Establishing a Decarbonisation Roadmap: A Guide for SMEs
As the world transitions towards a low-carbon economy, businesses of all sizes are committing to sustainable practices. Indeed, the need to decarbonise is no longer limited to large corporations. SMEs are also expected to do their part. This shift is being driven by the escalating impacts of climate change, as well as the stringent sustainability requirements adopted by big companies for their supply chains.
Large corporations today often demand that their suppliers, including SMEs, meet specific environmental standards, including carbon reduction targets. As such, SMEs must consider decarbonisation not only as a corporate responsibility, but also a business strategy that can secure their position in the supply chain, and potentially open opportunities in new markets.
To help smaller enterprises get started on this critical journey, DBS and Schneider Electric have joined forces to offer an SME Kickstarter Decarbonisation Programme that is designed to give firms access to the resources and tools that will enable them to take action to lower their carbon footprint immediately. SMEs that take advantage of this initiative will benefit from Schneider Electric’s proven strategy for decarbonisation, as well as free access to relevant decarbonisation workshops.
Speakers at the workshop highlighted three key steps local SMEs need to take to develop their decarbonisation roadmap. These include establishing a baseline for carbon emissions, setting targets for reductions, and ultimately, how to achieve these goals.
1. Establishing a baseline for carbon emissions
SMEs must first establish a baseline by understanding their carbon emissions. This baseline calculation should initially cover the two key emission scopes:
Scope 1 emissions: This covers greenhouse gas (GHG) emissions that a company makes directly – such as when running its vehicles, boilers or manufacturing lines.
Scope 2 emissions: These are emissions a company makes indirectly – like through the electricity it buys for heating, cooling and other operations.
Gathering data on these emissions will help SMEs understand where their major environmental impacts lie and where there is potential for significant improvements.
2. Setting targets for reduction
After establishing the baseline, the next step is setting targets. These should include several essential components which will help to build a comprehensive decarbonisation roadmap. These include:
Scopes of emissions included and excluded: Determine which scopes of emissions your target will address. Many companies start with Scopes 1 and 2 emissions as these are most within an organisation’s control. Scope 3 emissions are those which a company is indirectly responsible for and come from across the value chain. These are more complex to calculate and reduce.
Base Year: This is the year against which you will compare future GHG emissions to measure your progress. The base year should ideally be a recent 12-month period where accurate data is available.
Target Year: This is the future year by which you aim to achieve your emissions reduction target. Companies often set mid-term (5 to 10 year) and long-term (10 to 30 year) targets in line with global goals such as the Paris Agreement or Singapore Green Plan 2030.
Percent Reduction: This is the percentage by which you aim to reduce GHG emissions from the base year level by the target year.
Targets can either be absolute, where the aim is to reduce the total emissions by a certain percentage, or intensity-based, where the goal is to reduce the emissions per unit of output.
SMEs should also consider their customers’ decarbonisation targets when setting their own, especially if these are large corporations. This can help SMEs strengthen their business relationships with these customers.
An effective way to understand your customers' sustainability ambitions is to read their sustainability reports. These reports typically provide valuable insights into a company's sustainability efforts and specific targets.
3. A plan to achieve your targets
SMEs will need to adopt a comprehensive approach that spans across their business operations to achieve their decarbonisation targets. This may include changing energy sources, electrifying operations, or reducing energy use through efficiency or optimisation efforts.
For instance, SMEs can switch to renewable energy sources to reduce Scope 2 emissions or invest in more efficient production technologies to lower Scope 1 emissions. Monitoring the progress of these initiatives is also important. SMEs can stay on track with their decarbonisation roadmap by regularly checking their progress and adjusting strategies when necessary.
Funding your decarbonisation plans
SMEs will often need to secure adequate funding and support to execute on their decarbonisation roadmap. Our recently launched Catalysts of Sustainability e-book, revealed that 1 in 3 firms cited financial barriers, lack of expertise and support, as well as unclear ESG standards, as the key obstacles to their low-carbon transition.
Sustainability financing, such as green loans, can be used for projects that have clear and measurable environmental benefits. For instance, an SME can take up a green loan to install a solar panel system or upgrade its facilities for better energy efficiency.
Sustainability-linked loans, on the other hand, do not have to be used for a specific green project. However, borrowers must achieve a pre-defined sustainability performance target to qualify. For example, the sustainability-linked loan might be pegged to an interest rate that decreases if the borrower reduces its Scope 1 and 2 emissions by a certain percentage over a given period.
Finally, there are “transition” loans that support a borrower’s strategy to transform its business model in a way that addresses climate-related risks. For example, an SME in the manufacturing industry might secure transition financing to shift from a high-emission production process to a lower-emission alternative. Companies can tap on DBS’ suite of sustainable financing solutions.
Beyond financing, banks have a large role to play in supporting SMEs on this critical decarbonisation journey. For instance, businesses that are ready to start on this journey can tap on DBS’ Skills Booster programme to upskill their workforces as they prepare to build a sustainable organisation.
Koh Kar Siong, Group Head of SME Banking, DBS Bank said: “We are here to support SMEs in their sustainability journey, whether it’s in the form of financing or through partnerships with Schneider Electric to offer decarbonisation programmes to give SMEs access to resources and tools that will enable them to lower their carbon footprint as well as track and measure their progress. Increasingly, stakeholders are mandating sustainability as a business requirement. It is no longer a nice to have, but the passport that businesses will need to be ready for the future.”
Jackson Seng, Vice President, Sustainability and Strategy, Schneider Electric said: “Since the inception of our SME Kickstarter Decarbonisation Programme under Enterprise Singapore, our collaboration with DBS has opened up exciting opportunities for us to witness the benefits of working together. At Schneider Electric, we are proud to contribute our expertise to help DBS customers embark on their sustainability journeys. Through this partnership, we aim to provide SMEs with the resources, knowledge, talent, and skills needed to achieve their sustainability targets. By leveraging innovative technological solutions, we empower these businesses to strategically digitize their operations and make significant progress in decarbonisation. Together with DBS, we are committed to creating a sustainable future for businesses and society.”
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