scope 3 emissions and overlay this with knowledge of local government requirements to future proof and define which scope 3 emissions to start to collecting data on. For example, in the UK there is the Streamlined Energy and Carbon Reporting (SECR) regulation, which requires scope 3 business travel emissions to be reported and the PPN 06/21 requires business travel, upstream and downstream transport, employee commute and waste emissions. Over a few years businesses should be increasing the percentage of the scope 3 emissions they collect data and report on, with a target to include 95% of total scope 3 emissions in reporting overtime.

Step 5

Finally, SMEs should identify and implement emissions reductions measures. This step can run in parallel with the other steps. There’s no need to wait for all the data if there’s clear and obvious ways to reduce an orgnaisation’s impact on climate change. However, once businesses have visibility of their total emissions it should start to inform their carbon reduction planning in line with their 1.5°C targets.

Final thoughts

Finding a business’ solution to operating within a sustainable society is a pressing matter. Entrepreneurs need to take the challenge seriously from both regulatory and innovative perspectives, and act now. They must not be lulled into a false sense of security because the Government has not yet turned its sights to them. The legislation will come, and SMEs need to ensure they aren’t left scrambling. The ever-increasing sophistication of the sector has brought environmental compliance within reach. Businesses ignore this at their own peril, for they will pay later

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Are science based targets the answer to SMEs feeling the squeeze on the road to net zero?