This chapter assesses the current state-of-play and near-term prospects for the access to and uptake of sustainable finance by SMEs in Portugal. It analyses the main drivers and barriers to the supply and demand for sustainable finance by SMEs and outlines key financing instruments that are being developed to meet the sustainable investment needs of Portuguese SMEs. Based on the assessment of current challenges and existing support, the chapter proposes policy recommendations that can strengthen the role of finance in driving the transition of SMEs towards net zero objectives.
The Green Transition of SMEs and Entrepreneurship in Portugal
Abstract
As business investments in environmental sustainability often entail high upfront costs, access to external finance is crucial for the green transition of SMEs, as well as for green entrepreneurs to develop and scale up new green technologies and solutions.
In Portugal, the provision of sustainable finance for SMEs is driven by regulatory demands, such as the mandatory requirements for financial institutions to report on their financed emissions and their alignment with the EU Taxonomy for Sustainable Activities. Additional drivers include the need to mitigate climate-related physical risks and to respond to rising demands for better environmental performance from consumers and other stakeholders.
Nonetheless, SMEs find it difficult to tap into the growing pool of sustainable finance due to the lack of granular data on their environmental performance. In an OECD survey of financial institutions, 91% of European ones, including all four Portuguese commercial banks covered in the survey, cited the lack of SME data as a key barrier to the offer of green and sustainable financing instruments.
Data is also a barrier for the SME uptake of sustainable finance, as it poses an additional reporting burden on SMEs compared to traditional financing instruments. Other barriers to SME demand stem from broader constraints to green investments, such as lack of knowledge and skills to make the investment profitable.
Different green and sustainable financing options have recently been made available to Portuguese SMEs through EU and domestic programmes. Public financial support is available primarily through credit lines and risk-sharing instruments such as credit guarantees. However, eligibility requirements for these programmes have often been too complex, which has limited the uptake.
Non-financial support in this area mostly takes the form of information and awareness-raising campaigns on emerging regulatory requirements. However, public and private-led initiatives in this area are not always aligned in Portugal.
Going forward, necessary policy reforms include reducing the reporting burden for SMEs through streamlining and harmonising reporting requirements and making the reporting of relevant data more seamless and automatic.
Access to finance is a critical enabler of the green transition, given the high upfront costs often associated with business investments in environmental sustainability (OECD, 2021[1]; OECD, 2022[2]). According to Eurobarometer survey data from 2021 (see also Chapter 2), Portuguese SMEs are less likely than those in the rest of the EU (14% vs. 24%) to use external support to undertake greening actions (i.e., resource-efficiency actions), where external support includes both public and private support. With respect to “private sector support”, the share of Portuguese SMEs using “private funding from banks, companies and VC funds” to undertake resource-efficiency measures is in line with the rest of the EU, i.e., 27% and 28% of those receiving some form of external support. However, because the base is given by companies receiving some form of external support, this means that much fewer SMEs in Portugal than in the rest of the EU use financial support from banks to undertake green investments. Nonetheless, when asked about the main policy drivers of resource-efficiency actions, 26% of Portuguese SMEs cite public funding and 21% advice on funding and financial planning, pointing to the importance of green and sustainable finance for a successful green transition of SMEs in Portugal.
A more disaggregated analysis shows, expectedly, that medium-sized enterprises (50-249 employees) are more likely to use external support to undertake green actions (30%), compared to small enterprises (10-49 employees) and micro-enterprises (1-9 employees), respectively at 19% and 13%. However, among companies receiving external support there are no major differences between public and private support, including from financial institutions, across different firm sizes. The cost of environmental actions is more likely to be reported as a major barrier to greening by mid-sized firms (27%), compared to small and micro-enterprises (20% and 17%), which likely reflects the higher levels of capital investments associated with mid-sized companies, which are also more likely to be found in manufacturing (European Commission, 2022[3]).
