Engaging Your SME Suppliers To Achieve Your Climate Targets (Video)

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Ben Stansfield: So listen, thank you very much for joining today's webinar. My name is Ben, I am a Partner at Gowling WLG, and I lead our sustainability group, and it is my pleasure to moderate today's panel, who I will introduce to you shortly.

So we have three experts speakers, not a single PowerPoint in sight which is exciting. We are going to have a structured conversation for about 35/40 minutes or so. There are opportunities to ask questions somewhere at the bottom, I am not sure what button you press, probably the one that says Q&A, I have not really played with that, I dare not press any buttons down there in case I click the leave button, but we will pick those up at the end or if they are sort of relevant to the conversation we will pick those up as we go and the recording will be sent to you once we have edited it so that should land in your inboxes to share with colleagues in about a week or so.

So, small and medium-sized enterprises (SMEs) make up approximately 90% of businesses globally and they account for roughly 50-60% of GDP in most economies, but yet they are often in that invisible middle space of supply chains and sustainability conversations. They are often overshadowed by large multinationals whose logos appear on the final products; and when we talk about sustainable supply chains we tend to picture a boardroom in a glass tower with a chief sustainability officer and a PowerPoint deck the size of a novel. What we do not really picture is that 20-person precision engineering business in Essex wondering what Scope 3 even means, but yet that business is where the real action happens.

SMEs are estimated to contribute about 40% of business-related carbon emissions in the UK and you just cannot decarbonise your supply chain without them. Large companies are increasingly required to scrutinise their entire value chain, which means sustainability obligations are cascading down to SMEs whether they like it or not, and whether they are ready or not.

And the International Trade Centre, according to my research this morning, has found that fewer than 20% of SMEs in developing countries are certified to an international sustainability standard, which is often demanded by large international buyers. So it is not just an environmental problem; it is potentially a market access problem. So what we have done, in effect, is tell SMEs that they have got to save the planet, fill in a 90-page questionnaire, and do it with a minimal budget.

So you are going to find today's webinar extremely useful whether you are an SME or whether you are engaging with them. We have got three chapters to our conversation so we are going to talk firstly about the strategic risk, then we are going to talk about the limitations of working with poor quality data and then finally we are going to tackle three challenges all at once so we are going to, the challenge of capturing good quality data, how to engage with SMEs in large numbers and how you create that long lasting change through the process.

So I am delighted today to be joined by three speakers. I have Frankie Hewitson, the Founder of the Frank Impact Company and The Chain; Sam Seddon, Head of Growth and Strategy at Zellar; and Hannah Cool, Senior Advisor to Government Lenders and Not for Profits, previously at (and convener of) the Bankers for Net Zero initiative in the UK, leading work on SMEs and sustainability data.

I wonder if you could all just briefly introduce yourself, you are doing a far better job that I can and how you fit into the SME picture. So Hannah, I am going to come to you first.

Hannah Cool: Amazing, well good afternoon everyone and thank you for having me. I am very glad there is not a PowerPoint in sight this afternoon and just conversation with the gang.

I sit at the intersection, I guess, of finance, big corporates and their supply chains, and SMEs. So as you have said, for the last 18 months I have convened an initiative called Bankers for Net Zero which brought together financial organisations, largely, that recognise that allocating capital to transform businesses in the real economy (so, SMEs) was absolutely critical in achieving a more sustainable, resilient, net zero-aligned economy, but also from a credit risk perspective.

There is a growing recognition in the banks that I speak to that understanding exposure, whether it is from a physical risk, whether it is from a supply chain, whether it is from an energy price volatility perspective is not just climate risk data, it is credit risk data and finding a way to feed those two things together is becoming critical for banking partners, so you know, the work that I am doing when it comes to a supply chain is recognising well how does money flow to SMEs within supply chains that need to restructure, that need to think about energy sourcing, that need to think about building more resilient business practices and as you rightly said for the last year we have lead a government initiative which is all around streamlining and simplifying data requirements, so I am not a fan of questionnaire allocation and hopefully during this chat we will get to talk about why, but that is probably enough from me for now.

Ben: Brilliant thank you Hannah, we have our first sound byte, climate data is credit risk data, love it.

Sam, I am going to come to you next please.

Sam Seddon: Cool, thank you, and thank you for having me. So yes, I am Sam from Zellar. Zellar has been around for about three or four years and our specialism is SMEs and carbon emissions reporting. In essence we are a data and behaviour change platform designed to guide and support SMEs, of which there are about 5.5 million in the UK, towards most importantly a financially and environmentally sustainable future, and to support value chain owners that they work with to give them the necessary regulatory and reporting data they need.

My background is in big B2B technology, so I am an unabashed techie, and I used to sort of have CDs when those things existed and put them in drawers and build big technology systems. So I am with Hannah on the data side of things. I have spent a lot of, probably too much, time in data. I have designed big business transformation programmes, latterly for large organisations (FTSE 100 organisations), with a big focus on partnerships and alliances to drive change and deliver value, and then moved into more of the corporate strategy and brand strategy space, leading global sustainability programmes for big corporates. I use all of that history and experience in the SME sector, from communications all the way through to tech, in terms of what we do in the market with our large corporate clients and our smaller SME customers.

