All sectors need to take rapid action to reduce greenhouse gas emissions to achieve the Paris Agreement’s goal of keeping warming to 1.5 degrees Celsius — the limit for avoiding the worst impacts of the climate crisis. But it’s not just big businesses that must take the lead in shrinking their carbon footprints. Small- and medium-sized enterprises (SMEs), as well as family-run businesses, also have a tremendous responsibility and opportunity to drive positive change.

Globally, there are an estimated 400 million small businesses, and two of every three businesses are owned or managed by families. That means small business is a big deal — collectively, they have a strong voice and responsibility to help reduce emissions.

SMEs also enjoy distinct advantages from larger companies. Their smaller size makes them nimbler in implementing climate-related actions. Also, because they often are suppliers to large companies, SMEs can help decrease their large customers’ footprints. Likewise, reducing their own environmental footprint can improve SMEs efficiency, pare operating costs, enhance access to capital, deliver unique growth opportunities and help create more resilient supply chains. 

SMEs and family businesses can’t afford to sit on the sidelines in the climate fight. Here’s why.

Climate risk is financial risk for SMEs

The business and financial future of small companies depends on them doing their part to address the climate crisis. SMEs are less resilient to climate impacts than larger corporations and less cushioned to absorb the hardships caused by the climate crisis. It’s no wonder that throughout 2022, regulators in the U.S., the European Union, the United Kingdom and Canada took steps to require businesses of all sizes to disclose their efforts to reduce emissions.

In November, the U.S. government — which spends $630 billion annually on purchases — proposed requiring federal contractors to disclose their emissions and climate-related financial risk while also setting science-based targets to reduce emissions. These include suppliers to the General Services Administration, the Defense Department and the National Aeronautics & Space Administration. The proposed rules would affect many small businesses.

For businesses with customers abroad, the EU’s new Corporate Sustainability Reporting Directive will require about 50,000 listed small and medium-sized enterprises, including those from the U.S. and elsewhere, to report more detailed sustainability reporting by at least January 2028. Plus, states such as California are considering several climate-related disclosure requirements for companies as well as measures to use pension funds for teachers and public employees to push businesses to act on climate change.

Consequently, major companies are working to pare emissions in their supply chains requesting environmental and other sustainability information from vendors and partners.

Another factor has emerged: Employees and customers are increasingly making it clear they want employers and companies to take climate action seriously — or they will work or shop elsewhere.

The 2023 Edelman Trust Barometer survey found that two-thirds of respondents believe CEOs should be a climate CEO, and an earlier Edelman global survey found nearly 60 percent of respondents reporting they buy brands based on values such as their climate change stance.

How SMEs and family businesses can act on climate     

There are plenty of good reasons why it’s important for SMEs to act on climate. What can be tough is knowing how. Small and family businesses can take several relatively easy initial steps to begin their environmental sustainability efforts: 

1. Become familiar with sustainability standards. Examine those of the Carbon Disclosure Project, Global Reporting Initiative, European Financial Reporting Advisory Group and International Sustainability Standards Board to help gauge how you stand versus others. Benchmark yourself against the UN Global Compact or Organization for Economic Cooperation and Development guidelines.
2. Look at stakeholder expectations from customers. These include requests for proposal