Finance is likely to become an even bigger constraint for Portuguese SMEs in the future, as financing decisions become increasingly linked with sustainability considerations in response to regulatory changes and evolving stakeholder demands. Thus, SMEs that wish to access green or sustainable finance must meet additional requirements beyond traditional bankability criteria (e.g. the presence of collateral)1, mostly referring to the monitoring and reporting of data on their sustainability performance, which covers different environmental, social and governance (ESG) dimensions and is a challenge for SMEs with limited resources and capacities to dedicate to this effort. These new requirements are also likely to imply increased demand on SMEs to improve their sustainability performance, as financial institutions seek to better align their portfolios with the EU Taxonomy on Sustainable Activities. Ensuring that SMEs can tap into the growing pool of green and sustainable finance is thus an important challenge for the green transition in Portugal, like for many other OECD economies.
3.2.1. Sustainable finance is a growing share of the SME finance pool in Portugal
Financial institutions in Portugal are increasingly integrating sustainability considerations in their SME operations. In a 2023/2024 OECD survey which covered both public development banks and private financial institutions and included four of Portugal’s largest commercial banks2, 90% of the private financial institutions stated that they had a dedicated sustainability strategy, and 62% that they had net-zero transition plans in place (Figure 3.1, Panel A). Likewise, 46% of financial institutions indicated that they were integrating climate considerations in their financing and investment decisions (Figure 3.1, Panel B), while 72% reported that they were providing green and sustainable financing solutions for their SME clients, including all the four commercial banks from Portugal included in the survey (Figure 3.1, Panel B).
Note: Panel A. Answers to the question (multiple answers possible), “What types of sustainability-related strategic documents and targets does your institution have in place?”. Panel B. Answers to the question (multiple answers possible), “How if all does your institution integrate climate in its financing/investment decisions?”
Source: (OECD, 2023[4]) complemented by results from the same survey submitted to financial institutions in Portugal (2024)
Financing the green transition of SMEs mainly comes in the form of debt instruments. Sixty-six percent of private financial institutions, including three out of the four Portuguese commercial banks, provided green or sustainable medium- and long-term loans, while 40% provided short-term loans or factoring (Figure 3.2, Panel B). Guarantees are widely used to support green and sustainable investments by SMEs, with 72% of the surveyed public development banks from across Europe using this instrument to provide green finance solutions to SMEs (OECD, 2023[4]). In Portugal, all four respondent commercial banks reported that they had used guarantee instruments to provide sustainability-related financing for SMEs. On the other hand, the use of equity finance and grants, which are more typical of public development banks, was less common among the survey respondents (Figure 3.2, Panel B).
Note: Panel A. Answers to the question (multiple answers possible), “Does your institution provide any financing/investment products classified as”. Panel B. Answers to the question (multiple answers possible), “Which of the following types of tailored instruments does your institution use to finance SMEs’ sustainable or green investments?”. Source: (OECD, 2023[4]) complemented by results from the same survey submitted to private financial institutions in Portugal (2024)
3.2.2. The provision of sustainable finance in Portugal is driven by regulatory requirements, performance considerations and stakeholder demand
The provision of sustainable finance is driven by regulatory requirements, implications for long-term financial and operational performance and demand from various internal and external stakeholders, including shareholders and clients (Figure 3.3)
By rate of importance (Percentage of respondents in Europe, including Portugal)
Note: Answers to the question: “rate the importance of the following factors in driving action on climate/net-zero in your institution”.
Source: (OECD, 2023[4]) complemented by results from the same survey submitted to private financial institutions in Portugal (2024)
Regulatory requirements
Regulatory reforms are an important driver of the integration by Portuguese financial institutions of climate considerations in their operations, including financing and investment decisions, risk management and reporting. Most notably, by requiring mandatory sustainability reporting by financial institutions, including at portfolio level, the EU Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR) are incentivising financial institutions to take into account sustainability considerations in their financing decisions and to strategically realign their portfolios towards greener and more sustainable assets, as defined by the EU Taxonomy (see Box 3.2). Commercial banks are also increasingly subject to climate-related stress testing by central banks, prompting them to increasingly assess the climate-related risks associated with their portfolios (see Box 3.2).
