Corporate sustainability commitments are creating lucrative new business opportunities for small and medium-sized enterprises (SMEs). As major corporations commit to aggressive emissions reductions and net-zero targets, they are looking to reduce Scope 3 emissions from their supply chains and vendors. This presents a timely opening for smaller companies to gain a competitive edge and attract major new clients by achieving carbon neutrality.
By taking steps to measure, reduce and offset carbon emissions, SMEs can align with buyer sustainability mandates. Leading brands want to partner with carbon neutral suppliers to help meet their own ambitious climate goals. Done right, carbon neutrality can be a strategic differentiator that wins business away from larger incumbent suppliers. Smaller firms that act now with their own net zero roadmap can level the playing field and punch above their weight class.
This article will explore the forces propelling corporate action on climate change and outline steps SMEs can take to capitalize on the demand for carbon neutral products and services. With the right strategy, any small company can turn carbon neutrality into their secret weapon for securing major customers.
Carbon Markets 101
Carbon markets are regulatory schemes that aim to reduce greenhouse gas emissions by capping total allowable emissions and allowing participants to trade emissions permits. The cap is set by regulators and decreases over time. Businesses receive or buy emission permits that allow them to emit a set amount. If a company reduces emissions below its limit, it can sell the excess permits to other companies that exceed their cap. This creates a financial incentive for businesses to reduce emissions in the most cost-effective way.
There are two main types of carbon markets – cap-and-trade systems and carbon taxes. Cap-and-trade sets an overall emissions limit, issues tradable allowances to participants up to the cap, and allows trading of allowances between buyers and sellers. Examples include the European Union Emissions Trading System and California Cap-and-Trade Program. Carbon taxes put a price on carbon by charging emitters a fee per ton of emissions. The tax provides a financial incentive to transition to low-carbon alternatives. Examples include carbon taxes in Sweden and Canada.
Both market-based mechanisms aim to make polluters pay and harness market dynamics to reduce emissions in a flexible, cost-effective manner. They are an alternative to traditional command-and-control regulations. Well-designed carbon markets can drive down emissions while supporting sustainable economic growth.
The Rise of Net Zero Commitments
In recent years, there has been a major increase in net zero pledges made by governments and corporations around the world. A net zero pledge is a commitment to get greenhouse gas emissions down to net zero by a target date, usually 2030 or 2050.
— Taarak Mehta Jr. (@TaarakMehta_Jr) December 20, 2023
This means that any emissions would be balanced out by schemes to offset an equivalent amount of greenhouse gases from the atmosphere, such as planting trees or using technology like carbon capture and storage. The overall goal is for a net zero pledge maker to achieve an overall balance between emissions produced and emissions taken out of the atmosphere.
The tweet above is just another example of a large company heading to carbon neutral status. This means they would be highly motivated to work with carbon neutral suppliers, as any companies supplying to them with a large carbon footprint would hamper their climate goals.
According to the Energy & Climate Intelligence Unit, as of November 2021, 137 countries have pledged to reach net zero emissions. These countries are responsible for 90% of global GDP and CO2 emissions. Major economies like the United States, the UK, the EU, Japan and South Korea have all made net zero pledges.
On the corporate side, over 2,000 companies have joined the UN Race to Zero campaign by pledging to reach net zero emissions by 2050 at the latest. Household names like Microsoft, Apple, Unilever, Nestle, Walmart and many more are part of this initiative. The companies that have joined Race to Zero collectively represent sales of nearly $20 trillion.
The rise in net zero commitments shows that momentum is building globally to tackle climate change. For a net zero target to be meaningful, governments and companies will need to follow through on their pledges with concrete action plans and policies. But the proliferation of net zero goals demonstrates an increasing willingness to decarbonize economies and supply chains.
Scope 3 Emissions
Scope 3 emissions refer to all indirect emissions that occur across a company’s entire value chain. This includes emissions from sourced goods and services, transportation and distribution, waste disposal, employee commuting, business travel, investments, and more. While scope 1 and 2 account for emissions from a company’s direct operations and energy use, scope 3 encompasses all other emissions that occur as a consequence of the company’s activities.
For most large companies, scope 3 emissions make up the largest share of their carbon footprint – often over 70%. This is because the downstream impacts from sourcing materials, shipping products, and so on usually far outweigh the operational emissions from their own facilities and vehicles. With globalized and complex supply chains, scope 3 provides the most opportunity for emissions reductions. If big companies want to dramatically reduce their overall footprint, they need to address their scope 3 supply chain emissions. This is a major reason why large corporations with net zero and carbon neutrality goals are seeking out partnerships with suppliers who can demonstrate low carbon footprints. By working with carbon neutral vendors, service providers, and manufacturers, big businesses can effectively address their scope 3 emissions.
The Supply Chain Opportunity
Supply chains represent the largest source of emissions for many major corporations. Known as “Scope 3” emissions, these indirect emissions come from a company’s suppliers and vendors. With scope 3 being the biggest category, suppliers play a key role in helping large companies achieve their sustainability goals and reduce emissions.
By working with suppliers who are carbon neutral or have net zero commitments, large corporations can significantly cut their overall emissions footprint. As climate change initiatives gain momentum, companies are under increasing pressure from investors, regulators, and consumers to reduce their carbon footprints across the entire value chain.
This presents a major opportunity for small and medium businesses in a large company’s supply chain. By getting certified carbon neutral and minimizing their emissions, smaller companies can gain a competitive edge when bidding for contracts. They become attractive partners that allow the large corporation to reduce its Scope 3 emissions.
