SMEs that reduce their carbon footprint perform better than those who don’t: BDC report

SMEs recoup investments in 16 months, but 32 percent of those surveyed don’t plan on taking action.

Small- and medium-sized enterprises (SMEs) focused on mitigating their carbon footprint tend to earn more revenue and maintain highly dynamic businesses, yet nearly a third of SMEs do not intend to take any climate-related action, according to a new report by the BDC.

The survey, published Dec. 6, found that half of SMEs have taken some form of action to reduce their greenhouse gas emissions, while 18 percent haven’t done so but intend to in the next five years. Thirty-two percent, however, haven’t addressed their carbon footprint and don’t plan to in the future. 

SMEs make up more than 99 percent of all businesses in Canada but produced 52 percent of corporate Canada’s greenhouse gas emissions in 2020.

Companies are seeking ways to reduce their risks as both the climate crisis and the pressure to address it intensify. SMEs make up more than 99 percent of all businesses in Canada but produced 52 percent of corporate Canada’s greenhouse gas emissions in 2020, so it is imperative that entrepreneurs address the issue, BDC chief economist Pierre Cléroux said in an interview. 

Making employees aware of climate change issues, managing the company’s organic waste and updating HVAC systems are the most common approaches SMEs identified as their climate actions, ranging from 50 percent to 45 percent uptake.

“There’s a direct impact between the action you’re taking and the performance of your business,” Cléroux said. “We won’t be able to reduce our impact on the environment without businesses’ [efforts].”

The study, which surveyed nearly 1,800 SMEs between May 29 and June 9, found that companies enacting climate-related changes and policies tend to be larger, more involved with manufacturing or international trade and younger compared to firms that do not intend to take any action. 

Of the SMEs that have implemented climate policies, 53 percent have five or more employees and generate annual revenue of at least $500,000 CAD. Of those that haven’t pursued climate actions, just over a third have employees of five or more and two-fifths earned at least half a million dollars in revenue.

Fifty-four percent of companies established less than 15 years ago have taken climate-related actions compared to 44 percent of all companies, the report stated. 

Firms can face challenges when trying to tackle their own carbon footprint, the report said. Some SMEs, especially smaller ones, said Cléroux, have higher priorities, with 29 percent of firms that haven’t taken action noting this as their top challenge.

Firms that haven’t implemented climate policies also noted a lack of internal expertise or resources to address greenhouse gas emissions, uncertainty about investment returns, and a lack of adequate technology solutions as challenges.

The report said that SMEs who take on climate policies, on average, recover their investments within 16 months. Replacing or maximizing HVAC efficiency, for example, takes an average of 22 months to recoup dollars spent. 

“If you increase the quality of what you do to reduce the waste, well not only do you have a positive impact on the environment but you perform better,” Cléroux said.

The performance increase should incentivize SMEs to address their own carbon footprint, the chief economist said, and those who fail to do so could risk challenges ahead, such as pushback from consumers and other companies who wish to do business with environmentally conscious enterprises. 

“If you want to continue to sell to large businesses, you have to demonstrate that you’re taking action,” he said.

Feature image courtesy BDC.

Bianca Bharti

Bianca Bharti

Bianca Bharti is the newsletter editor at BetaKit, where she spearheads coverage and analysis of tech news in related products. Before BetaKit, Bianca covered the nexus of markets, industries and policy in a variety of formats as a reporter for the Financial Post. There, she won silver in SABEW's 2021 Best in Business Journalism Awards in the personal finance category for one of her pieces. In her free time, she enjoys swapping her reporter hat for a baseball cap to hit up some hiking trails with her dog. She also weirdly loves debating monetary policy.

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