Carbon Disclosure: Small biz wake-up call?

Small businesses and charities face substantial risks by not tracking their carbon emissions in an increasingly green economy. Immediate action is not just vital, it's inevitable.

Just as the rise of the internet redefined our way of life, we're now on the cusp of another seismic shift – the move to a green, net-zero economy.

This isn't just an issue for multinational corporations; it's a wake-up call for start-ups, small businesses, freelancers and charities alike.

During a recent discussion with Liana Fricker, Founder of Inspiration Space, Beckie Denny, Founder of The Charity Spark, and Elisa Moscolin, EVP of Sustainability at Sage, highlighted key reasons why small businesses and charities need to seize the opportunities in order to avoid significant risks.

Unavoidable trickle-down effect

According to Elisa, as large corporations are required to report emissions, there will be a trickle-down effect on small businesses and charities.

In the near future, she expects these smaller entities will need to disclose their emissions and show their commitment to net zero in order to secure contracts or partnerships.

Sustainability Linked Loans 

With companies like Blackstone Credit employing sustainability-linked loans (SLLs) to encourage businesses to prioritise sustainability, the transition to a green economy is both a risk management strategy and an opportunity.

Liana pointed out that carbon emission tracking can impact loan interest rates. Those businesses demonstrating they're low carbon or making strides to reduce their emissions could potentially secure better financial terms.

However, the reverse also applies. Misrepresenting your sustainability efforts, also known as greenwashing, can result in fines and reputational damage.

Seizing opportunities in the third sector

In the Third Sector, Beckie stressed the value of early adoption of sustainable practices - in particular creating a competitive edge. This includes the potential to secure new contracts, win tenders, and attract donor funds.

Furthermore, as capital allocation becomes more closely tied to sustainability performance, businesses and charities demonstrating their commitment to the green transition may find themselves with access to more advantageous financing options.

So what are the risks of non-compliance?

Here are five things you should know...

Lost partnerships

Increasingly, corporations demand transparency about their partners' emissions. Neglecting to monitor your carbon footprint could lead to missed opportunities and closed doors.

For example, in response to the growing awareness of digital advertising's environmental impact, advertisers are increasingly asking publishers for carbon emissions data, prompting them to measure and reduce their carbon footprints.

According to Digiday, requests for carbon emissions ratings are now frequently included in RFPs to publishers, potentially influencing future partnerships.

This shift was highlighted in a Digiday’s Future of TV event, where an executive disclosed that over 50% of their clients have expressed interest in making their advertisements less energy intensive this year.

Legal compliance

With carbon disclosure regulations on the horizon in the EU, UK, and US, businesses not tracking emissions risk legal penalties.

More than 18,600 companies around the world voluntarily disclosed climate change data through the Carbon Disclosure Project in 2022 – a 42% increase on 2021, including Puma, Burberry and Inditex. 

Investor and donor appeal

Investors and non-profit organisations view emissions monitoring as essential for managing climate risk. This trend underlines the necessity of immediate action for smaller entities.

Recent news from Sifted reported that with mandatory ESG disclosure for VCs in the EU (including data on their portfolios) and increased pressure from LPs (Limited Partners) VCs are integrating ESG-related clauses into their term sheets.

Mostly Series B but with the rest of the pressure across ALL SUPPLY CHAINS to disclose Scope 3 emissions, expect ESG to play an integral part of due diligence.

Supply chain implications

There's a growing demand for transparency around Scope 3 emissions, those arising from supply chains.

For example, in 2022, KPMG implemented a Sustainable Procurement programme, encouraging 100+ suppliers to voluntarily disclose their full value chain of emissions.

This is alongside requiring employees to travel by train whenever possible and the introduction of a travel management tool people can use to select more sustainable choices.

Given the intrinsic links small businesses and charities have to larger corporations' emission reporting, immediate action is paramount.

Reputation Management

Public awareness of climate change is growing. Any organisation failing to actively track and reduce its emissions risks reputational damage in the eyes of increasingly environmentally aware consumers.

The journey towards a more sustainable future has begun. By concentrating on carbon transparency, sustainable practices and innovation, you can shape a resilient organisation that creates a climate-positive and sustainable impact.