Becoming carbon neutral gives smaller suppliers a powerful marketing advantage, allowing them to tap into growing demand from large companies seeking sustainable vendors. It’s a practical way for small businesses to align themselves with the net zero movement and access new revenue opportunities.
The Competitive Advantage of Carbon Neutrality
For small suppliers, pursuing carbon neutrality provides a major competitive advantage when bidding for contracts with large corporations that have net zero commitments. As massive enterprises scramble to reduce their overall emissions, they are highly motivated to partner with carbon neutral vendors in their supply chain. This allows the large company to reduce their Scope 3 indirect emissions and progress towards their climate goals.
By proactively measuring, reducing, and offsetting all carbon emissions, a small business demonstrates corporate social responsibility and a commitment to sustainability. This builds tremendous goodwill with environmentally-conscious customers. Going carbon neutral shows a small company is forward-thinking and cares about more than just profits.
Additionally, highlighting carbon neutral certification in marketing materials provides a tangible point of differentiation from rivals. Large customers can feel confident their procurement dollars support emissions reductions across the supply chain. Partnering with carbon neutral companies directly enables a corporation’s net zero ambitions.
Pursuing carbon neutrality does require upfront investment and effort. But for small companies, the long-term payoff is landing lucrative contracts with big businesses that now require their vendors to calculate, decrease, and counterbalance carbon emissions. Being an early mover on carbon neutrality lets small suppliers lead by example in their industry.
Achieving Carbon Neutrality
Becoming carbon neutral can seem daunting for small companies with limited resources, but it is achievable with the right strategy and commitment. Here are some tips for how small businesses can reach net zero emissions:
- Conduct an emissions audit – The first step is to measure your company’s greenhouse gas emissions across all scopes – energy use, transportation, materials, waste, etc. It’s quite a complicated process, so you will likely need carbon accounting software or a carbon emissions consulting company to help the process.
- Set emissions reduction targets – With your emissions baseline established, set ambitious yet realistic goals for reducing your carbon footprint year over year. Aim high, but be mindful of costs.
- Improve energy efficiency – Reduce energy use in your office buildings and facilities through LED lighting, updated HVAC systems, occupancy sensors, and other solutions. Every kilowatt-hour saved is emissions reduced.
- Electrify vehicles and equipment – Transition company vehicles and equipment like forklifts to electric models powered by renewable energy. Install EV charging stations on-site.
- Use renewable energy – Source renewable energy for your facilities by installing on-site solar panels or wind turbines, or signing contracts for off-site clean power. Any residual energy use can be offset with renewable energy credits (RECs).
- Reduce business travel – Slash emissions from corporate travel by encouraging remote meetings, public transit, electric vehicles, and reducing non-essential trips. Optimize logistics to minimize overall miles traveled.
- Engage employees – Get employees involved through contests, incentives and office initiatives that promote sustainability, from going paperless to reducing food waste.
- Work with suppliers – Collaborate with both suppliers and buyers across the supply chain to map emissions hotspots and find solutions, like low-carbon raw materials or efficiency upgrades.
- Offset remaining emissions – After reducing as much as possible, invest in high-quality carbon offsets for any residual difficult-to-decarbonize emissions in order to reach net zero.
With the right commitment and strategy focused on measurement, reduction, and offsets, even small companies can eliminate their climate impact and gain an edge with major customers.
Becoming certified carbon neutral is the gold standard for demonstrating to customers your commitment to reducing emissions. Certifications from respected organizations verify that your carbon neutrality claims are credible.
There are several standards and certifications to become certified carbon neutral, including:
- PAS 2060 Certification – This internationally recognized standard provides guidance and requirements for carbon neutrality. Certification involves working with an accredited body to undergo verification and publicly report carbon footprints, reduction plans, and offsetting.
- CarbonNeutral Protocol – This certification administered by Natural Capital Partners requires following guidelines for measuring, reducing, and offsetting emissions, plus annual auditing. Companies can license the CarbonNeutral certification mark as a reputable badge of carbon neutrality.
- B Corporation Certification – While not specifically a carbon certification, certified B Corporations meet high standards of social and environmental performance and transparency. Many aim for carbon neutrality as part of their commitment to sustainability.
Certification gives third-party validation to your carbon neutrality claims, providing credibility and trust. Large corporate customers often require their suppliers and vendors to have carbon neutral certification. Most certifications also include public reporting on carbon footprints and offsets, offering transparency.
The right carbon neutral certification for your company demonstrates seriousness and can help create a competitive edge. It shows your values align with major customers also working towards decarbonization. Rather than making unverified claims, certification offers the proof that your business walks the talk on emissions reductions.
Go Carbon Neutral To Win
Going carbon neutral presents a major opportunity for small companies to win big business clients. With large corporations like Microsoft and Apple making bold net zero commitments, they are looking to reduce emissions across their entire supply chain. This puts suppliers of all sizes in the spotlight to curb carbon outputs.
By achieving certified carbon neutral status, small businesses can gain a competitive edge when bidding for contracts with these major companies. They can market their sustainability credentials and reduced carbon footprint to show how they help large customers meet reduction targets. Plus, neutralizing emissions through verified carbon offsets allows small companies to continue normal operations.
The path to carbon neutrality does require upfront investment and ongoing offsets purchasing. However, the long-term rewards of preferred supplier status and access to significant new business outweigh the costs. As stakeholders at all levels become more environmentally conscious, carbon neutrality will transition from a competitive differentiator to an expectation. Small companies that act now to reduce and offset emissions will future-proof their business. They’ll send the message that sustainability matters and position themselves to win big contracts with large corporations striving for net zero.