The path to net zero for small-to-medium enterprises
www.nesta.org.uk/project-updates/the-path-to-net-zero-for-small-to-medium-enterprises/
www.nesta.org.uk/project-updates/the-path-to-net-zero-for-small-to-medium-enterprises/
At Nesta Investments one of our priorities is to invest in technology that helps small-to-medium enterprises (SMEs) make progress towards net zero while raising their productivity. A fundamental activity is understanding their carbon footprint and what actions they could take to minimise it while improving the efficiency of their business operations.
Nesta's Meera Shah has done a deep dive into this sector and mapped over 290 companies active in the UK, Europe, North America and Asia-Pacific (APAC) region. If you spot any companies we have missed, please contact us via this form. Explore our interactive solutions map and our factbase including information on EU and UK regulations. We hope this provides helpful information for SMEs, start-ups or investors interested in this sector.
Early stage investment into the broad area of climate fintech has increased in recent years, with particularly rapid growth seen in the last two years. With $2.9 billion invested globally, 2022 saw 142% year on year growth from 2021 ($1.2 billion invested globally) and was over three times the 2020 total. 2023 matched this with $2.3 billion invested across Europe and the US.
This growth is most likely being driven by existing and emerging regulations, such as the corporate sustainability reporting directive in the EU and the Companies Climate-related Financial Disclosure Regulations in the UK. These regulations currently affect large corporations and financial institutions, which will need to report on their emissions, climate risks and opportunities through annual disclosures. SMEs do not currently have to report against any frameworks, but they will be impacted by supply chain reporting for their corporate clients and finance providers.
There are many well-financed solutions for carbon accounting and an increasing number of entrants to the market. These solutions are mainly focused on large corporations. Europe is the largest market by number of companies, which is expected given the pace of regulation compared to North America and APAC. We anticipate a rise in US activity once the recent Securities and Exchange Commission ruling on climate information disclosure across scopes one and two is unpaused. Some individual states have introduced climate information disclosure across scopes one, two and three. The introduction of subsidies and tax breaks under the Inflation Reduction Act in the US may also generate the need for climate data reporting solutions to evidence impact.
Distribution of small to medium enterprises by geography
There is not much difference between products technically. The common functions are:
However, some platforms are offering additional features or points of differentiation, such as:
The market is undoubtedly crowded with the first wave of carbon footprint and environmental, social and governance (ESG) reporting solutions. However, we can see space for innovation in automating life cycle assessments (LCAs) and supply chain management, tracking decarbonisation and reporting on scope three emissions, especially with SMEs in mind.
There is a market timing risk in building solutions specifically targeting SMEs, especially with changes in regulatory timeframes as well as advances in AI. However, given the increasing challenges SMEs face in managing and mitigating climate and ESG risks, solutions in this area could have a significant impact, especially considering their economic importance worldwide. Solutions for SMEs should have features such as high levels of automation and actionable insights, links to support that would otherwise be hard to find (such as green finance, materials or suppliers), and the ability to share data up and down the supply chain.
More details on this deep dive can be found in this blog.
If you are a start-up rising in the carbon reduction or green skills and productivity space, or an investor with an interest in these areas, please do get in touch at [email protected].
