Until now, most sustainability reports have catered to the ambitions of large, high-emitting global corporations due to customer and investor pressure for emission reduction. Although this pressure has cascaded down to the SME level, there has been a lack of clear guidelines and support, with many SMEs citing cost and complexity as barriers to action.

The CDP climate disclosure framework marks a new chapter of focus on SMEs. It is developed specifically for the needs of SMEs to stimulate measurement, management, and disclosure of the most vital climate-related indicators, equipping SMEs with the tools and resources needed to move from climate commitment to action.

Why is SME action important?

The world is at a critical junction for global action. The IPCC’s Sixth Assessment report highlighted the potentially catastrophic and irreversible damage that could occur if global temperatures rise past 1.5°C. If global warming temperatures are to be limited to1.5°C there is an acute necessity to cut emissions by half in the next decade.

SMEs play an important part in limiting climate change for a couple of key reasons:

1. SMEs are major engines of value, making up the majority of the global economy. Globally SMEs represent 90% of businesses and 50% of employment worldwide. They must lead by example in the race to Net Zero.
2. According to a study by CDP, supply chain emissions are 11.4x higher than operational emissions. As such, SMEs, who are an integral part of the supply chain, provide a huge emission reduction potential. Large companies depend on SMEs to reduce their supply chain emissions. This has resulted in mounting pressure for SMEs to help companies achieve their carbon reduction goals.

“SMEs play a major role in economies around the world; micro-enterprises alone account for 70–90% of all firms. Without them, we cannot transition to a 1.5°C future” — Sonya Bhonsle, CDP Global Head of Value Chains and Regional Director Corporations

What the framework offers

SMEs greatly vary due to factors like the company size, experience with climate disclosure, and the nature of products and services offered. Given their heterogeneity, the new CDP framework is built on flexibility, allowing SMEs to tailor the framework to their disclosure needs and reporting capabilities.

The flexibility is achieved through a modular design, enabling SMEs to complete as many or as few sections as they want beyond the minimum core requirements. It also allows prioritisation of the most important and relevant considerations for them and their stakeholders.

The framework translates other reporting standards, such as the GHG Protocol, Task Force on Climate-Related Financial Disclosures(TCFD), and the Science Based Targets Initiative (SBTi) into an SME-centric framework. It informs SME reporting where appropriate given that most of these standards are directed towards larger organisations. The framework consists of three core modules and four additional modules.

The Core Modules

1. Measure: so every company can understand its negative impact on the climate and take the necessary steps to reduce it.
2. Commit: commitments to report on and reduce its contribution to climate change, aligned with SBTi and a 1.5°C future, and provide a structure for climate action.
3. Action and Impact: reporting key actions and initiatives a company is taking to meet its targets and reduce its environmental impact. This module requires companies to disclose details of initiatives to reduce emissions in scopes 1,2, and 3.

The additional modules should be expanded and integrated into reporting structures within three years.

The Additional Modules

1. Energy: for many sectors, this is the most significant GHG emission source and is, therefore, an important focal point.
2. Value Chain Emissions: these are emissions that lie outside of the SMEs’ direct operations and are related to their supply chain and end-users.
3. Management and Resilience: requires commitment and a drive from leadership to demonstrate climate-conscious behaviour. It is proven that companies who integrate climate-related decisions and initiatives in the company-wide strategy are more likely to be able to make meaningful action and meet climate targets.
4. Climate Solutions: SMEs have the opportunity to contribute to the rapidly growing low-carbon products and services. Disclosing the impacts of these products will attract investment and facilitate company growth.

However, this is not an exhaustive list and other considerations such as carbon removal and broader environmental concerns like biodiversity and water security could be integrated into the framework at a later date.

What are the benefits of the climate disclosure framework for SMEs?

1. Build business resilience by getting ahead of regulatory and policy changes, identifying and tackling the growing climate-related risks as well as opportunities.
2. Gain competitive advantage, by attracting investment and talent.
3. Keep up with supply chain demands and climate policy regulations by preparing SMEs for the increasing mandatory environmental reporting rules and decarbonisation requirements they will have to complete.
4. Meet consumer and investor demands which are increasing in strength and number as climate awareness grows.

SMEs play a pivotal role in tackling global climate change, provided the resources and tools are there to facilitate the transition to a low emission economy. The CDP climate disclosure framework provides SMEs with the means to understand how best to reduce emissions and report their impacts and strategies to multiple stakeholders. However, these frameworks must be backed by action. Currently, 1,800 SMEs disclose climate information to CDP. It is hoped that the release of this new framework will drive increased, industry-wide uptake.

The CDP climate disclosure framework was launched in collaboration with SME Climate Hub and created in partnership with the Exponential Roadmap Initiative and Normative.

To find out more about how Altruistiq could support your business in its sustainability transition, drop us a line at insights@altruistiq.com.

Altruistiq is a climate software company providing businesses with the technology infrastructure to measure, manage and abate their sustainability impact.

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