The United States and China announced a breakthrough agreement late last year to combat climate change by reducing CO2 emissions by the year 2030. This agreement means that for the first time, the three largest emitters of greenhouse gases (GHGs), the European Union, the US and China, have publicly committed to emissions targets.
The EU commitment is a 40 percent reduction below 1990 levels by 2030. It is already about halfway there. By comparison, the new US agreement is to reduce its CO2 emissions to between 26-28% below 2005 levels by 2025. China has agreed prevent its carbon emissions from growing after 2030. The latter is significant given that China’s current growth in emissions is at an exponential rate, fueled by its rapidly growing middle class and efforts to raise millions out of poverty.
These are significant targets that will have wide-ranging impacts on all of us. But where will the reductions come from? How will agreements affect small and medium enterprises (SMEs)? What role will SMEs play in making these commitments a reality?
These answers are not entirely clear to us yet. However, it is becoming clearer that the survival of many SMEs may depend on them. The primary reasons lies in how the global economy connects SMEs to larger systems. We have already begun to see the impacts of climate change related extreme weather events on supply chains and economies near and far. Here are some examples of the kind of far reaching impacts that climate events made more extreme by climate change can have:
- A drought in China and Russian bush fires fueled rises in bread prices and availability that gave rise to the Arab Spring; a drought in Syria gave rise to civil war.
- A drought in Texas caused the closing of a meat packing plant in Plainview, eliminating 2300 jobs in one day and destroying the local community’s economy.
- Water scarcity in India forced Coca Cola to walk away from a bottling plant; drought in California caused Starbucks to move sourcing and manufacturing of Ethos Water to Pennsylvania.
Situations of scarcity like these and the transition away from carbon-based fuels and products that is coming will impact SMEs. So will resulting changes in pricing of the resources an SME relies on for its business operations.
It’s clear that we need to avoid from the costly events and conditions that result from climate change. The cost of continuing down our current path is indeed risky business, and ultimately more costly than meeting the new targets for GHG emissions reductions. It’s also clear that the transition from our carbon-based economy will have winners and losers. Are there losers in your supply chain? In your customer base? Is your business currently on the loser end of the spectrum?
The good news is that by answering these questions and creating a plan to transition to a low carbon economy can convert a loser into a winner. It takes hard work and planning now for what needs to happen. Forward looking businesses are not waiting for the governments of the EU, the US and China to legislate what the transition looks like if these countries are to make good on their commitments to make this transition. Many companies, large and small, are taking action now to assess and innovate away from their carbon dependencies in an orderly way.
As part of this, it behooves an SME to think about its entire value chain. Where do your resources come from? How will price increases for carbon-based commodities affect your sourcing? What dependencies do your customers have? Will they have continued buying power as a low carbon economy emerges? What products and services will be in demand or out of style in a low carbon economy? As some current products become unprofitable, what new opportunities will emerge and take their place?
According to a recent study by Cox Conserves, more than half of all SMEs in the US will have a sustainability program within five years, and more than 60 percent in ten years. A greater percentage of US companies on the West Coast already have sustainability programs than do businesses on the East Coast. There are many lessons learned that SMEs who are just getting started can benefit from. Which group is your business in?
Several years ago I heard Ray Anderson talk about his sustainability journey as CEO of Interface Carpet. When the company finished gathering the information it needed to understand its negative social and environmental impacts, Ray knew that it would take the company several years to make the needed transitions. It took more than ten.
But that was before sustainability became a regular topic in the news. Nowadays, SMEs looking to make the transition to this new normal will benefit from the innovations of people like Ray Anderson. You can transition your company to a sustainable business model more quickly now, because there are more sustainable products and services in the marketplace and more sustainable businesses with whom to partner. You can prepare now for future customer and government requirements so that they are not a severe shock to your system. We’re empowering SMEs to do this themselves, without the cost of hiring an expert, with our online service for sustainability management.
You can find more information about connections between outsourcing and negative impacts like GHG emissions and pollution here. These types of arrangements may be targets for government action to reduce emissions. For a primer on getting your own and your supply chain’s GHG emissions under control, check out this free white paper on climate change, and blog posts here and here on carbon accounting. If you are looking for an affordable solution for securing your company’s future by building a business culture around sustainability, demo Sustrana’s online service.
A version of this post was previously published on Forum for International Trade Training.