Ben: Perfect Sam, thank you for joining us.

And then finally Frankie.

Frankie Hewitson: Hi everyone, yes and thank you for having me, I am really excited about today's webinar. So yes I am Frankie Hewitson, I am the Founder of the Frank Impact Company and The Chain platform.

So, well my background is working directly with fashion brands and factories on sustainable strategy and what became really clear is actually the industry is, I suppose well systems are not built for SMEs in the supply chain, you know, and it is not because they are not willing to be involved or can actually document their progress, it is just they are simply not set up to support them so we built The Chain and it is basically a platform that enables brands and also SME brands as well to basically collect real supply led data across traceability, across wages, carbon certifications and connect also directly with products as well, but the main focus is actually making it so it is easier for the suppliers in a lot of cases, as we talked about when it comes to the endless questionnaires and a lot of manual inputting, the idea is to actually make it simpler for the suppliers to actually get involved and be part of that progress.

So yes, a lot of what I will be sharing today is on like, yes a hands on experience across the brand side, SME brands but also the SME suppliers as well in the supply chain, so yes, that is me.

Ben: Perfect. I am slightly concerned we are beating up 90 page questionnaires already, as the token lawyer in the room I love paper so, and being surrounded by it, so it sounds like I might be in the minority though, but right, lets do chapter 1, so I want to talk about strategic risk here, before we go into the detail a bit later, so I want to talk about things like why are SME emissions a growing vulnerability for an ESG strategy, how are stakeholders and, you know, customers, investors, funders, how are they scrutinising Scope 3 disclosures more closely?

But Hannah if I could start with you, and you have kind of alluded to it a little bit but why do banks care about this stuff?

Hannah: So there is a few reasons and despite the rhetoric that we might hear and net zero getting a really hard time and emissions focus getting a really hard time, this is ultimately regulated, so from a banking perspective there are European, global and also UK regulations which force a focus on understanding emissions reporting and financed emissions across their portfolios.

So regulation that really kicked this off was TCFD, the Taskforce for Climate Related Financial Disclosures and that has now kind of morphed into European CSRD which is the Corporate Sustainability Reporting Directive and even UK regulators have now released supervisory statements that, you know, reinforce that banks must treat, I repeat must treat, climate risk as a core financial risk. So there are a number of kind of market forcing mechanisms that mean that this focus on emissions, but also understanding, you know, resilience within your portfolios and through your big corporates and their supply chains is really important.

Now if I think about one of the banks that I have been working with, you know, this is not just around their SME portfolios, this is thinking about their big corporate clients and understanding where the future trajectory might be if, you know, I will not use company names, but imagine a big potato and chip producer in little freezer bags, they work with one of my banking clients, understanding their sourcing of potatoes to make said chips is ever so important for the future longevity, viability and resilience of their ultimate operating model, right? So the work that is being put in place to understand whether there is default risk and whether capital needs to be allocated as contingent capital at a systems level is still going on and it goes back to my point that climate risk data is credit risk.

Now there is a theme in Sam and Frankie and I guess my introductions which was around data and that sounds really boring doesn't it, but we are all after the same data and the work that I have done over the last year, Frankie to your point, is how do we simplify this because the worry is we have created a system that is really top down right? Market regulation targeted at the biggest banks, the biggest financial services companies, the biggest corporates with the biggest supply chains that all say tell me your exposure, calculate your emissions and ultimately those requests get pushed down to all the SMEs, right?

So I spoke to SMEs, I ran loads of workshops last year with SMEs up and down the country. One guy runs a manufacturing business, had 16 sustainability forms and requests that he had to fill out for procurement processes, for existing suppliers, all that he had to do over his Christmas break with zero response at the end of it, right, part of what we need to do is recognise the kind of regulatory and the risk is real right, I am not saying the risk is not real but we need to recognise that risk but recognise how that manifests through the supply chain and start to focus on standardising and simplifying the data requirements because ultimately data is key, insight is much needed, the financing is much needed, but how that feeds back into decision grade data we have to create a process for and that is some other work that I can talk about later.

But that is why banks and big corporates are interested.

Ben: Perfect, so Frankie from finance to fashion, from cool to cooler, you have obviously got a background in fashion and textiles. Are you finding, SMEs struggling with sustainability is that a particular issue for your sector or, I mean, does it go across everywhere?

Frankie: I mean, definitely cross sector but I think with fashion in particular I feel like it is extra difficult at the moment because you are talking about the brands now with obviously extra due diligence and obviously the reporting that they have to do but they have got suppliers all around the world; they will have a supplier in India of 50 people; they will also have a supplier in China of 2,000 people and both of those, those where there is factories have to provide the same information.

