Few SMEs have plans to mitigate impacts of climate change: BMO survey
December 9, 2022
By BMO Financial Group
According to a BMO Climate Institute survey of small and medium-sized businesses (SMEs) in North America, respondents are very or somewhat concerned about the impacts of climate change, but other priorities and the high costs of climate mitigation mean few have plans in place to fight it.
The inaugural BMO Climate Institute survey of SME’s’ views on climate change found 69 per cent of respondents expect the physical impacts of climate will disrupt operations over the next five years, and almost a third say severe weather patterns are already creating challenges. Despite this, only 24 per cent of Canadian businesses have a plan in place to address it. In the U.S., the number of those with a plan rises slightly to 28 per cent. Many SMEs say they are either unsure where to begin or are focused on more immediate challenges to justify the cost of mitigating climate change.
SMEs account for more than 98 per cent of businesses in Canada and over 99 per cent in the United States. They employ approximately 70 per cent of the total workforce and have been responsible for creating more than half of net new private sector jobs over the past few decades, yet they feel they receive very little support from government and external partners to help them with climate change.
To make progress against climate change, SMEs need advice and support
“The BMO Climate Institute commissioned this survey to seek a deeper understanding of how small and medium-sized businesses – fundamental participants in a successful energy transition – view climate change and the associated challenges as well as opportunities,” said Susan McGeachie, head of the BMO Climate Institute. “While we weren’t surprised that most SMEs don’t yet have a climate change plan in place, for myriad reasons, we were surprised to learn that so many of them are already feeling its impact. There are right-sized strategies for SMEs that they can undertake now to protect their businesses from climate change-related risks due to factors like changing weather, and measures to accelerate a low carbon transition.”
“The results of the survey reveal that 35 per cent of those businesses with a plan are doing it to meet customer expectations, while those without a plan are looking for advice and support in mitigating the impacts of climate change on their businesses,” said Michael Bonner, head of Canadian Business Banking for BMO. “BMO’s climate ambition is to be our clients’ lead partner in the transition to a net-zero world. We are focused on helping them thrive and make progress by contributing to their understanding of climate risks, advising them on their climate plans, and discussing their financial options.”
The survey results contrast with the actions many large organizations are taking to manage greenhouse gas emissions throughout their entire supply chain. Either through collaborative disclosure initiatives or on their own, large companies are increasingly asking their suppliers to report their GHG emissions which enables them to calculate, monitor, disclose and, ultimately, reduce the carbon intensity of their products. Few SMEs (15 per cent in Canada and 19 per cent in the United States) however, view greenhouse gas reduction and other transition risk as the top climate-related impact on their business. Rather, 44 per cent of respondents perceive climate change through the lens of severe and unpredictable weather patterns – potentially missing climate-related opportunities tied to the transition to a lower carbon economy.
“Interestingly while most SMEs are not yet prioritizing GHG emissions when they consider climate change, many of these companies are part of the supply chains of much larger organizations that are,” said McGeachie. “This is a gap that will need to close as large companies seek to understand and remedy emissions along their value chain. It takes time to put the systems in place to measure and track GHG output so this is something that SMEs need to start thinking about now.”
For SMEs, economic and commercial factors are the most important drivers to advancing climate action:
- 30 per cent of Canadian and 19 percent of American respondents said GHG costs are already having an impact on their economic performance.
- 24 per cent of Canadian and 27 per cent of U.S. companies expect carbon pricing to be a challenge within three years
- Almost a third of U.S. businesses with climate plans have them because they expect it will improve their profitability and/or share value.
- Across North America, 21 per cent of respondents said investor expectations influenced their decision to adopt a climate change policy.
- Many of those surveyed said they are too preoccupied with inflation, supply chain and labor issues to implement climate strategies.
- More than 90 per cent of business leaders in Canada and the U.S. said they are concerned about inflation and rising interest rates.
- In Canada, 80 per cent of SMEs ranked labour shortages as their biggest concern, ahead of supply chain challenges (77 per cent) and climate change (71 percent). In the U.S., 80 per cent of SMEs ranked supply chain bottlenecks as the biggest concern after inflation and rising rates, while climate change ranked on par with labour shortages amongst roughly 70 per cent.
Small and mid-sized businesses think their banks can help them plan
Forty per cent of SMEs are in the process of developing a climate plan but only 19 per cent in the U.S. said they feel supported by government. In Canada, this drops to nine per cent. The survey found that many leaders see opportunities to partner with their financial institutions; seven in 10 of Canadian and U.S. respondents said financial institutions could help them better align their business with climate change objectives. In Canada 17 per cent of SME leaders said their financial institutions are already playing this role, compared to 27 per cent in the U.S. Almost half of business leaders feel financial institutions could do more to help them with climate plans.
In both Canada and the U.S., more than 80 per cent of small and medium-sized businesses say they are either very or somewhat interested in any insights they could get from their banks on how to address climate change, including discounted loan programs to help cover associated costs.
“A key challenge for both Canada and the U.S. in making progress on national climate change goals is that we’re still lacking the right economic incentives to both decarbonize and invest in more resilient operations, particularly when the costs associated with addressing climate change are highly uncertain,” said McGeachie. “These challenges create a divergence between corporate strategy and policy goals for decarbonization, especially for SMEs.”
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