Following on from COP26, the accounting industry has called on urgent action to be taken to standardise and simplify carbon reporting to help SMEs join the race to Net Zero. But is it just a matter of measurement?

 

A new report titled ‘Think Small First’ calls on policymakers to remove the existing administrative burdens that come with carbon reporting which often forces SMEs to be excluded.

The report, commissioned by The Association of Chartered Certified Accountants (ACCA), the International Chamber of Commerce (ICC) and Sage was published earlier this month stating that the SME sector accounts for 90% of the global economy and is estimated to employ over 2bn people worldwide however, 90% of these businesses believe that there are ‘significant barriers’ for them to take climate action.

Out of the 10,000 SMEs that were a part of the Make Climate Action Everyone’s Businesses session at COP26, the majority labelled the barriers as lack of time, significant costs, overly complex guidance, and uncertainty about quantifying emissions.

At the same time, the latest ONS report using data from the Business Insights and Conditions Survey (BICS), which featured the answers from around 39,000 businesses from June 2021 declared that less than a third of businesses plan on cutting their greenhouse gas emissions over the next year, despite the UK’s recent net-zero efforts.

This view was also echoed in the latest Corporate Finance Network (CFN) SME Tracker which showed that half of SMEs state that taking steps towards sustainability is not a main priority for business leaders as they continue to deal with the fallout from the Covid-19 pandemic.


Stimulate Change

The ACCA is calling on the accountancy profession to ‘galvanise support’ with ACCA stating that for SMEs, accountants are seen as trusted advisors who will help support them in integrating climate strategy and sustainability targets into its business plans and help them as they navigate the current complex reporting landscape.

Helen Brand, chief executive, ACCA, said: ‘As well as representing about 90% of businesses globally, SMEs also offer more than 50% of employment worldwide. As such, they have a huge role to play alongside the professional accountants who advise them in tackling climate action. The accountancy profession has a critical role to play in this, both to lead long-term value creation in sustainable economies, and to champion responsible practices for the public good.’

At the same time Claire Bennison, head, ACCA UK recognised the dilemma facing many SME’s: ‘Small business owners are consumed by urgent issues at the moment and fighting to keep their operations running. It’s understandable that they are not focused on sustainability, but we would encourage them to try to take a longer-term view and build that resilience into their organisation.’

The latest ONS report also demonstrated this challenge of priorities and resource.

Less than half (38%) of businesses reported that they are taking at least one action to reduce their greenhouse gas emissions, with just 24% reporting that they are intending to act in the next 12 months. Just 9% of businesses acting are currently taking three or more actions.

11% of businesses are not taking any action to reduce their emissions with 13% stating that they were ‘unsure of how to even begin measuring their emissions’.

It is however clear that this is not just about measurement.

The CFN survey also found that almost half, 46%, stated that lack of time and resources to implement strategies was another reason that steps were not being taken and the same number again (46%) cited lack of expertise and understanding of where to start with sustainability plans which are holding them back.

The Tracker survey, which reports data from accountants representing 16,305 SME clients, found that just 4% of clients requested support from them on sustainability issues.

Kirsty McGregor, founder of the Corporate Finance Network, said: ‘Accountants have a great opportunity to become a source of expertise in this area so that they can educate their business owner clients to think about how to tackle sustainability.’

If we are to address this matter properly, then the first step that needs to be taken to standardise carbon reporting so companies large and small are being asked for information on a standard basis, ideally supporting the development of an official standard that can be built upon going forward.

The current guidance for climate and environmental, social governance (ESG) disclosures are designed for large companies, but there needs to be simpler guidance in place that focuses on the most material issues that can be distributed across multiple sectors.

If the larger companies are already learning how they address and adapt to this challenge then we must use that work to recognise the challenges for SMEs and enable them to overcome them, this could be governments creating policy framework, large companies developing technology and offering training of those tools to SMEs, or large companies introducing investment to supply chain emission reduction into their environmental, social, governance priorities.