Exploring Drivers and Solutions for Climate-Related Disclosure in SMEs
(2022) IMEM01 20221The International Institute for Industrial Environmental Economics
- Abstract
- The European Union (EU) taxonomy regulation marked a milestone in the sustainable finance agenda. The taxonomy aims to accelerate the mobilisation of public and private finance to support the transition to a net-zero economy. The EU’s taxonomy regulation established a classification system of environmentally sustainable economic activities to provide financiers clarity on what to consider a sustainable investment. In practice, the taxonomy regulation requires large corporations and financial institutions to disclose to what degree their economic activities or financing are eligible and aligned to the taxonomy criteria. However, small and medium-sized enterprises (SMEs) dominate the EU economy generating 3/5 of the economic value-added (EU... (More)
- The European Union (EU) taxonomy regulation marked a milestone in the sustainable finance agenda. The taxonomy aims to accelerate the mobilisation of public and private finance to support the transition to a net-zero economy. The EU’s taxonomy regulation established a classification system of environmentally sustainable economic activities to provide financiers clarity on what to consider a sustainable investment. In practice, the taxonomy regulation requires large corporations and financial institutions to disclose to what degree their economic activities or financing are eligible and aligned to the taxonomy criteria. However, small and medium-sized enterprises (SMEs) dominate the EU economy generating 3/5 of the economic value-added (EU Commission, 2021) and 60-70% of the industrial pollution (Koirala et al., 2018). Yet, the taxonomy and related disclosure regulations do not require sustainability disclosure by SMEs due to their limited resources and capabilities. The lack of SMEs sustainability disclosure presents a vast challenge to finance the net-zero transition of the EU economy by 2050. This thesis addresses this issue by exploring to what extent banks, mandated to disclose to the taxonomy regulation, generate incentives for sustainability disclosure from their SME clients. Secondly, it assesses how the development and piloting of a Software-as-a-Service (SaaS) climate-related disclosure tool support SMEs sustainability disclosure. The study takes a multiple case study approach comprised of interviews with three large Nordic banks and four transportation SMEs based in Finland. The research also includes participant observation on the construction and use of a SaaS climate disclosure tool for SMEs. The thesis draws on neo-institutional theory to understand how the taxonomy regulation shapes the sustainability practices of banks and SMEs. Applying dynamic capabilities theory supports the exploration of how a SaaS disclosure tool provides a resource for SMEs sustainability disclosure. The findings discover banks are not yet engaging with SMEs on the taxonomy or sustainability topics at the entity-level due to data issues, the use of data estimations, and the lack of regulatory direction. However, with the rapidly changing regulatory environment, the disclosure requirements for SMEs dependent on bank financing likely face an increased demand for their sustainability information. The study found SaaS sustainability disclosure tools can reduce the resource burden of sustainability reporting practices by SMEs. Finally, the thesis recommends policymakers clarify regulatory requirements for how banks engage with SME clients to increase sustainability disclosures by SMEs. Whilst recommend banks’ proactive engagement with SME clients on the taxonomy regulation in lending practices to reduce transitional and physical risk and identify sustainable finance opportunities. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9112255
- author
- Goodall, Finn Scott LU
- supervisor
-
- Philip Peck LU
- organization
- course
- IMEM01 20221
- year
- 2022
- type
- H2 - Master's Degree (Two Years)
- subject
- keywords
- EU Taxonomy, EU sustainable finance, SFDR, CSRD, SME, ESRS, sustainability reporting, climate risk
- report number
- 2022.09
- ISSN
- 1401-9191
- language
- English
- id
- 9112255
- date added to LUP
- 2023-03-14 13:26:18
- date last changed
- 2023-03-14 13:26:18
@misc{9112255,
abstract = {{The European Union (EU) taxonomy regulation marked a milestone in the sustainable finance agenda. The taxonomy aims to accelerate the mobilisation of public and private finance to support the transition to a net-zero economy. The EU’s taxonomy regulation established a classification system of environmentally sustainable economic activities to provide financiers clarity on what to consider a sustainable investment. In practice, the taxonomy regulation requires large corporations and financial institutions to disclose to what degree their economic activities or financing are eligible and aligned to the taxonomy criteria. However, small and medium-sized enterprises (SMEs) dominate the EU economy generating 3/5 of the economic value-added (EU Commission, 2021) and 60-70% of the industrial pollution (Koirala et al., 2018). Yet, the taxonomy and related disclosure regulations do not require sustainability disclosure by SMEs due to their limited resources and capabilities. The lack of SMEs sustainability disclosure presents a vast challenge to finance the net-zero transition of the EU economy by 2050. This thesis addresses this issue by exploring to what extent banks, mandated to disclose to the taxonomy regulation, generate incentives for sustainability disclosure from their SME clients. Secondly, it assesses how the development and piloting of a Software-as-a-Service (SaaS) climate-related disclosure tool support SMEs sustainability disclosure. The study takes a multiple case study approach comprised of interviews with three large Nordic banks and four transportation SMEs based in Finland. The research also includes participant observation on the construction and use of a SaaS climate disclosure tool for SMEs. The thesis draws on neo-institutional theory to understand how the taxonomy regulation shapes the sustainability practices of banks and SMEs. Applying dynamic capabilities theory supports the exploration of how a SaaS disclosure tool provides a resource for SMEs sustainability disclosure. The findings discover banks are not yet engaging with SMEs on the taxonomy or sustainability topics at the entity-level due to data issues, the use of data estimations, and the lack of regulatory direction. However, with the rapidly changing regulatory environment, the disclosure requirements for SMEs dependent on bank financing likely face an increased demand for their sustainability information. The study found SaaS sustainability disclosure tools can reduce the resource burden of sustainability reporting practices by SMEs. Finally, the thesis recommends policymakers clarify regulatory requirements for how banks engage with SME clients to increase sustainability disclosures by SMEs. Whilst recommend banks’ proactive engagement with SME clients on the taxonomy regulation in lending practices to reduce transitional and physical risk and identify sustainable finance opportunities.}},
author = {{Goodall, Finn Scott}},
issn = {{1401-9191}},
language = {{eng}},
note = {{Student Paper}},
title = {{Exploring Drivers and Solutions for Climate-Related Disclosure in SMEs}},
year = {{2022}},
}