The European Commission and the government of Portugal are implementing an ambitious regulatory agenda aimed at aligning the supply of enterprise financing with sustainability goals. At the EU level, notable regulations include the EU Taxonomy on Sustainable Activities, the Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR).
The EU Taxonomy is a standardised classification system for business activities that are environmentally sustainable and contribute to the goal of a net-zero transition by 2050. The EU taxonomy provides a set of sustainability screening criteria to determine if economic activities contribute to climate change mitigation or adaptation, without compromising other environmental objectives. The Taxonomy provides the legal foundations for the CSRD and the SFDR (European Commission, 2023[5]).
The EU’s Corporate Sustainability Reporting Directive (CSRD) mandates EU-based corporations (i.e., large enterprises and financial institutions with over 500 employees listed in an EU-regulated market) to disclose sustainability data in compliance with the European Sustainability Reporting Standards (ESRS). For large firms, the CSRD requires comprehensive disclosure for over 20 key performance indicators (KPIs), including indicators related to climate change, pollution, water and marine resources, biodiversity and ecosystems, and resource use. Under the CSRD, financial institutions must report not only on their own performance but also on the performance of their financed portfolios. This provides an incentive for better alignment of financing, including the financing of SMEs, with environmental goals. This also creates additional demands on SMEs to report on their sustainability performance, as discussed further in the chapter (European Commission, 2024[6]). Under the CSRD, from 2024, EU financial institutions are required to report on their Green Asset Ratio (GAR) over the previous financial year, which means that banks will need to disclose the proportion of their assets that are aligned with the EU Taxonomy (European Banking Federation, 2024[7]).
The Sustainable Finance Disclosure Regulation (SDFR) is an EU regulation that mandates transparency on sustainability practices of financial institutions. Financial institutions with operations in the EU must report on ESG at both entity and product level, including reporting on the sectors in which they are investing. Financial institutions must report on the integration of sustainability risks and a number of Principal Adverse Impact (PAI) indicators in their portfolio. These include mandatory indicators such as GHG emissions (scope 1,2,3, and total), GHG intensity of investor portfolio, share of investments in fossil-fuel sectors, non-renewable energy usage, and others. The SFDR categorises investment funds into: Dark Green Funds, which prioritise sustainable investment; Light Green Funds, promoting environmental and social characteristics without sustainability as the central goal; and Grey Funds, which neither prioritise nor promote such characteristics. This regulation encourages financial institutions to make more informed decisions about where to allocate their capital, driving investment towards SMEs that can contribute to the sustainability of their portfolios (Greenomy, 2023[8]).
The European Central Bank (ECB) has also begun to conduct climate risk stress tests on supervised entities as part of its Supervisory Review and Evaluation Process (SREP), aligning with its strategy to integrate climate considerations into monetary policy. The first ever stress test are based on forecasted long-term scenarios of various macro-financial and climate risks over 30 years. These scenarios differ in the degree of climate action taken and forecasted impacts. The 2022 stress test showed that despite some progress, banks still fall short of adequately accounting for climate-related risks. Overall, to prepare for the green transition, banks need to step up their customer engagement to receive better data and rely less on proxy indicators (European Central Bank, 2022[9]).
At national level, the central bank (Banco de Portugal) has also started including climate scenarios in the risk assessment of the Portuguese banking sector. Drawing on local data, Banco de Portugal evaluates the exposure of domestic banks to potential physical risks, based on the location of client firms. The most recent analysis (2023) finds that the main risk exposure relates to bank credit granted to firms vulnerable to water stress, heat stress and wildfires and is set to influence the adoption of balance sheets that better mitigate possible negative environmental impacts (Banco de Portugal, 2023[10]).
Portugal’s Climate Framework Act, passed on December 31, 2021, and effective from February 1, 2022, marks Portugal's first comprehensive law addressing climate issues. It consolidates various laws and regulations concerning climate change, setting an overall framework for Portugal’s climate policy. The Act establishes ambitious commitments to achieve climate neutrality by 2050 and includes provisions on economic and financial instruments meant to support the achievement of 17 different climate policy objectives (Assembleia da República, 2021[11]).