So you have got certain situations where data just is not digitised, sources are incredibly limited, and the education and training are different. A lot of these suppliers will be like, well, we do not need to do that, we are a small unit in Chennai, we do not need to fill in this information. But you will also have the other side: suppliers which are huge and will send a huge amount of information. It is how that is all collected, but also, like Hannah was saying, you know, you will have multiple ways of filling in this information and one factory will have requests and will get this fatigue of being asked the same questions over and over again, but slightly differently: they need a slightly different piece of information and they need to use slightly different data as a benchmark.

So I mean we find that, you know, it is not the fact that they are unwilling, it is just that they are simply not equipped and that is where I feel like the real gap is.

Ben: Perfect. Yes and it is interesting picking up sort of Hannah's point that the guy who wrote 16 different questionnaires and did not get a response and I guess that sense of frustration you are filling in all these different questionnaires and different data and questioning whether someone is really reading it or is it just going in the too difficult pile.

Frankie: Completely. I mean we had a situation, when I used to run a supplier and we, brands used to ask us for information, it would take us weeks to collect it from all the different factories and then we would not hear anything and then two weeks later we would get emails saying actually can we push prices down please, and you cannot help but think that has something to do with the information that you are sending, it is a bit of a vulnerability, you are sharing so much about your factory, your building, you know, everything, people are asking for your bills, breakdown of actually how much you are spending, you do not hear anything back and then you are like actually lets push prices down please.

Ben: So Hannah's decision is trusting data being usedfor the wrong decisions.

Hannah: Is that trust?

Ben: Yes.

Hannah: And the worry is right, and Frankie I hear you, we have heard from so many SMEs exactly that and the worry is that we have got into this position where, you know, the more I look the more I share the worse I look and that absolutely should not be the case, right? The reason that the system demands this information is to understand risk exposure, right, and ultimately there should be a view that if I am not sharing this information back actually I am going to be viewed as a worse risk almost, like you need to know that the information you are sharing is to your benefit, but actually that is not what you are getting back, that is not what is being reinforced through this process and the work that we have done with government is saying look, we are not going to regulate SMEs, we should not regulate SMEs but we need to normalise that in regulating the top of the market we need to standardise and simplify what gets asked of supply chains.

Frankie: Completely.

Hannah: And if we can do that and set the expectation and normalise the ask, but something really important we need to do for SMEs benefit is (i) the value exchange back needs to be clear, what do I get out of this and that is on the big suppliers, the big corporates and the banks and recognising as well that if you create this once you can share it many, right, so it is not like one to one, I have got 16 different forms that I need to fill out in different ways, it is actually oh I have actually done this before, here have this.

Ben: Yes.

Frankie: Yes.

Ben: Perfect.

Frankie: That is what we have tried to do with The Chain, with our platform is you can upload things that you have already sent to other people so you do not have to do it again, just upload it and …

Hannah: Brill.

Frankie: … then AI will process all that and fill it all in for them and multi language because that is also the issue, we are asking them to fill it all out in English.

Hannah: Absolutely right. That is so important.

Ben: Yes. Right, Sam I am going to bring you in here. So Zellar has obviously been created to help, well you know, Frankie and Hannah have beautifully explained why this is an issue and so we are looking to you to be part of the solution, part of the fix here but a slightly provocative question, is it, it sounds like a lot of hard work for a big business to be dealing with all these SMEs, I mean if you were a time poor business is it a good use of time or you know, how can you, how can you smooth things over, how can you make it better?

Sam: So I think the kind of provocative response to that is that you do not really have a choice and I say that in a few different ways, so for organisations that are signed up to a regulatory framework, they are signed up to a set of defined one like the signed space targets initiative or their needing to report from a regulatory perspective, then Scope 3 will bring in your SME supply chain, so if it is to do with SBTI more than 40% of your total emissions are in Scope 3 then you need to report on around 67% of your emissions in your Scope 3 supply chain.

We talked earlier about the fact there is 5.5 million SMEs in the UK, we talked about the fact that they relate to about 40% of the UK's total carbon emissions and about 60% of business emissions. You do not need to maths and statistics expert to realise that SMEs are in your supply chain and you need to be reporting on them, but I think what we have just been touching on there is about the fact that, well a couple of things.

One is the design of the entire system, as Hannah has very articulately said: it has been designed top-down, and it has been designed by people that understand regulation. If you understand regulation then you tend to come with a stick, and in this scenario sticks do not work. The way that a lot of large organisations engage with their supply chain is through procurement. Now, procurement tends to come with "I am a purchaser and therefore I have got a stick", so it is kind of stick upon stick in this scenario. The incentive to engage, and the incentive to change, is not there as we have talked about, but nonetheless the large organisations up the value chain will have a risk in their supply chain if they do not engage. The reason for that is: it is OK understanding where you are and baselining where you are, but you have got to hit a target, which is a reduction target. And that reduction target requires you to do one of two things: I am going to do less (which is not good for growth), or I need to support and engage my SMEs to actually drive their emissions down.

