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EU Taxonomy and SMEs

Under the umbrella of the sustainable finance notion comes The EU Taxonomy which is a classification system that established a list of environmentally sustainable economic activities designed to shift investments toward a low-carbon and climate-resilient economy.


“Small and medium-sized enterprises (SMEs) are the backbone of Europe's economy. SMEs are deeply woven into the fabric of Europe”. That is how the EU commission described the SMEs entrenchment and importance to the continent. They are vital to Europe’s resilience, competitiveness and prosperity, industrial ecosystems, economic and technological sovereignty. SMEs represent almost 99% of all businesses in the EU as well as employ around 100 million people. That makes them in charge of more than half of Europe’s GDP and add a considerable value to every sector of the economy.

SMEs also bring innovative solutions to challenges facing the EU currently and the goals the EU aim to attain in the future; like climate change, resource efficiency and social cohesion and help spreading this innovation throughout Europe’s regions. Thus, they play a key role in the EU’s twin transitions to a sustainable and digital economy.

Since The European Union strongly supports the transition to a low-carbon, more resource-efficient and sustainable economy and has been at the forefront of efforts to build a financial system that supports sustainable growth. One of these considerable efforts is the sustainable finance which is significant in delivering the policy objectives of climate-neutral, climate-resilient, resource-efficient fair economy and sustainability.

Under the umbrella of the sustainable finance notion comes The EU Taxonomy which is a classification system that established a list of environmentally sustainable economic activities designed to shift investments toward a low-carbon and climate-resilient economy. In the same vein, the taxonomy sets the basis for 4 overarching conditions that an economic activity has to meet in order to qualify as environmentally sustainable; climate change mitigation, climate change adaptation, the sustainable use and protection of water and marine resources, the transition to a circular economy, pollution prevention and control, the protection and restoration of biodiversity and ecosystems.

Even though the SMEs contribution to the European economy is recognized as mentioned previously, they still face challenges in applying these criteria. Mentioning a few; there is not sufficient publicly available data on SMEs to determine whether they meet the taxonomy criteria or not, assessing the alignment of SME business activities against the EU Taxonomy often relies on manual and individual intervention that is inefficient and costly, the trickle-down effects within supply chains or reporting requests from banks constitute a problem for SMEs too since that in some cases, SMEs may need to prove that their project is sustainable to access green finance or support schemes dedicated to sustainable investments. To do so, they may need information, which is difficult to produce or they may request expensive external advice. Another problem was posed by (Whermann, 2020), the new regulations as well as the planned national regulation like Germany's supply chain law could create a "bureaucratic monster" that smaller companies would face serious difficulties to handle given their lower level of expertise and operational flexibility.

That being said, the GT4SME project is in place whereby the consortium partners are working on filling this gap and making the SMEs more up to the forthcoming changes and regulations. The partners accordingly, focus on 4 central topics pertaining to the SME-transformation and -growth: digitalization, internationalization, financial access and positive impact. The overarching goal of the project, hence, is to provide SME-educators with know-how and a framework around these topics that can be used to help SMEs to develop their businesses in a sustainable manner. Based on that, the project will result in increased knowledge and capabilities for SME-educators in particular and will have a wider impact on other stakeholders that include SMEs, entrepreneurs and innovators, entrepreneurship-ecosystem practitioners, as well as policy makers. This is considered essential specially with arise of new regulations such as the EU taxonomy which demands higher capacity, more knowledge and performance on the SMEs side.

#SME #sustainability #economy #taxonomy


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