SMEs may not be able to access sustainable finance due to their limited ability to provide sustainability performance data, which is increasingly sought out by financial institutions to manage risks, develop financing instruments and meet reporting requirements, said policy advice and research organisation OECD on Wednesday.
The report Financing SMEs and Entrepreneurs 2024 monitoring SME and entrepreneurship financing trends, conditions and policy developments in close to 50 countries said that access to finance is currently an important constraint for SMEs’ net-zero action and will likely represent an even bigger constraint going forward.
Financing conditions are becoming increasingly dependent on sustainability considerations, and financial institutions are facing non-financial reporting requirements, placing a reporting burden on SMEs.
In a 2023 OECD survey, both public and private financial institutions had stated that they are increasingly integrating climate considerations in their operations, including by offering tailored financing solutions for SMEs’ investments in net zero through several loan types, credit guarantees, and other financing instruments.
“In a recent survey of nearly 350 SMEs globally, 55 per cent of respondents identified the lack of funds as a key reason for limited action on climate change and nearly 70 per cent stated that they need additional funds to take action or accelerate their progress on emission reductions,” the report noted.
Moreover, SMEs also risk losing access to finance if they cannot demonstrate credible transition plans in their advancements to net zero, a significant issue for SMEs in high-emitting and hard-to-abate sectors, the report said.
SMEs’ limited demand for sustainable finance, often due to lack of information, awareness, capacity constraints and market and regulatory uncertainty, poses additional challenges. Hence, in the absence of SME demand, financial institutions have limited incentives to develop tailored financing solutions for financing SMEs’ net-zero investment needs.
In order to help foster the provision and uptake of sustainable finance for SMEs, and to maximise the potential for private actors to the contribute to the transition, the report suggested measures for public institutions such as first, devising sustainability-related policies and regulations that take into consideration the impact on SMEs; strengthening the transparency and interoperability of sustainability-related data, definitions and standards; providing financial support to address challenges impeding SME access to sustainable finance; providing non-financial support for SMEs to foster their access to, but also uptake of sustainable finance; and more.