The importance of SMEs for a clean transition
In combination with the launch of the first two Omnibus packages at the end of February, the EU Commission also expressed their increased focus on financing a clean transition as well as increasing the access for Small and Medium-sized Enterprises (SMEs) to sustainable finance. These two topics go well hand in hand, since the enablers for a clean transition often are small and medium sized enterprises, that need to 1. Gain more attention as well as 2. Get access to sustainable finance in a way that is compatible with their business model and organization. Also, more private capital needs to be directed to these companies.
In March, the Platform on Sustainable Finance published two interesting reports covering the same topics; Monitoring capital flows to sustainable Investments (Platform on Sustainable Finance report: Monitoring capital flows to sustainable investments – European Commission) and streamlining sustainable finance for SMEs (Platform on Sustainable Finance report: Streamlining sustainable finance for SMEs – European Commission).
In the first report, the Platform evaluates the progress of the green transition and the financing landscape, by using Taxonomy-aligned capital expenditure (CapEx) data from 2,180 companies under NFRD scope. Some of the key takeaways are:
- Green investment is far below the EUR 1.5 trillion required annually to meet EU climate goals
- Green bonds dominate sustainable finance, while green equity finance remains underdeveloped
- Power utilities and car manufacturers are driving the transition, with the power sector showing 81% Taxonomy alignment, and the car sector showing 30%
In its second report, the Platform introduces a tailored framework to make sustainable finance more accessible to SMEs across the EU. The suggested framework introduces classifying as well as reporting sustainable activities and focuses initially on climate change mitigation and adaptation. The structure focuses on:
- Activities – Either listed in the EU Taxonomy or certified via approved green labels.
- Enterprises – SMEs with climate-forward business models or certifications.
- Investments – Green projects, energy-efficient upgrades, or electrification efforts, even if outside the firm’s core activity.
The criteria are aligned with the Taxonomy but are simplified as well as more SME-adapted. The minimum environmental and social safeguards are based on legal compliance, sector exclusions, and voluntary reporting using the VSME standard.
The Taxonomy has shown itself to be a good driver in mobilizing capital towards sustainable investments. There is, however, room for improvement as well as streamlining. The content needs to be clearer, more applicable for companies in all sizes as well as across sectors, and to be inspiring instead of ambiguous and overly complex. The financial architecture needs to be more coordinated to unlock the capital needed for a fair and competitive green transition. To be able to meet the EU climate goals we need to act faster and smarter. We need to join forces and constantly question the market practice, rules and regulations to make sure that we are on the right track to a more sustainable future.