Performance considerations
Banks are also citing considerations of long-term financial and operational performance as important drivers of greening their portfolios (see Figure 3.3). As firms face both physical3 and transition risks4 associated with climate change, which can disrupt production and lower business revenues, financial institutions must also increasingly consider these risks in their financing decisions (OECD, 2022[2])5.
Estimates of the financial risks associated with climate change are significant. The ECB reckoned that the total economic impact of extreme weather events caused a 1% loss in GDP in the Euro area in 2019, and that without proactive measures these costs are projected to increase (ECB, 2021[12]). This has important implications for the value of financial assets. For example, the Network for Greening the Financial System (NGFS), a group of central banks and supervisors, estimate that the transition to a low-carbon economy could lead to a significant revaluation of global assets with potential losses ranging from USD 1 to 4 trillion in sectors such as energy, real estate and utilities (Network for Greening the Financial System, 2019[13]). According to the Intergovernmental Panel on Climate Change (IPCC), the total value of stranded assets in terms of fuels and infrastructure could reach USD 4 trillion by 2035 under the 2-degree Celsius temperature rise scenario (IPCC, 2022[14]).
Portugal-specific analyses, which seek to capture the interactions between climate risks, the real economy and the financial sector, further confirm the high potential costs associated with climate change. In its 2024 annual report on the exposure of the banking sector to climate risk, Banco de Portugal highlighted physical risks as a source of concern, with over 90% of loans provided by Portuguese banks concentrated in medium to high-risk areas. Transition risks, on the other hand, were found to be less pressing, with the amount of carbon-intensive assets in banks’ portfolios on the decline. The report also found cost and stability-related advantages in early climate action compared to delayed action, as simulated under two different scenarios: a) the ‘’Accelerated Transition’’ scenario, which includes accelerated climate action and achievement of net zero by 2050; and b) the “Current policies” scenario, characterised by minimal to no additional climate measures until 2030. In the short term, the first scenario entailed higher costs and a negative impact on growth. However, in the long term, the same scenario also generated lower costs for the economy and better stability for the financial sector (Banco de Portugal, 2024[15])
One critical way in which financial institutions in Portugal and beyond can incorporate climate risk factors into their macroprudential strategy is by financing assets in green and sustainable sectors of the economy, or by financing the green transition of assets in brown sectors, both of which drive the provision of green and sustainable finance. Notable progress is needed here, as analysis from the ECB shows that that 90% of the portfolios of financial institutions in the Eurozone are not aligned with climate objectives (European Central Bank, 2024[16]).
Stakeholder demand
Stakeholder demand and reputational considerations are also an important driver of the greening of financial institutions’ portfolios. According to a 2022 EIB survey, 88% of Portuguese people perceive climate change as the most pressing challenge of the 21st century and 85% support stricter government measures to address this problem (EIB, 2022[17]). Furthermore, 77% of respondents were in favour of measures such as taxing products and services contributing to global warming (EIB, 2022[17]).
Against this backdrop, shareholders, investors, customers, employees and communities, have growing concerns about the scope and credibility of the environmental practices of firms and the sustainability performance of financial institutions. In the 2024 OECD survey, for example, 97% of European financial institutions (including all Portuguese ones) noted that shareholders and customers are asking for better sustainability performance at institutional level.
This is prompting institutions to divest from fossil fuels (57%), reduce the weight of fuel-related assets in their portfolios (65%), and allocate funds towards green investments and companies (75%) (Axios, 2022[18]).This is also leading financial institutions to better align internal capacities and incentives with shareholder demand for better sustainability performance. In the OECD survey, all surveyed Portuguese institutions stated that they are building internal capacities for integrating climate in their operations through training (100%), provision of external advice (50%), certification (75%) and other means. As many as 63% of European and 75% of the Portuguese respondent institutions are also linking managerial incentives with climate performance (OECD, 2023[4]).
