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SMEs reap rewards of climate action in average of 16 months: BDC

Half of Canada's small, medium enterprises are already acting, survey finds

Pierre Cléroux, BDC’s vice-president of research and chief economist. (Courtesy Business Development Bank of Canada)

Climate investments made by small- and medium-sized enterprises are recouped in 16 months on average and result in more engaged employees, according to a survey by the Business Development Bank of Canada (BDC).

The Montreal-based Crown corporation conducted a survey of 1,784 small- and medium-sized enterprise (SME) owners during May and June, because it “wanted to understand how SMEs are taking action to reduce their carbon footprint, what are the benefits, and to really understand how long does it take to see some benefit for businesses,” Pierre Cléroux, BDC’s vice-president of research and chief economist, told Sustainable Biz Canada in an interview.

SMEs make up 99.8 per cent of Canadian businesses and were responsible for 41 per cent of the country’s greenhouse gas emissions in 2020, according to BDC.

Though SMEs do not garner as much attention on climate actions as large corporations, the BDC stance is that their contributions are “essential” to Canada’s net-zero target.

The SMEs taking action

Half of surveyed SME owners said they have already taken action to reduce greenhouse gas emissions. Some of the most common actions were:

  • informing employees on climate issues (55 per cent);
  • calculating greenhouse gas emissions (50 per cent);
  • managing organic waste (49 per cent); and
  • producing their own energy (44 per cent).

Under one-in-five (18 per cent) said they intend to take climate action in the next five years, while the remaining 32 per cent have not and will not make a climate-friendly investment. Of the SME owners with no desire, 57 per cent believe climate change will not affect their business.

For SMEs that plan to act, 42 per cent plan to start with maximizing the efficiency of their HVAC systems, and 41 per cent plan to make their employees aware of climate issues.

Cléroux said BDC does not have a point of comparison between SMEs and large companies on climate actions. But the larger the SME, the more active it tends to be on reducing its climate footprint, he added.

Why SMEs should take climate action

SMEs that took climate action recouped the investment in 16 months on average. Employee climate awareness paid off in nine months, while retrofits, buying clean energy and electrifying vehicle fleets took longer at 23 months, 11 months and 21 months, respectively.

Compared to the recoup period for technology investments, climate investments pay off slightly quicker, according to Cléroux. The BDC was “a little bit surprised” because it expected climate investments to take longer to pay dividends.

A question that hovers over efforts to reduce energy consumption is the cost and how quickly it can be recouped, Cléroux said. But SMEs do not take long to see the investment bear fruit, and in most cases see an improvement in business efficiency, he continued.

Climate-proactive firms may also see improved business growth. Of those that have taken several climate actions, 26 per cent posted annual sales growth of 10 per cent more over the previous year. Eleven per cent of SMEs that took no climate action ,and 13 per cent of firms that took some climate action, saw similar growth.

Other benefits of taking climate action include higher employee satisfaction and brand improvement. Canadians on the whole want to see a business reduce its carbon emissions, Cléroux said.

Sandra Odendahl, senior vice-president of sustainability, diversity and partnerships at BDC. (Courtesy Business Development Bank of Canada)

Sandra Odendahl, senior vice-president of sustainability, diversity and partnerships at BDC, told Sustainable Biz Canada in an interview this particularly affects younger employees.

When asked if the benefits are correlations or causations, Odendahl said it may be a combination of both, as larger SMEs have the human resources and financial capacity to take bolder climate action.

“They simply have more people, more bandwidth to tackle these issues. But on the plus side, once you address these opportunities and/or challenges depending on the business you’re in, you do recognize benefits regardless of where you’re starting from,” she said.

How an SME can start taking climate action

Economic concerns, the lack of internal expertise and fewer economic resources are the main factors holding back SMEs from taking climate actions.

Thirty-one per cent of SMEs said they have limited financial resources for greenhouse gas emissions reduction and 30 per cent are uncertain about the return on investment. Only seven per cent measure their carbon footprint.

“We’re just at the beginning on this transition,” Cléroux said. “We need to convince more entrepreneurs to calculate their carbon footprint, to take action to reduce their carbon footprint.”

Calculating carbon footprints is important “up to a point” and BDC did not want to suggest to SMEs they cannot get started if they haven’t finished a detailed breakdown of their emissions, Odendahl said.

“I think they need information that’s right-sized for them so that they’re not drowning in the deluge of sustainability and climate information that’s there,” she added.

She recommends SMEs look for areas where they can find cost savings that are likely to increase revenues and market share such as waste reduction, or reduce energy or raw material usage.

Odendahl also urged SMEs to start on climate action by making someone accountable for sustainability within the company and identifying the main sources of emissions.

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