## 4.4 The Net-Zero Journey for Small-and Mid-Sized Companies


## 1. Foundational


### Scope 1-2 Emissions Disclosure

The first step for every company is to establish a greenhouse gas (GHG) inventory. By establishing the inventory, you can understand the quantity of emissions a company generates through its business operations. Measuring emissions is complex and time-consuming, but it is also the foundational step towards net zero. Only once companies measure their emissions can they take subsequent steps such as target setting and systematic reduction activities.SMEs are defined as non-subsidiary, independent companies with fewer than 500 full-time employees (FTEs), as per the SME Climate Commitment. SMEs are further categorized based on size into:Micro (fewer than ten FTEs) Small (10-50 FTEs) Medium (50-500 FTEs)Knowing that small- and medium-sized enterprises (SMEs) often have less capacity and resources available than large entities, the SME Climate Hub offers a free Business Carbon Calculator that can be used to estimate your company’s full carbon footprint and find quick-win emissions reduction actions.The Business Carbon Calculator works in three simple steps:Create a business profile to add basic information about your business, e.g., size, sector, and market. Add your business data to add more detail about electricity, heating, etc.See your emissions through a personalized dashboard with a breakdown of your company’s current emissions.The SME Climate Hub’s Business Carbon Calculator relies on data and methodology from the GHG Protocol, which is the most widely used emissions reporting framework worldwide, but streamlines it for SMEs. For more information, please reference the Business Carbon Calculator here.Reporting is mandatory for all companies who make the SME Climate Commitment. The SME Climate Hub provides a free reporting tool for SMEs committed to the initiative to publish a simplified annual greenhouse gas emissions report, as well as actions they are taking and the impact of emissions reduction efforts. For more information on the reporting tool, please refer here.The reporting tool is based on the CDP’s simplified Climate Disclosure Framework, which outlines the minimum level of disclosure to measure emissions as a small to medium-sized company. The framework is designed to be simple and flexible to reduce reporting burden. For more information on CDP’s framework for SMEs, please refer here.For an explanation of how to calculate emissions as a large entity, please refer to Chapter 4.2 “The Net-Zero Journey for Large Non-Fossil Fuel Companies”.


### Reduction Quick Wins

Once you know the emissions baseline, reduction quick wins are simple and easy steps to reduce emissions, even without substantial mitigation know-how or expertise. Quick wins can be identified with the help of decarbonization lever libraries, which provide a wide range of potential solutions that reduce your climate impact.There are multiple free-of-charge libraries available, which can form an interesting starting point for identifying reduction quick wins:In the CDP framework for SMEs, the appendix provides examples of climate-related initiative types. Numerous  decarbonization activities are outlined, including energy efficiency in buildings, energy efficiency in production processes, low-carbon energy generation, etc. For more information, please reference the framework’s appendix here. The UK Business Climate Hub provides SMEs in the UK with advice and support along the net-zero journey. In their action library, they provide an extensive list of actions that can be taken immediately to reduce gas and electricity costs, as well as more systematic carbon reduction actions segmented by theme or business sector. For more information, please reference the UK Business Climate Hub here.  The SME Climate Hub Action Guides is another valuable source showcasing how SMEs can take action to reduce their emissions. Reference here. The Carbon Trust has published many free guides and resources to specifically help SMEs tackle net zero. In section 3 of their guide “The journey to Net Zero for SMEs,” the Carbon Trust provides examples of carbon reduction opportunities for SMEs. Other resources also include guides with more detailed explanations of technologies and sector-based guides for energy efficiency. To reference their free guides for SMEs, please refer here.


## 2. Advanced


## SME Climate Commitment

SME suppliers are encouraged to set targets as per the SME Climate Commitment’s three asks:Halving greenhouse gas emissions before 2030Achieving net-zero emissions before 2050, andDisclosing progress on a yearly basis.For more information on SME target setting, reference the SME Climate Hub here. For more information on case studies of committed SMEs, please reference here.The SBTi offers an exclusive streamlined target validation route for SMEs. View the SBTi's SME definition here. SMEs have three options for science-based target setting: near-term targets, near-term maintenance targets, and net-zero targets. SMEs must set near-term targets aligned to a 1.5°C pathway before they can set a net-zero target. For more information on the SBTi’s process for SME target setting, please reference the SBTi page here.


## 3. Leading


## Systematic Reduction Activities

After setting and evaluating targets, you need to develop a systematic plan that ensures that your targets are achievable. Systematic reduction activities will ultimately tell you how you can reach your targets, that is, when to apply which decarbonization lever.To craft your “decarbonization strategy” and prioritize the emission reduction actions, you should understand:Which decarbonization levers do you apply at each time point?What impacts will the levers have on total emissions?The plan for systematic reduction activities is ultimately highly sector- and company-specific.The Exponential Roadmap’s 1.5°C Business Playbook is one example of a framework on how to set a four-pillar climate strategy. The first pillar focuses on planning and taking action to reduce a company’s emissions, including key systematic activities such as:Installing on-site renewable electricity production solutions.Improving energy efficiency for buildings through retrofitting.Systematically reducing resource waste in all operations.For more information, please reference the Exponential Roadmap’s 1.5°C Business Playbook here.For more details on systematic reduction strategies, you can refer to Step 3 “Turn your targets into action” in Chapter 3 of the Climate Drive’s Net Zero Guidebook here.


