SOAS Research Online

Abstract

A just energy transition requires building the carbon accounting capabilities of millions of small and medium enterprises (SMEs) globally and linking this to the financing of net zero transition pathways. SMEs account for at least 50% of greenhouse gas (GHG) emissions of the business sector. Automated carbon accounting is one of the few viable options for SMEs to not lose out on contracts with global clients that have set net zero supply chain targets, when SMEs struggle with low margins and limited time. 66% of the revenue of the world’s 2,000 largest companies are now covered by a net zero target, and they increasingly need to disclose scope 3 carbon emissions to respond to regulatory requirements such as the European Union’s Corporate Sustainability Reporting Directive and voluntary standards such as the S2 sustainability accounting standard introduced by the International Sustainability Standards Board. There is a risk that SMEs with limited capabilities in carbon accounting will not be eligible for contracts as global corporations respond to new scope 3 disclosure requirements. Moreover, without carbon accounting, SMEs are likely to pay a higher risk premium on bank credit and get excluded from cheaper green and transition finance. Open banking and open finance digital infrastructure hold great potential for automating data collection and analysis and supporting a just energy transition for SMEs. This policy brief outlines the opportunities for leveraging artificial intelligence (AI) on open banking data for automated carbon accounting for SMEs and linking transaction data to emission factor datasets or real data from e.g. energy meters. It discusses options available for G20 policy makers to design national data ecosystems composed of open banking, open finance, and green data sets as a data infrastructure pillar in their roadmap for a just energy or green transition with the goal of facilitating access to transition finance for SMEs. It also discusses options for adding further carbon footprint elements to the SME GHG inventory beyond energy.