What Is "Green Finance" and Why Are SMEs Being Asked About Sustainability?
Many SMEs are surprised when lenders, investors or larger customers begin asking questions about sustainability, emissions, packaging or environmental improvement plans.
For a business that has never been required to produce sustainability information before, these requests can seem unexpected.
However, sustainability considerations are becoming increasingly relevant across finance, procurement and supply chains.
This doesn't mean that every SME suddenly needs a full ESG department or a lengthy sustainability report.
More often, businesses are being asked for practical information that helps another organisation understand their environmental performance and plans.
That might include:
energy usage;
emissions data;
packaging reduction;
operational efficiency measures; or
environmental improvement initiatives.
What is green finance?
"Green finance" is a broad term used to describe financial products and investment intended to support activities with environmental benefits.
For SMEs, this can potentially include finance associated with areas such as:
improving energy efficiency;
renewable energy;
reducing resource consumption;
improving environmental performance; or
other investments that contribute to environmental objectives.
The exact criteria will depend on the financial institution and the particular finance product.
This is important because there is no single "green finance" application that every SME will be assessed against in the same way.
A lender may have its own eligibility criteria, information requirements and assessment process.
Why might a lender ask an SME about sustainability?
Financial institutions increasingly consider environmental and sustainability-related factors within their broader risk and lending frameworks.
As a result, an SME may encounter questions about sustainability as part of:
a finance application;
a business review;
an environmental or ESG questionnaire;
a green or sustainability-linked finance product; or
a wider assessment of the business.
The request doesn't necessarily mean that the SME is being asked to produce a formal sustainability report.
It may simply be an attempt to understand the business's current position and whether it has identified opportunities to improve its environmental performance.
Why are larger customers asking similar questions?
The same issue can arise through the supply chain.
A larger organisation may ask its suppliers for information about:
carbon emissions;
energy consumption;
packaging;
waste;
environmental policies; or
improvement plans.
For the larger organisation, this information may form part of its own sustainability, procurement or supply-chain processes.
For the SME supplier, however, the request can arrive without much context.
This can leave a business asking:
"Why do they need this information from us?"
The answer is often that sustainability information is increasingly flowing down supply chains, even where the smaller supplier is not itself subject to the same reporting requirements as the larger organisation.
Does an SME need a full ESG strategy?
Not necessarily.
The appropriate level of information will depend on the reason it is being requested.
An SME responding to a customer questionnaire may need a relatively straightforward set of environmental data.
A business applying for a particular sustainability-related finance product may have more specific requirements.
Another business may simply want to understand its current environmental performance and identify practical improvement opportunities.
The important principle is:
Start with the requirement and build the response around what is actually needed.
This can avoid creating unnecessary reporting processes that provide little practical value.
What is a transition plan?
For an SME, a transition plan doesn't need to be an elaborate corporate climate strategy.
In practical terms, it can provide a structured way of documenting:
where the business is today;
the environmental impacts it has identified;
realistic opportunities for improvement;
the actions it intends to take;
target dates or timescales; and
how progress will be monitored.
For example, a business might identify that a significant proportion of its environmental impact comes from energy use.
Its transition actions could then include:
improving energy efficiency;
replacing inefficient equipment;
reviewing heating systems;
reducing unnecessary energy consumption; or
considering renewable energy options.
Another business may identify packaging as an area for improvement and consider:
reducing unnecessary packaging;
improving packaging efficiency;
increasing the use of recyclable formats; or
reviewing packaging suppliers.
The important point is that the actions should be realistic and relevant to the business.
What information should an SME have available?
A business doesn't necessarily need to start by producing a 50-page sustainability report.
A useful baseline can often be developed from information already held within the business.
This might include:
electricity and energy consumption;
fuel usage;
transport information;
packaging data;
waste information;
existing environmental initiatives; and
relevant operational costs.
Organising this information can provide a much clearer picture of the business's current position.
It can also make it easier to respond when a customer, lender or procurement team asks for sustainability information.
Turning sustainability information into action
Collecting data is only part of the process.
The more useful question is often:
What does the information tell us?
For example, an energy review may identify an opportunity to reduce both emissions and operating costs.
A packaging review may identify opportunities to reduce material use, transport costs and waste.
A carbon footprint may highlight where the business's largest operational emissions are concentrated.
These findings can then be translated into practical improvement actions.
What should an Irish SME do now?
If your business is beginning to receive sustainability questions from customers, lenders or procurement teams, a practical starting point is to:
1. Understand what is being requested
Establish exactly what information the customer, lender or other organisation is asking for.
2. Establish your current baseline
Identify the environmental information you already hold.
3. Identify the significant areas
Consider where energy, emissions, packaging, waste or other environmental impacts are most relevant to your business.
4. Identify realistic improvements
Focus on actions that are practical, measurable and relevant to the business.
5. Set out a simple plan
Document what you intend to do, when you intend to do it and, where appropriate, how progress will be measured.
6. Keep the supporting information
Retain the underlying data and evidence so that information provided to customers or lenders can be explained and updated.
Don't let "green finance" make the process more complicated than it needs to be
For an SME, sustainability requests can initially appear daunting.
But the underlying process can often be straightforward:
Understand → Measure → Identify → Plan → Act
The objective isn't necessarily to create a large ESG reporting function.
It is to understand the information being requested, establish a credible baseline and identify practical actions that make sense for the business.
The key takeaway
Sustainability questions are increasingly becoming part of the commercial environment in which SMEs operate.
They may come from a lender, customer, procurement team or supply-chain partner, rather than from a regulator directly.
For SMEs, the best response isn't necessarily a complex sustainability report.
It is to have a reasonable understanding of:
where the business is today, what its significant environmental impacts are, and what practical steps it could take to improve.
That information can help businesses respond more confidently to sustainability questions and may also highlight opportunities to reduce costs, improve efficiency and prepare for future requirements.
TrailZero helps Irish SMEs gather practical sustainability data, assess environmental performance and develop proportionate improvement and transition plans.
Need help responding to a sustainability questionnaire or preparing for a green finance application? Contact TrailZero for practical sustainability support.