Policy support
In line with EU and national policy objectives of accelerating the green transition of SMEs, many EU and national institutions have also considerably scaled up their policy support to foster SMEs’ access to green and sustainable finance in Portugal. Notably, the European Investment Bank (EIB) and the European Investment Fund (EIF), for example through the InvestEU initiative, are providing direct financing and guarantees to mobilise financing for the green transition of SMEs. They are also supporting risk financing for innovative SMEs and start-ups developing new green technologies. Likewise, Portugal’s national promotional bank, Banco Português de Fomento, is providing direct financing support and guarantees to private financing providers to foster the provision of green and sustainable finance to SMEs (see section 3.4).
3.3.1. There is limited data on SME environmental performance, preventing the diffusion of sustainable finance for SMEs
EU financial institutions increasingly need and seek out granular data on their clients’ sustainability performance in order to manage risks, develop financing instruments and meet reporting requirements. In the OECD survey, 80% of European and 100% of Portuguese financial institutions stated that they already seek sustainability data from SME clients. The majority of those which do not seek any data from SME clients plan to introduce these requirements soon.
This is posing an important challenge for SMEs, as data on SMEs’ sustainability performance is still scarce. In Portugal, SMEs have not been historically asked to report on their non-financial performance, and under the CSRD, only listed SMEs will have to provide such information (European Commission, 2023[19]). Likewise, few ESG rating providers assess SMEs specifically, and SMEs are underrepresented in the ratings of the major ratings providers (OECD, 2020[20]). Furthermore, although voluntary reporting, certifications and other means of communicating environmental performance are on the rise, they are still employed by relatively few SMEs due to their costs. In the EU, for example, only 5% of non-listed SMEs published a sustainability report voluntarily in 2022 (European Commission, 2024[21]). Likewise, less than 3 000 companies across all of the EU hold the EU Ecolabel license, with Portugal only featuring 35 (European Commmission, 2024[22]).
SMEs also have more limited resources and capacities than larger companies to report on their sustainability performance. A study commissioned by the EC estimated that the costs incurred by an SME in voluntary sustainability reporting range from an average of EUR 5 600 for small businesses to an average of EUR 24 300 for medium-sized businesses. The estimated costs of responding to ESG requests from financing providers and value chain partners ranged from an average of EUR 4 700 for a small business to EUR 7 000 for a medium-sized firm (European Commission, 2024[21]). EU SMEs have frequently cited challenges in meeting reporting requirements to access sustainable finance due to both their complexity and their own limited resources and capacities (SMEunited and Eurochambres, 2023[23]).
Survey results also confirm that the lack of granular data on the sustainability performance of SMEs represents a critical challenge for the offer of tailored green finance solutions for SMEs. In the OECD survey, for example, 91% of European and 100% of Portuguese financial institutions cited the lack of granular data as a barrier to the integration of climate considerations in their SME operations. Most financial institutions also cited data challenges as the most important barrier to the development of net-zero targets and transition plans, reporting on financed emissions, and taking overall action on climate change at an institutional level (OECD, 2023[4]).
The need to collect, process, verify and monitor sustainability data also makes the provision of sustainable finance costlier for financial institutions. SME financing is already comparatively more expensive for financial institutions due to fixed screening and monitoring costs associated with bank lending. These additional requirements make the provision of sustainable finance for SMEs even less profitable for financial institutions, setting a disincentive for the growth and diversification of sustainable finance programmes (European Commission, 2024[24]).
3.3.2. There are also some challenges with the current regulatory framework
While regulations have been an important driver of the provision of sustainable finance for SMEs, important gaps in the existing regulatory framework are also a constraining factor.
First, demonstrating alignment with the EU Taxonomy is not easy for SMEs. The EU Taxonomy has provided an important tool for establishing consistency and transparency in sustainability reporting and for providing a basis for addressing potential greenwashing claims. As one of the pioneer taxonomies, it has also served as a reference for the development of taxonomies in other jurisdictions. However, there are obstacles in the use of the EU Taxonomy, particularly when it comes to SMEs.
More specifically, alignment with the EU Taxonomy means that an activity is:
Contributing substantially to one or more environmental objectives in accordance with the Taxonomy.