Now that is a completely different challenge from give me your data, so we have been, Zellar working with Hannah and a number of members of the organisation, her organisation around that data standardisation for SMEs because it is so important as we heard from the 16 forms and no responses that there is a standard approach to this so it becomes simple, but the risk for larger organisations is that if you are just using your large enterprise systems and enterprise approaches to try and engage your SMEs (i) your engagement level will be low and (ii) the quality of the data you receive back will be poor, because there is no incentive for an organisation that is struggling with National Insurance, that is struggling with business rates, that is struggling with energy prices, that is trying to drive revenue at a growth to focus on this, so the UK business bank's latest data shows that there is about 77% of SMEs taking at least one action …

Ben: OK.

Sam: … around this space and they are seeing some benefits of it but the largest proportion of SMEs do not see benefit in this space and that is the risk that we will not drive action and change and that is why we have to think of this whole space differently if we want to both meet our regulatory requirements and drive targeted reductions.

Ben: Perfect. Lets talk about incomplete data

Hannah, so you know we talk about quality of data and what have you, I mean again trying to be provocative is an estimate good enough? You know if an SME is time poor, focusing on the business, can they not just send any old numbers up to the corporate?

Hannah: I am going to give you a really annoying answer and say yes and no.

Ben: As a lawyer I am used to that, do not worry.

Hannah: But this is about the standardisation point right, you know, we recognise that Scope 3, you know, understanding emissions through your supply chain is really important, but ultimately we do not have quality SME data because there are loads of different ways and different calculators that have broadly black box methodologies on how those emissions figures are calculated. So emissions is to a certain extent the Scope 3, I have to say it, a bit of a random number generator and that is really bad if what a big organisation wants to show is trend over time and that is the problem, right, so unless we can get a bit more specific on here is the calculator, here is the data input, this is what we want from you. We are never going to increase the quality or reasonableness of the market estimates that are available at the moment and that is kind of where the standard comes in because ultimately emissions, if we understood energy consumption for an individual SME and used a broadly, it does not even have to be perfect, but a broadly standardised methodology to calculate emissions and there were clear tools and calculators that were provided for by the big corporates, by the big banks to do that we would have much better quality data floating round the system, but my concern at the moment is we do not and we are using numbers that make sense for the point and purpose that we are trying to put forward in whatever narrative we are generating today, and that is not ideal.

Some of the work that I have been doing even at an individual asset level is looking at some of the model data available in the market when you compare that to, you know, actual consumption data and then how that is ultimately converted into emissions and the differences are stark, you are looking at between a 50-80% difference between actual consumption data converted to emissions versus modelled data that is available based on market estimates. That is wild, right, so we need to start focusing on driving a better approach to data collection into the market, working out what quality looks like and then pushing that through the system because otherwise the estimates are going to get worse not better unfortunately.

You know the banks have to report against an equality framework called PCAF which is a standardised methodology that says based on your reporting and your emissions figures that you are publicly disclosing can you put a quality score against it and if you are a lower quality score of PCAF 4 or 3 it means you are basing most of your data on market modelled and estimated data. Whereas what we want to get to is level 1 or level 2 which means contributed data, granular data, understanding SME data for example. So systems like Frankie and the work that Sam and Zellar doing is exactly how you get to that higher quality score but at the moment we are not creating a system that is thought about from the perspective of the SME, how do I make life easier for the SME and I want every big business to be thinking like that, putting SMEs first always.

Ben: Perfect. Frankie, when we had our sort of conversation to prepare for today you talked about some datasets being available in the market and I mean is that a solution, just, I know SMEs do not have loads of money to throw at the problem, but buy the data set … it gives a broad indication of what your industry is doing?

Frankie: Yes, I mean, yes, the thing is for example we have got brands at the moment that are, you know, they would collect data on wages and like on the platform we collect data on wages and obviously like the audits, you have got, you know, and you collect that data from like, you know, kind of like third-party data providers for example for CO2 data for products, but you see if you are asking, you know, that is expensive data to collect, data is expensive and you are asking for example a factory to do audits, that is thousands of pounds a year on audits, that is thousands of pounds a year on actually getting like signing up for these datasets, you know, for the brands and also these are still SME brands lets just say, you know, these kind of rules, these regulations still apply to brands who are under £1million and if they are kind of expected to spend £20,000 on living wage estimate data, £20,000 on CO2 data, they simply cannot afford it so what you have is you then have a mixed bag of lots of different datasets being used, lots of different methodologies being used that are kind of lined up to different regulations and it gets messy.

