Finance and investment for greening SMEs

Public and private financial institutions have a critical role to play in financing the SME green transition and providing non-financial support in terms of awareness raising and practical tools to help guide SMEs on the journey to net zero.  In doing so, they can help boost SMEs’ demand for green financing and investment. Financial support can entail direct financing from public entities through loans, equity, grants, or indirect support through guarantees and other instruments that can crowd in private financing for SME clients. Fostering innovation in the financial system and markets is also critical to enable digital financial solutions to play a role in broadening SMEs’ access to sustainable finance. Fostering SME participation in green financial markets is also important. 

A large share of SMEs lack the awareness of the steps they need to take to advance in the net zero transition, which curbs their demand for sustainable finance and investment. At the same time, SMEs face considerable financing constraints when they do seek to undertake net zero investments. Non-financial support is critical to address awareness-, knowledge-, and resource gaps that SMEs face in embarking and advancing on the journey to net zero and nature positive, and in seeking out sustainable finance. It is also critical in helping SMEs to be able to measure and report on their progress on this journey.

Many different actors have to be mobilised to support SMEs’ transition to sustainability, including regulators, policy makers, standard setters, public and private financial institutions, ESG intermediaries, accountants, providers of digital financial and non-financial solutions, and many others. Fostering regular dialogue, knowledge-sharing and partnerships among these different entities can help generate and disseminate relevant solutions to accelerate the transition. 

The OECD Platform on Financing SMEs for Sustainability continue to support this endeavour through its analytical work, data collection, and knowledge-sharing activities. It will also support efforts to build consensus around the types of data that financial institutions should seek from SMEs to minimise their compliance burden.

Many current and emerging regulations, notably regulations on sustainability disclosure, have been designed with large enterprises in mind and have largely exempted non-listed SMEs which account for the vast majority of SMEs. This means that reporting entities, including financial institutions, have to request a certain set of data points from their SME clients and translate them into relevant metrics to meet their own comprehensive reporting requirements. Some financial institutions use already existing frameworks for obtaining such data from SME clients, while others rely on their own assessments and methodologies. This creates a plethora of different approaches and data points that are being sought from SMEs, which further compounds the burden on these entities with limited capacities to measure and report on their sustainability performance.  

The development of simplified reporting frameworks for SMEs can help take into account their relatively more limited capacities for measurement and reporting compared to large firms, as can the promotion of interoperability of these frameworks. Likewise, dialogue to explore how these requirements could be balanced or offset by using estimates can contribute to minimising the burden for both SMEs and financial institutions.