Bain leaders urge speeding up SME sector decarbonization

While corporates and large organizations are seemingly on track for net-zero pledges, small and medium-sized enterprises (SMEs) are lagging in their decarbonization efforts. Leaders from Bain & Company emphasize the pivotal role of ensuring SMEs accelerate their progress.

Following COP28 in Dubai last year, there has been a wave of climate action across the MENA region. Governments have set ambitious climate targets, and approximately 70% of the region’s emissions now fall under net-zero pledges, a notable increase from 60% two years ago.

Leading large businesses are spearheading decarbonization within their operations, with 46% of large companies in the MENA region managing their emissions and 41% disclosing their Scope 1 and Scope 2 emissions.

Despite this progress, small and medium-sized enterprises and suppliers, which constitute over 90% of the region’s businesses and employ a significant portion of the working population, are lagging in their decarbonization efforts. Addressing this gap is crucial, as SMEs contribute 20% to 30% of the region’s GDP and are integral to the economy’s stability and growth.

Barriers to decarbonization

SMEs and suppliers face several barriers to decarbonization, according to analysis by Bain & Company, a global strategy consulting firm. These include a lack of awareness and insufficient leadership attention towards decarbonization, as well as knowledge gaps related to the financial and technical aspects of implementing decarbonization practices.

Additionally, there is a limited perceived value of decarbonization due to minimal stakeholder and regulatory pressures. Financial constraints also play a significant role, hindering the funding of decarbonization initiatives.

Akram Alami, Partner and Middle East Head of the Aviation, Utilities, and Sustainability & Responsibility practices at Bain & Company, said: “Supporting SMEs and suppliers on their decarbonization journeys is not just an environmental imperative but an economic necessity. These organizations are the backbone of our economy, and their transition to sustainable practices will determine the success of our regional climate goals.”

Promising developments

Encouragingly, several initiatives are emerging to support SME decarbonization.

For instance, Aramco’s Taleed programme, accelerates SME growth in decarbonization by providing capability-building, strategy development, and funding. Moreover, Aramco, in partnership with Linde and SLB, is developing a carbon capture and storage hub in Jubail, Saudi Arabia, to assist SMEs and other industrial emitters in overcoming technological and financial barriers.

In the retail sector, Majid Al Futtaim’s sustainable procurement policy promotes local sourcing and supports suppliers with sustainable offerings.

Additionally, during the World Economic Forum Special Meeting in Saudi Arabia, the Kingdom introduced the Sustainability Champions program. This initiative aims to promote collaboration among top companies by enhancing their capabilities and sharing best practices, thereby accelerating their adoption of sustainability principles and reporting.

Government interventions also play a crucial role. Saudi Arabia, through Monsha’at and the Saudi Green Initiative, supports SME decarbonization with substantial funding. The UAE’s Abu Dhabi Global Market has developed a regulatory framework for sustainable investment funds, while Egypt mandates ESG disclosure reports for companies listed on the Egyptian Stock Exchange.

“Government interventions are essential to create an enabling environment for SMEs to transition to sustainable practices. Policies and funding must align with the broader climate goals to foster innovation and resilience in our value chains,” said Raja Atoui, Partner and member of the Energy & Natural Resources and Sustainability & Responsibility practices at Bain & Company.

The path forward

Looking ahead, the two Bain & Company partners said that achieving climate-resilient growth in the MENA region necessitates collaboration across the entire value chain. “Bain & Company is committed to facilitating these collaborations, ensuring that SMEs and suppliers are not left behind in the region’s decarbonization journey.”