What we are trying to do is that you know, especially on the SMEs they get access to these datasets that we have on the platform and it just means that we have got a little bit more and then all their suppliers can also have access to that data as well. However you also have that argument that this data is expensive, you know it takes a lot of time to collect this data, to pull it all together and that also needs to be paid for, you know, it needs to be respected that it needs to be paid for so we can have a real kind of issue there of who pays for this data because everyone is expected to us it and so, I mean, to repeat what kind of both Sam and Hannah have said is the fact that it is, you know, if your data is weak then your claims are weak and you know, what I am trying to say to brands at the moment, small brands and large brands is that, you know, brands are no longer judged on kind of what they say, you know, what they kind of market, but on actually proof of what they can prove and yes, that is really difficult because that responsibility gets pushed down to the suppliers and they have to then prove it and you find as well, I mean like we find that because we work with fashion supply chains which is obviously you have your tier 1s which is your main factory, and it goes down to tier 4 which is your cotton producer say, and a lot of brands are putting a lot of pressure on those tier 1 factories to be responsible for the tier 4 cotton farms, even though those tier 1 factories have nothing to do with those cotton farms but they are expected to be responsible for them and expected to collect all that data and provide all that data and it is, yes, it is a lot of responsibility I believe.

Ben: OK. Sam you mentioned you used to be, you used to work for large businesses, we are going to pick on you a bit, again, and there has been a really interesting observation by Keith in the questions where it talks about how frustrating it was to get those 16 questionnaires with no response, but actually he has got an example, I think that is probably the International Chamber of Commerce UK publication about big business in SME supply chains not providing the data, whether because whether they have not got it or whether maybe they just do not think giving that information to SMEs is worth their time.

So my question to you is: is there an appetite in large organisations to work with, and support, SMEs doing this stuff? Because SMEs are clearly struggling, it is clearly important, but are large organisations set up to deal with the dozens or hundreds of SMEs in their supply chain?

Sam: So I think Frankie is spot on in some data is expensive, I am guessing data right is expensive, so all of the technology projects I have ever worked on, the starting point is always what is the quality of your data? Do you have the right governance in place? Do you have the right processes in place and control processes? Are you making sure that the quality of it, the validation of it is right? That takes time and it takes organisation and it takes structure. In many large organisations that would exist when it comes to core business data, but the carbon data that you are looking for, the reporting data in the space very often is not deemed to be that. If you transpose that from a large organisation which is set up with a team of people or a set of people that are looking to try and capture this and transpose into an SME, they are absolutely not set up to do it, so within the large organisation is there the appetite to engage with SMEs.

Generally I would say yes, but there is a lack of time and there is a lack of understanding as to how to do that, because as I mentioned earlier on, there is a different engagement model you need to take with this set of your suppliers because they are not set up and then on the flip side, the SMEs themselves are time poor, they are knowledge poor, there is the what is in it for me. So you get this sort of stand off between people that are needing it and want it quickly and will use the levers that are available to them generally through the procurement route and the organisations that are having the demands placed upon them that really just do not know what to do. So you get into this kind of lack of resource at both ends of the spectrum.

So the way that you need to reimagine that is around the simplification of that request, the standardisation of that request and then in order to drive value for both ends which is what is going to be needed to drive up engagement is what is in it for both ends of the value chain, not just what is in it for the top end.

So that incentivisation model for the smaller organisation to if you do this once you are in a better position to respond to the other 15 requests that come in. That is going to save you time. If you follow these actions through then this will save you money. The outcome of that is your carbon footprint will fall. It is an outcome of the process that you can go through and that is the kind of direction of travel that we are looking to try and take organisations on. But until we can create incentivisations for the SMEs to engage, either in saving them time, making it simple, saving them money, the engagement levels will continue to be low at the bottom end of the spectrum, which means at the top end in the value chain the incentivisation and the organisations up there is low because it becomes too hard, but all the time the regulatory clock is ticking and the commitments that have been made are not going away.

So that is the risk profile that we are running with at the moment.

Ben: Which I think, Hannah, is a perfect time to bring you back to talk about, I guess the obviously intention to me for an SME to give the data is to keep your customer happy and if you learn something, but what else is in it them, I know we have sort of spoken about it, but what are the lenders are potentially doing, but what is in it for the SMEs from your perspective?

Hannah: So the work that we have been doing is that connective tissue, right: how do we create this data-sharing ecosystem which reduces burden on the SME but gives banks and corporates the data they need, back and forth, exactly what Sam was talking about? And in that scenario, if we get this connected tissue (this missing middle layer, as we see it), access to capital will improve. Now this is not just about talking about debt, which we know is not on the majority of SMEs' priority list, especially if you look at recent surveys.

But there are new models, whether it is Octopus "zero bills", so you can buy into new community energy infrastructure and then the investment that you are making in that energy infrastructure, with bank partnership, means that your energy bills, month by month, are significantly reduced, if not zero (hence Octopus "zero bills" — check it out).

