Session 4: Stimulating green innovation in SMEs

Martin Godel, Head of Small and Medium Size Enterprise Policy Division at the Swiss State Secretariat for Economic Affairs and Chair of OECD Committee on SMEs and Entrepreneurship, moderated this session that focused on greening existing SMEs and supporting green start-ups.

The scene-setting presentation by Céline Kauffmann, Head of the OECD SMEs and Entrepreneurship Division, illustrated the key role that SMEs play in the green transition as both innovators and adopters of green technologies. On the one hand, SMEs have a limited individual environmental footprint but in aggregate they account for 40-64% of industrial waste and 5070% of greenhouse gas emissions by the business sector. On the other hand, SMEs play a key role in green innovation, accounting for up to 70-90% of clean tech firms in some countries. The energy shock may hinder SMEs capacity to invest in green technologies, especially because many firms are coming out of the COVID-19 crisis heavily indebted. Critical areas for government intervention include: promoting the development of green skills, helping eco-innovators commercialise their work, and addressing barriers that constrain access to finance. The OECD work shows that there is a need to address both demand- and supply-side barriers to access finance. Finally, she highlighted the need to adapt disclosure requirements that were designed for big companies to SMEs and smaller companies.

Arvinder Kainth, Industrial Technology Advisor at the Canadian National Research Council (NRC), described the functioning of the NRC’s Industrial Research Assistance Programme (IRAP), which is Canada’s leading innovation assistance programme for SMEs. Central to the IRAP model is a wide network of advisors, who are located in 106 communities across Canada and are private sector professionals with over 20 years of experience in SMEs and multinationals. This diffuse network allows working regularly alongside the client SMEs, providing timely advice, connections and finance to accelerate their growth. The program also provided grants amounting to around $300 million to 1 000 clean tech SMEs in the last four years. Supported SMEs are developing technologies for emissions reduction, climate change remediation, clean transportation, energy storage, biofuels, carbon capture and sequestration, and hydrogen.

Trond Moe, Managing Director of the Nordic Environment Finance Corporation (NEFCO), explained that NEFCO, which is an international finance institution owned by the five Nordic countries, aims to accelerate the green transition by financing green SMEs that have the potential to scale up globally. He highlighted that promising start-ups often have access to equity financing but not to commercial debt. This is because fastgrowing small companies lack assets and are considered high-risk due to their lack of historic performance records by traditional banks. NEFCO aims to cover this financing gap. Finally, he highlighted that the EU’s new green taxonomy set objective criteria to identify “green” companies, but its technical details can be too complex for SMEs. As SMEs will be required to report on them by 2026, it will be important to accompany them in this process.

Véronique Willems, Secretary-General at SMEunited, highlighted that many SMEs are financially constrained because they have used their savings to keep the companies afloat during the pandemic and are highly indebted as COVID-19 support measures mostly consisted of loans. These elements and current high energy prices have led SMEs to stop investing, including in green technologies. She described four key enabling factors to the greening of SMEs. First, a stable policy framework with clear targets. Second, awareness and know-how. This entails easily accessible neutral information on available technologies, technical assistance on the ground, and capacity building of SME organisations. Third, funding. It is important to have tools to provide the upfront financing for investing in green technologies due to the negative impacts of the multiple crises on SMEs’ capacity to invest. Fourth, programs need to be in place to provide workers and entrepreneurs with green skills.

Pamela Jouven, Director at the UK SME Climate Hub, presented the business model used by the Climate Hub to address both knowledge and capacity gaps in SMEs. The Hub provides a one-stop shop where SMEs can find the tools and resources to reduce their carbon emissions. These include: a business carbon calculator that provides SMEs with estimates of their Scope 1, 2 and 3 emissions; an online course for SMEs (i.e. ClimateFit) that provides guidance on mainstreaming climate action in governance, supply chain management, employee engagement and other fields; and information on available funding opportunities for greening businesses. Finally, the Hub has just launched a reporting tool to help SMEs communicate on the progress they have made on their net-zero commitments.

The open discussion focused on the topics of skills development and how to ensure that reporting requirements act as springboard for SMEs’ greener growth. Arvinder Kainth highlighted that exposure to international markets is critical for clean tech SMEs to grow, and that NRC provides funding to small companies to participate in international co-innovation projects and supports them in joining international value chains. Véronique Willems stressed that reskilling and upskilling is a joint responsibility of all social partners (e.g. employers, authorities, workers). Trond Moe remarked that simplified and standardised ESG reporting could help SMEs to leverage their sustainability performance to access financing. Pamela Jouven argued that ESG reporting may also help SMEs to signal their better environmental performance to corporates looking into greening their supply chain. Céline Kauffmann underlined that reporting requirements tend to exempt SMEs that are under certain thresholds, and this may act as a barrier to growth since SMEs may be tempted to remain below these thresholds.

Key takeaways and knowledge gaps

• SMEs are crucial to a successful green transition given their large aggregate environmental footprint and key role in developing green innovations.

• Further evidence on how specific actions for climate mitigation can reduce costs and help SMEs to become more resilient would be valuable.

• More information and data are needed on the skills implications of the green and digital transitions, and how their interaction could affect SMEs.

• Further research could focus on the mechanisms to finance the scaling-up of green SMEs and whether dedicated financial institutions are needed.