Climate Change: Challenges and Opportunities for SMEs

Climate Change – What is it? What measures can an SME take for its mitigation and adaptation, without compromising its financial sustainability?

This topic has been increasingly on companies' agendas due to the economic implications of natural disasters on their value chains, regulatory requirements, and Customer demands for the demonstration of sustainable practices.

It is therefore important to understand what climate change consists of and how SMEs can contribute to its mitigation and adaptation, thus contributing to established international goals, without compromising their financial sustainability.

// What is climate change?

Significant and lasting changes in Earth's weather patterns that persist for long periods. Climate change has always existed, and planet Earth has been subject to ice ages, interspersed with warmer periods, at intervals of thousands of years.

// What causes climate change?

The increase in the concentration of greenhouse gases (GHG) such as carbon dioxide, methane, nitrous oxide, sulphur dioxide, chlorofluorocarbons, and hydrofluorocarbons.

Natural causes such as changes in solar exposure and volcanic activity can also influence the planet's climate; however, it is estimated that these causes have contributed less than 0.1 °C to the total warming recorded between 1890 and 2010.

This demonstrates that human activity is the main cause of GHG emissions, as the increase in their concentration in the atmosphere has been more significant after the Industrial Revolution, which leads to the intensification of the greenhouse effect and, consequently, the rise in Earth's average temperature, witnessing a change in climate patterns at a more intense and accelerated pace.

// How are GHGs emitted?

• Burning coal, oil, or gas - produces carbon dioxide and nitrous oxide;
• Deforestation - trees help regulate the climate by absorbing CO₂ present in the atmosphere. When they are felled, this beneficial effect disappears and the carbon stored in the trees is released into the atmosphere, reinforcing the greenhouse effect;
• Increase in livestock farming - the digestion of food ingested by intensive animal production (e.g., cattle) produces large quantities of methane;
• Fertilisers containing nitrogen - produce nitrous oxide emissions;
• Fluorinated gases - are emitted by equipment and products that use them. They have a very pronounced warming effect, which can be up to 23,000 times greater than that of CO₂.

// What are the consequences of climate change that we are experiencing, namely, the increasing rise in Earth's average temperature?

• Sea level rise;
• Species extinction;
• Changes in precipitation patterns;
• Intensification of extreme weather events;
• Impacts on agriculture and food security;
• Effects on human health;
• Increase in the number of climate refugees.

The increase in these events can trigger a domino effect throughout the value chain due to the complex connection of global production and distribution systems.

When a natural disaster occurs, it directly affects local production and infrastructure, and these consequences quickly propagate to raw material shortages, delivery delays and increased logistical costs, and product shortages, leading to a generalised price increase.

// What is being done to combat climate change?

Global efforts, such as the Paris Agreement, were established in 2015, aiming to limit the global temperature increase to below 2°C, preferably to 1.5°C, compared to pre-industrial levels.

This agreement requires all countries to take mitigation and adaptation measures to climate change.

Mitigation measures (reduction) which focus on the causes of climate change:

• Energy efficiency;
• Use of renewable energies;
• Electrification of industrial processes;
• Transport efficiency;
• Carbon markets.

Adaptation measures which focus on responding to the impacts of climate change:

• Location of infrastructure in safer zones;
• Landscape renewal (natural renewal and reforestation);
• Provision of flexible and varied crops in case of disaster;
• Research and adaptation to potential disasters;
• Prevention measures (evacuation plans, contingency plans, etc.).

COP29 took place in November in Baku, Azerbaijan, which had as its main objectives:

• Establishing a new global climate finance goal, replacing the previous agreement of $100 billion annually;
• Focusing on negotiations on climate finance, being called the "Finance COP" or "Finance Summit";
• Encouraging countries to lay the foundations for stronger national plans to reduce GHG emissions;
• Maintaining the focus on reducing GHG emissions to limit the global temperature increase below 1.5°C;
• Promoting greater collaboration between countries to accelerate the energy transition;
• Increasing the ambition of countries' climate commitments.

 As a result, the final draft foresees the allocation of about 300 billion dollars annually until 2035 to help developing countries combat climate change via abandoning fossil fuels. 

// What kind of support exists for Small and Medium-sized Enterprises (SMEs) for the implementation of these mitigation and adaptation measures?

The Incentive System for Climate and Energy Transition (SITCE) is in force under Portugal 2030 (PT2030), offering several options, including:

• Energy efficiency and decarbonisation projects: These projects aim to reduce energy consumption and greenhouse gas emissions. They include the replacement, adaptation, or introduction of low-carbon equipment, processes, and technologies, as well as the incorporation of renewable energy sources;
• Green productive investment projects: Focus on the development of new low-carbon and innovative products, processes, and services. These projects promote sustainability, reduction of resource consumption, and increased introduction of recovered materials into production processes;
• Simplified "Green SME Qualification" projects: This typology allows the implementation of sustainability measures, namely: implementation of new organisational methods that promote sustainability, optimisation of logistical processes to reduce environmental impact, adoption of digital technologies that contribute to energy efficiency and emission reduction, development of more sustainable products, services, and processes, obtaining certifications related to environmental and energy management, incorporation of sustainable design principles in product development, and acquisition of knowledge and technologies to improve environmental performance.

SITCE thus represents a significant opportunity for SMEs wishing to invest in the climate and energy transition, offering financial support for projects that contribute to Portugal's sustainability and energy efficiency goals.

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Last update: 28 November 2024