It’s been nearly two weeks since COP27 – dubbed the “African COP” – ended.
It’s also been two weeks since we posted the first article in our series on “A Pathway to Net Zero for SMEs” in which we summarised what Net Zero is and why it’s important for SMEs to embark on carbon reduction initiatives.
In response to our article, a few people reached out to us. Their comments predominantly focused on how the situation differs for African SMEs compared to, say, European SMEs. Questions asked included:
“How ‘fair’ it is to ask African SMEs to implement carbon reduction initiatives given how little African countries, and by extension African companies, are contributing to greenhouse gas emissions?”
“Is it ‘fair’ to ask African SMEs, who are already struggling to be part of global supply chains, to help larger companies in the Global North reduce their carbon emissions?”
“If SMEs in more industrialised economies are struggling financially to adopt appropriate carbon reduction plans, how are African SMEs – who are more significantly cash constrained, dealing with interest rate charges of up to 30% and battling daily challenges around connectivity and bureaucracy – supposed to survive?”
Questions which deserve truthful answers that bridge the gap between rhetoric and reality.
Three foundational realities:
1. The current and growing adverse impacts of climate change.
2. In spite of its low contribution to the adverse impacts of climate change, Africa is the most vulnerable continent to these impacts.
3. African countries cannot- and should not be expected to - act alone and countries with more industrialised economies should be doing more. And here we are not just talking about the US$100 billion a year pledge made in Paris which has not materialised.
We’ve all heard the oft-cited fact that the whole of Africa accounts for only 2-3% of the world’s CO2 emissions. And although data on the environmental impact of SMEs is limited, recent research by Sage and Oxford Economics suggests that SMEs in South Africa are responsible for 14% of non-household emissions while SMEs in the UK are responsible for 40% of non-household emissions!
A report by the United Nations Economic Commission for Africa found that African countries were “spending more than their fair share for climate adaptation” – on projects such as early warning systems, drought-resistant crops, and redesigning government policies – with expenditure varying between 2% and 9% of GDP across the continent. This is in comparison to lower spending in the more ‘developed’ countries. For example, the United Kingdom’s 2021 budget devoted only 0.01% of GDP towards fighting the climate crisis.
The African continent will need financial and technical support to achieve the scale of mitigation and adaptation required. But as Ngozi Okonjo-Iweala once said, “fairness cannot be the only goal” in the fight against climate change.
So, what role is there for African businesses as the world adapts to climate change?
During COP27 the African Business Leaders’ Coalition was formed. The leaders of 56 companies – with a combined revenue of more than $140 billion – released a statement committing to climate action, stating “We believe the African private sector is uniquely positioned to positively shape the future of our continent and improve the welfare of our communities.”
But given the constraints facing African SMEs and their glaring absence at decision-making tables, should they be required to adopt carbon reduction plans?
We would say “yes” but with an important caveat.
Rather than drowning under expectations around Net Zero plans, they should focus on understanding as much of their own carbon emissions as possible (see our article for definitions on Scope 1 and 2 emissions); on setting realistic one, three and five year targets; and on implementing affordable carbon reduction opportunities.
We recognise that even these steps pose challenges, but amidst challenges there are also opportunities which also result in proportionate contributions by African SMEs to reducing the adverse impacts of global climate change.
1. Carbon reduction initiatives can save companies money: Improving operational efficiency and resource management is a great way to reduce costs. For example, Sockit Manufacturing is a company in South Africa that produces socks for brands such as Nike and Adidas. The company employs around 50 people and they embarked on an energy efficiency project. The initial investment of ZAR 550 000 – in projects such as installing a more efficient boiler, steam system optimisation, and compressed air optimisation – realised an annual saving of ZAR 140 000 (4-year payback).
Global Trade Solution (GTS), a consulting and software company in South Africa with fewer than 50 employees, has implemented some low-cost initiatives to reduce their climate impacts. These include an internal drive to reduce the use of paper, a programme to separate and recycle the waste it produces, and a campaign to encourage employees to reduce water and electricity consumption by 50% at work and at home.
2. SMEs can work with larger companies and trade associations: SMEs will need support from larger companies, financial institutions (including banks and insurance companies), the international community and their governments. SMEs should work with trade associations to negotiate with larger companies to get more technical and financial support for carbon reduction initiatives.
Levi’s is one example of a large company providing such support. The company has established a partnership with the International Finance Corporation offering lower interest rates on short-term financing to suppliers that demonstrate progress in reducing GHG emissions and improving water efficiency.
Maybe, as a start, the COP 27 African Business Leaders should include in their statement a commitment to actively and practically support smaller companies – and then implement their commitment.
3. Carbon reduction initiatives can improve access to capital: Embracing carbon reduction and sustainability opportunities could improve SMEs access to capital.
There are an increasing number of initiatives that are aimed at supporting SMEs’ ability to implement energy efficiency opportunities. For example, in 2019 the European Investment Bank (EIB) partnered with the Eastern and Southern African Trade and Development Bank (TDB) to open a $120 million credit line to finance renewable energy projects for SMEs.
In the agricultural sector especially, we are seeing an increased focus on funding and investing in sustainable technologies. For example, Kubeko is a company that makes a low-cost biowaste processing equipment that ferments post-harvest by-products into compost and cooking gas. In doing so, Kubeko assists smallholder farmers and their cooperatives to generate more income from the by-products of their harvests, without any additional labour.
Businesses in Africa, no matter their size, cannot afford to wait for others “to do for them”. It is important that we all, in our own big or small way, do something to reduce the emissions that are causing and continue to cause this harm.
We appreciate the comments about African SMEs. Not only will we continue to bear them in mind during our series, but we have also decided to change the title of the series to reflect the reality that for SMEs, and in particular those still in industrialising countries, the pathway may not yet be to ‘net zero’.
As our dear friend @Laurie, owner and managing director of @VillaMonticello, said “It is fair to ask us to contribute to managing the impacts of climate change but it will come down to the cost of implementation”.
Written by Rosalind Kainyah MBE, an authority on Sustainability and responsible business with over 30 years of combined legal, international, executive and board level experience, and Helen Stickler, Co-Founder of Triplo ESG.
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