But finding ways to deploy capital in new innovative ways that are net neutral to the SME is what we are looking at, right, so you do not feel like you are taking out lending but you are getting access to the support you need in order to transition, transform and ultimately make your business more resilient but hopefully lower energy costs as well. The kind of visibility so to your point, Ben, totally, this is about access to customers as well. I go back to whilst the rhetoric in the news and the media is net zero is dying, for now at least the regulatory requests are still there and this focus on resilience supply chains and resilient customer basis and looking at the potential credit risk is going to continue regardless, right, so making sure that you are meeting the expectations of your customers and lenders and banking partners will become ever more important and the guidelines of what that looks like are going to become clearer and more granular as well. Because if you think about it, the financial and regulatory PRA guidance has only just come out at a banking level, so actually how that manifests and trickles down, as we have been talking about into customer onboarding guidelines is going to happen over the next 18 months and beyond. So we are going to continue to see changes there.

I guess maintaining a level of competitive advantage in that space as we see more and more customers finding different and new ways to partner with institutions to share information and build trust and confidence.

Ben: Perfect, thank you. Just to remind people to please, sorry I have the world's largest cat and he is out there, he is not as cute as Frankie's baby either. We have had another question from Keith, but I would please encourage you to go into the Q&A and ask any questions of our experts and Frankie we might come to you in a minute to talk about the nature positive.

But, Sam, we talk about incentives we have talked a little bit, we have touched a little bit on how we sort of how a large business, a large organisation might try to sort of interact with customers at scale, but how do they, is it just a simple questionnaire that they produce or is there more to it that the large businesses can use to engage their SMEs?

Sam: Yes there is absolutely. I think what that comes down to is how to make positive interventions. So our product has been designed with an SME in mind to make the capturing of the baseline data simple and easy. It automates a whole chunk of what you need to put in, it provides guidance as you go through and it becomes your system of record, your passport for future requests. It becomes that system of record for, as Hannah was saying, if you are needing to getting access to capital, all of the information you would need to support that is in there, similarly for grants and other access to capital. So it becomes a very positive tool for you to put your data into.

As a result of doing that we then feed that up the value chain and what that allows an organisation to do up the value chain is to look at that through a new lens which is with a much greater degree of granularity as Hannah was saying, a much greater degree of granularity around what is going on in that organisation, what are their emissions, what projects have they got, what does the culture look like in that organisation, what is their appetite to change.

One of the key things that we look at is the energy mix. By rapidly identifying the energy mix we can identify where are the potential hot spots in those organisations when you can reach out to them and say did you know that if you took this action around your energy not only could you save money but you would reduce your emissions putting you in a better position and putting us in a better position. So at that point the relationship you are having up the value chain with your supplier is starting to become more one of partnership. Partnerships in any business are positive because there is a mutual value exchange, you are going to get a better relationship with your SME supplier and they are going to have a better relationship with you, which benefits everybody in the round. So by identifying those positive interventions through a very simple dashboard that we have got, you can change the balance of how you are engaging with those SMEs and drive positive action.

So that incentivisation model I think is what we want to be moving to with the upstream value stream value chain owners into one of partnership with the SMEs, not one of regulatory compliance.

Ben: And Frankie, that sort of leads in quite nicely with that sort of collaboration and partnership because I wanted to ask you about if you had examples of that sort of engagement creating a long term benefit sort of beyond just a simple annual reporting cycle. Does this nudge people into a different direction?

Frankie: Definitely, and I think in a lot of ways, a bit of an unpopular opinion I suppose I have to say is in a case sometimes when it comes up to reporting, when it comes to wanting to have those kind of like for the brands, for the companies to say oh yeah we are nature positive, or we are net zero, they cannot wait to say those words. We sometimes forget that actual challenge which is actually engaging with the suppliers because it is not just a case of you hit that and you tick that box and looks great, get on with your work, it is a constant evolution of how you can actually get better data, how you can actually improve data collection and obviously improve how factories are working. One of the issues that we do have is what we have talked a lot about already on this panel, is that disconnect between maybe the fashion brand in kind of my world is they are requesting this from the suppliers and the suppliers some, like I say, have it regulatory available and others it is completely beyond what they could possibly have, but it is kind of trying to build those kind of relationships up.

Ben: Sorry do you want to finish that thought for you.

Frankie: Sorry, yes. So I mean one of the things which we … we have seen especially in factories where they have not had a lot of support. We have found actually, we have actually with them giving them resources, we have given them free resources, especially on the smaller factories, the smaller SMEs and we have really seen more of a partnership build within those brands and it is not a case of give me information and then do not work with us again, like we cannot hear from you again and we cannot you do not see what has happened to that data. Actually, the suppliers have access, they can see they have access to the platform themselves, they can see what is working when it comes to their wages, when it comes to their CO2 product CO2 connected to produce and we have seen and actually a kind of improvement in relationship to the brands as well. There is more of a partnership and that is what makes me happy.

Ben: Good. And Hannah do you see that too as well with that sort of … a momentum building between lender and SME?