## 4. North Star Ask


### Product Carbon Footprint Disclosure and Exchange

If a company has reached the North Star, they should have accomplished the steps in the three previous stages of the journey, i.e., disclosed Scope 1-2 emissions, began reduction quick wins, set targets, and began systematic reduction activities. At the North Star stage, the company will start to gain transparency on its Product Carbon Footprint (PCF) and exchange as well as its Net-Zero transition plan.A PCF (product carbon footprint) examines the GHG emissions of one product across its life cycle, from raw material extraction to recycling or disposal. There are several standards and frameworks that explain how to calculate a PCF, including:The PACT Pathfinder Framework:  developed by WBCSD, a framework that explains and illustrates how to calculate a PCF. Within the boundary of the Pathfinder Framework, only “cradle-go-gate” emissions are included in your emissions calculations. This includes all materials upstream of your own operations, i.e., material acquisition, preprocessing, production, distribution, and storage. Emissions after the material has reached your company's gate are not considered. For further information, please refer to the Pathfinder Framework here.The ISO 14067:  specifies principles, requirements and guidelines for the quantification and reporting of the carbon footprint of a product and is consistent with other Standards on life cycle assessment. For more information, please look here.The PCF can be done on an end-to-end basis (“cradle-to-grave”) or partially (“cradle-to-gate” meaning from the raw material extraction – the “cradle” – until the last manufacturing process before entering your factory’s “gate”).


### Net-Zero Transition Plan

A comprehensive Net-Zero Transition Plan goes beyond systematic reduction activities and includes other elements, e.g., a holistic implementation roadmap, governance structure, or engagement strategy. A transition plan describes your overall approach to the net-zero transition and shows the credibility of your commitment, which is becoming increasingly necessary as regulatory pressure tightens.Six commonly observed elements of a transition plan include: ambition, implantation roadmap, initiatives, governance, engagement strategy, and progress measurement and metrics.A best-in-class transition plan should be impactful, credible, and ensure delivery. Testing your transition plan against those key criteria once developed, can help to pressure test its quality. In addition, there are a few best practices to consider across each key element, to ensure your transition plan is complete (see detailed graphics in the session below).There are numerous international initiatives developing frameworks for transition plans. The Transition Plan Taskforce (TPT) Disclosure Framework is currently defining a framework for a “best-in-class” transition plan, following the three principles of ambition, action, and accountability. Disclosure elements of the TPT’s Sector-Neutral Framework cover the foundation, implementation strategy, engagement strategy, metrics & targets, and governance in a transition plan. The Framework’s steps are detailed here.Other frameworks providing emerging guidance on how to develop a transition plan include:The Glasgow Financial Alliance for Net Zero (GFANZ) has published guidance on transition plans specifically for financial institutions. For more information, please reference GFANZ here. The CDP guides how organizations disclosing through CDP can demonstrate they have a credible climate transition plan in place. Their technical note outlines principles of credible climate transition plans here, and more information on CDP’s work with transition plans can be found here.


## References to key resources and tools

The SME Climate Hub’s Business Carbon Calculator streamlines emissions calculations for SMEs. For more information, please reference the Business Carbon Calculator here. The GHG Protocol’s Corporate Accounting and Reporting Standard, which forms the foundation for the Business Carbon Calculator, can be referenced here. The SME Climate Hub provides a free reporting tool for SMEs committed to the initiative to publish a simplified annual greenhouse gas emissions report. For more information on the reporting tool, please refer here. The CDP’s simplified Climate Disclosure Framework for SMEs can be referenced here. In the CDP Climate Disclosure Framework for SMEs, the appendix provides examples of climate-related initiative types here. The UK Business Climate Hub provides SMEs in the UK with advice and support along the net-zero journey. Their action library can be referenced on the UK Business Climate Hub here. The Carbon Trust has published many free guides and resources to specifically help SMEs tackle net zero. To reference their free guides for SMEs, please refer here. For more information on SME target setting, reference the SME Climate Hub here.For more information on case studies of committed SMEs, please reference here.

The SBTi has streamlined target setting for SMEs. For more information on the SBTi’s process for SME target setting, please reference the SBTi page here. The SBTi's definition on SMEs, please reference here.The Exponential Roadmap’s 1.5°C Business Playbook provides a framework on how to set a four-pillar climate strategy. For more information, please reference the Exponential Roadmap’s 1.5°C Business Playbook here. Step 3 in Chapter 3 of the Climate Drive’s Net Zero Guidebook provides tips on turning targets into action here. Disclosure elements of the TPT’s Sector-Neutral Framework cover the foundation, implementation strategy, engagement strategy, metrics & targets, and governance in a transition plan. The Framework’s steps are detailed here. The Bank of Scotland has created a practical guide for SMEs titled “From Now to Net Zero” that can be referenced here. The UN-backed Race to Zero Campaign outlines minimum transition plan contents here. The CDP’s technical note outlines the principles of credible climate transition plans here.