SOUTH African SMEs are responsible for 14% of scope 1 non-household emissions, leading to a call to local small businesses to reduce their carbon footprint to minimise the country's climate impact, according to recent research by accounting, financial, HR and payroll technology provider Sage.
The SME Climate Impact Report commissioned by Sage and launched in partnership with Oxford Economics and the International Chamber of Commerce (ICC), and being revealed at COP27, was described as a call to action for government and policymakers to help South African SMEs become more sustainable, given the influential role they play in the economy.
Pieter Bensch, Managing Director and Executive Vice President, Sage Africa and Middle East, said the study confirmed the crucial role that South African SMEs play in the country's economy.
“SMEs make up a large share of the economy of South Africa, contributing two-fifths of GDP. Collectively they have a significant climate impact, despite being clustered in less-emitting industries. However, their direct climate impact is relatively small [in comparison with large companies] due to their low presence in high-emission sectors like mining and utilities," Bensch said.
Sage said South African SMEs directly contribute R2.1 trillion, or 40% to the national GDP, and account for 6.2 million direct jobs or 46% of direct employment. The economic footprint generated through their indirect supply chain and induced consumer spending contributions amounts to R4 trillion in GDP value; their total employment footprint in South Africa is over 10.2 million people. This meant South African SMEs' total economic footprint totalled just over three-quarters of gross-value added and employment.
"Nonetheless, the sheer number of SMEs and their role in supply chains mean they have an instrumental role to play in reaching the government's target of net zero by 2050. In the midst of the energy crisis and a just transition from fossil fuels to renewables SMEs are working hard to become more energy efficient and tap into cleaner, alternative power sources. But the fact remains that our reliance on coal-fired power is a barrier to SME sustainability.”
The SME Climate Impact study models the climate impact of SMEs using the Oxford Economics Global Sustainability Model as well as survey data of more than 2 000 South African (SA) and 2 000 United Kingdom (UK) SMEs. The report showed that South African SMEs’ Scope 1 greenhouse gas (GHG) emissions–those created from sources they own or control–totalled an estimated 61 million tonnes of CO2e last year.
This accounted for 13% of South Africa's total GHG emissions of 479 million tonnes of CO2e. SMEs' footprint totalled 29% of non-household emissions in the country when GHGs generated in their supply chains were considered. The numbers exclude much of the agriculture sector, where there were many informal and unregistered businesses that were difficult to track. These SMEs were responsible for a substantial share of methane and nitrous oxide emissions, from raising livestock and the use of fertilisers.
Fortunately, according to the report local SMEs and those in the UK were eager to play their part in addressing climate impact. Over half (53%) stated that sustainability was either a priority or central to their operations. A third of SMEs in SA and the UK were already using technology to measure their environmental footprint. SMEs identified a range of key ways that technology could support their sustainability efforts, with technology to track energy consumption (38%) and directly reduce carbon emissions (35%) as the most important.
Reducing waste (46%) and energy use (42%) were among the most common steps SMEs were taking to reduce their environmental footprint. However, prior Sage research had found that 90% of SMEs said they faced significant barriers to taking climate action. The survey showed that these include cash flow constraints, difficulty navigating government policies, measuring impact, and influencing their suppliers to become more sustainable.
Bensch said South African SMEs were eager to be partners in addressing climate impact. “They understand that sustainable practices can help them weather the inflationary pressures they are experiencing. But SMEs cannot be expected to behave the same as large companies in reducing emissions and using resources more sustainably. Big business, government, lawmakers, and other stakeholders should provide support specific to SMEs to help them reach their potential."
In light of these findings, Sage and the ICC are calling on governments to create a comprehensive plan to empower SMEs to reduce greenhouse gas emissions and support the country’s overall plan towards net-zero.
Elisa Moscolin, Executive Vice President, Sustainability and Foundation at Sage said the overall climate footprint of SMEs showed just how vital they were to tackling climate change. “There is an urgent need to help them understand their emissions and arm them with guidance so they can formulate their sustainability plans.
“The good news is that South African SMEs already recognise the importance and urgency of becoming more environmentally friendly. The South African government is responsible for levelling the environmental playing field for SMEs in the race to a net-zero society.”
Andrew Wilson, Global Policy Director, International Chamber of Commerce, said climate action was everyone’s business and they must act in concert to ensure that micro, small and medium-sized businesses were both sufficiently heard and fully equipped to take ambitious climate and environmental action.
“We are thrilled to partner with Sage to address this critical issue head-on and chart a course that can help deliver the change we need. The stakes are high, as are expectations, and working together with our global partners and network, we are determined to empower small businesses to build a more sustainable and prosperous future for the planet,” Wilson said.
According to the World Bank’s Country Climate and Development Report (CCDR) launched earlier this month with South Africa’s Presidential Climate Commission, South Africa can build a more inclusive, resilient, and sustainable economy while simultaneously responding to climate change.
The report highlighted key policies and investments needed to achieve South Africa’s climate goals through a “triple transition” that is low-carbon, climate-resilient and just.
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