Hannah: Completely and I think it is this connectivity and this partnering to a certain extent that is going to open up all of the opportunities that have been talked about, ad infinitum in the circles that I work in which are looking at long term financing agreements, reduced interest rates, business rates incentives on the basis of showcasing that you are more energy efficient renewable energy driven and operating in a world where you are demonstrating sustainability requirements. These are all things that people talk about but we are not able, if we are being honest with ourselves, we cannot deliver right now. But as soon as we have this trusted data sharing loop and infrastructure, it is the infrastructure that makes this possible, and core to its success is, as Frankie says, and Sam, it is that ongoing feedback loop, it is the insight they have provided, the benchmarking the financing opportunities, the long term partnering and contracting support, improved supplier terms. These are the things that need to be double down on on the basis that we are building resilient, effective, cost effective supply chains and ultimately in the banking portfolios.

Frankie: And also just to like to totally interrupt, but I think in a lot of cases when it comes to reporting and stuff, we tend to look backwards, we are putting all this information in to then look at what happened months ago when really we should be using this as a way to actually make future decisions, how can we make better products in our supply chain. How can we do it better and reduce our CO2 before those things have even been designed. And that is a big thing I think which we need to start looking forward instead of backwards.

Hannah: And that is where my point around credit risk is really important because credit risk is a backward looking indicator, it looks at what has come before whereas when you append climate risk to that figure, that is a forward looking indicator, that says actually on the basis of where my credit risk rating is now is that going to be materially worse better or static on the basis of what I know about this resilient sustainability and emissions data.

Ben: Yes and I guess if someone has got that data then they are thinking about being around. They are literally being sustainable, they are thinking I want to be still in business in three, five, then years, not just looking to the next three or six month period.

We have an interesting question from Keith and actually Keith has given me the context, which is fabulous, but he is in a hairdressing salon Space B. He asked a question about nature positive, because we have talked a lot about carbon and net zero decarbonisation, we have fallen into that trap that I always rail against about sort of carbon tunnel vision, but I wondered if any of you sort of got a perspective on that because as Keith says, the biodiversity nature data is way more complicated, it changes street by street, not like carbon which is the same the world over, but OSMEs, in your view are they focusing on carbon at the moment and when we come back in three years time are we going to be talking about that nature and biodiversity issue in the supply chain.

Hannah: I might jump in if that is alright guys, the nature and biodiversity message is absolutely a focus especially when you think about kind of physical risk exposure or access to resources when it comes to the SME farmers that I work with around looking at crop yields in the future and food stability. Nature, nature, nature, very important. The fact of this conversation, which is all focused around quality data, I think there is another layer which is what data do we absolutely need from SMEs and do we need to ask them from a consented and accessed and informed perspective, versus what data is available to us through other data partnerships through other providers. I go back to my banking clients, right, they are sourcing data from all sorts of third party suppliers to give them a picture of risk exposure and opportunity across their portfolios. Now physical risk data is going to be one of those data sets, especially driven by the regulation that the PRA launched at the back end of last year.

Now do we … what do we need to specially push to an SME to answer? Air quality data we can get as long as we know the location of your business, the location of your assets. Soil quality data, flood risk data. Heat and subsidence exposure data. All of this is data that is available through third party providers. I think we need to be super, super, super critical about what data is market available and is it on you as a big company to access and provide, versus what are we asking our SMEs, and I will always go back to we only ask what we cannot get.

And for me, focusing on asset location data, sector classification data and energy consumption data has been the priority, because if we get those things right, everything else will materially improve.

Sam: Building on that, I mean, we at the moment are not capturing that biodiversity data within our platform and the reason for that is some building on what Hannah said, is that at the moment what we are trying to support SMEs on is the base level of data which is being asked through the current regulatory frameworks. There has always been … there is an adage in any kind of data insight analytics project that you work on which is do not ask for something you are not going to use.

Hannah: Exactly.

Sam: Because all it does is disincentivise the provision of what you actually do need because that is hard enough in and of itself. So is it critically important at the moment, absolutely. Are organisations up the value chain really set up to know how to use it and whether that is in the corporate environment or in the public sector environment, not well enough for us to go and hassle SMEs for it at this point in time. We work with some sporting organisations and we were looking at a set of data that they were looking to capture in totality from their members and the list ran into several hundred lines, of just basic member data, where are you, how big is your organisation, how big is the floor space etc. When it came to the sustainability space about 50% of it was in what I would describe as the carbon space, and about 50% of it was in the biodiversity nature space. The level of granularity they were looking for from these small organisations to provide was quite mind blowing and we asked the question do you know what you are going to do with that what decisions you are going to make off the back of having received it, because until you can clearly articulate that and articulate down the chain what is the value exchange in providing that data. You probably just need to have a really strong look at how you are going to about gathering that and that is by no means saying it is not important, because it absolutely is, it is just are we mature enough yet in the ground to understand how from an SME perspective at least, to work with that, I am not sure we are yet, unfortunately.

Frankie: Yes I completely agree. We are working on that at the moment on the platform and a lot of it is being aware, as well, that, we for example, we are collecting, we have got one brand making a viscose dress. Viscose for those who do not know is a fibre made from trees. And then we have got … and that is just normal viscose, not tracked, not traced, we do not know where it has come from. Then we have got another viscose material that is FSC certified.

That is two different, that is two different fibres produced in two different ways. The dress itself is one is made in China and one is made in India and that alone has so many different, they can get to quite different results to your estimate, that is so different, but also the bad FSC impact as well is also so different, how can those factories, one being a small factory in India and another one being a large factory … they are using different methodologies, different data sets they have collected to estimate this impact and one of the … but we are also expected to compare that as well. So you are comparing data that has got two different methodologies, two different sources and it is … and that at the moment that is one of the issues that we are facing is we want to use this data to help the design teams in these fashion brands make better choices for the next collections that they are making based on this type of data, but yeah, it is trying to make sure that that is data … it is comparable, and at the moment it is not.

Ben: Perfect. Thank you. I am mindful of time and you have delivered, the three of you have delivered an extraordinarily content rich webinar really, but I am going to force you even more into the corner and say you have got to give us one top tip, one takeaway, one boil down your content just to a soundbite, who said lawyers are simple creatures.

Hannah I am going to start with you, you are off mute.

Hannah: Yeah, not problems. If you are an SME and if you are asked for sustainability data please can you go back to said organisation and say are you using the UK voluntary emission standard, which is targeted at SMEs for SMEs, it is a simplified version of the current Government sustainability procurement framework and it is meant to be standardising and simplifying requests across the marketplace and really focusing on data that SMEs have easy access to. So if you do get asked, my ask to you rather than a follow up statement, is please can you go back and say why are you not using this.

Ben: Hannah, just for people taking notes, repeat it again.

Hannah: The UK voluntary emissions standard.

Ben: Perfect, thank you for that. Sam.

Sam: So from a… I have got two answers for this. One is for the value chain owners looking to engage their SMEs and gather data and insights, and it would be a one-word answer: start. This is like one of those… I have got kids at university at the moment and they are trying to do lots of essays, and the hardest thing is always start. Once you have started you can progress, and the targets that you have got to meet are going to get closer and closer and closer, and the longer you put it off the harder it will become. From an SME perspective I would say: capture your data once, use it to save money, and find the right platform for you. I could recommend one, but find the right platform for you that is going to allow you to do that and incentivise cost saving within your business, as well as the ability to provide regulatory reporting onwards.

Hannah: Unless a big organisation is asking you to submit data via an excel, other than sending back an emoji with a vomit face, you know, where is the platform, how are you expecting me to deliver this data, how am I getting insight back? That is the other bit.

Sam: Emoji vomit face, I am going to write down.

Ben: Another member of the anti-Excel club. Good. Frankie, final thought.

Frankie: So mine is probably directed to the companies the fashion brands in my case, but the companies in general, is if you really want to see Scope 3 progress, stop designing internal systems for reporting and actually start designing systems for the suppliers because that is where the gap is and the easier you make it for SMEs to actually get involved the better your data the better the relationship you will have, the faster the progress and honestly the suppliers do not trust the process they really will not engage in it at all. So that is my two pence.

Ben: Perfect. Thank you all so much for sharing your insights. I am sure we could have done many more questions if we had another hour, but can I assume that if anyone in the audience wanted to drop you a line they will find you on LinkedIn or drop me an email and I will connect you. But that has been phenomenal, we have flown through that. I have been scribbling loads of notes as well which … so thank you very much for that, I am sure everyone is giving you a virtual round of applause. Thank you very much, we will circulate the recording to those who have registered to receive it, enjoy lunch, thank you.

Frankie: Thank you so much for hosting. Great to speak to you all.

Hannah: Thank you everyone.

Is there a hidden risk in your small and medium-sized enterprise (SME) supply chain that could disrupt meeting Environmental, Social, and Governance (ESG) reporting requirements? With SMEs responsible for 37% of the UK's greenhouse gas emissions and almost 50% of business sector emissions, they represent a major share of most organisations' supply chains and play an important part in supporting accurate, credible Scope 3 reporting.

With 2030 emission reduction targets on the horizon, baseline estimates alone are no longer enough. Organisations need reliable data, meaningful supplier engagement and real behaviour change to stay on track and build sustainable resilience.

This webinar explored:

• Why SME emissions pose a growing risk to ESG strategies.
• Why estimation based reporting falls short.
• The three key challenges: capturing high quality emissions data, engaging SME suppliers at scale, driving lasting behaviour change.

Chaired by Ben Stansfield, Sustainability Partner at Gowling WLG, the panel featured Sam Seddon, Head of Growth and Strategy at Zellar; Hannah Cool, Chief Operating Officer at B4NZ; and Frankie Hewitson, Founder of The Frank Impact Company. Together, they shared practical insights on SME engagement, finance, and supplier behaviour to drive Scope 3 progress.

Read the original article on GowlingWLG.com

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.