Demonstrating no significant harm for any of the other environmental objectives as outlined in the Taxonomy.
Compliant with minimum safeguards (effectively similar to the “no significant harm” criteria but for social objectives).
Several studies and surveys have pointed out that it is not always straightforward to align with these criteria, especially for SME financing products. For example, a study by the United Nations Environment Programme Finance Initiative (UNEPFI) that tested the implementation of the EU Taxonomy across a range of different core banking products, found important challenges with the application of the Taxonomy to SME loans. In addition to the lack of granular data, skills and expertise of SME clients, the report highlighted the difficulty of demonstrating no significant harm and social safeguards for SME loans (UNEP FI, 2021[25]). The study also pointed out that the use of eco-certificates to communicate the sustainability performance of SMEs is not compatible with the Taxonomy, in line with findings from a survey conducted by two international SME associations (SMEunited and Eurochambres, 2023[23]).
Second, the EU Taxonomy has limited sectoral coverage. A 2023 study by the Association of German Banks assessed the taxonomy eligibility and alignment of the turnover of 450 corporations in the EU. The analysis showed that only about 30% of the turnover of these corporations is taxonomy eligible, i.e., it is covered by the EU taxonomy (Bankenverband, 2024[26]). This poses challenges for banks’ reporting on the green asset ratio (GAR) and limits the GAR’s utility in guiding capital allocation.
Third, the green asset ratio (GAR) does not adequately account for SME assets. Currently SMEs are exempt from the numerator of the GAR (i.e., the sum of assets that are taxonomy aligned) in recognition that it is difficult to assess their taxonomy alignment, but they are counted in the denominator of the GAR (i.e., the total assets of the portfolio of financial institutions). As a result, the GAR currently understates the green and sustainable assets of banks (OECD, 2024[27]).
Fourth, the Taxonomy has limited scope for transition financing for SMEs. Under the EU transition finance framework, financing the green transition and taxonomy alignment of enterprises operating in “brown” sectors has to be based on the provision of credible and science-based transition plans. However, these transition plans are quite complex and difficult for SMEs to develop. In the absence of simplified frameworks for SME transition planning, SMEs would find it difficult to access transition financing in the EU. Different stakeholders have also pointed to the importance of setting sector transition plans at national and regional level that can provide benchmarks against which SME performance can be assessed (EBF, 2023[28]).
3.3.3. SME demand for sustainable finance is also hindered by complex reporting requirements, calling for a simplified reporting framework
As shown in chapter 2 of the report, almost one in four Portuguese SMEs has a climate neutrality strategy in place and another one in four is planning to implement such a strategy in the following two years, which are slightly better results than the EU average. However, among SMEs with a climate strategy, fewer of them in Portugal than in the EU take specific actions towards climate neutrality, such as reducing carbon emissions or purchasing/developing new carbon-reduction technologies. There are many possible causes behind this trend. Limited knowledge and expertise, as well as technology, market and regulatory uncertainty are some of the most common challenges faced by small businesses in the green transition (OECD, 2021[1]).
However, even when SMEs wish to take greening actions, they may be reluctant to seek external financing due to the associated costs. For example, SMEs often experience higher interest rates and more stringent collateral requirements than larger companies. SME demand has also more recently been affected by deteriorating financing conditions, notably higher interest rates (OECD, 2024[29]).
The additional sustainability-related data and monitoring demands associated with green and sustainable finance further hinder the demand for these products. Thus, even though there is an increasing range of sustainable financial products - often with more favourable financing conditions than traditional financing products (see section 3.4) - the uptake by SMEs is still very low. When making greening investments, SMEs may therefore choose to avail of conventional financing options that have less cumbersome reporting requirements (OECD, 2024[27]).
Survey results confirm that this is a challenge across all EU member states. In a 2023 survey by SMEunited and Eurochambres, which included 413 SMEs that have used external financing for investments in greening, 42% stated that they have taken out loans without any promotional elements related to greening, 23% have taken out loans with some promotional element and 16% have accessed a promotional programme (e.g. grants, subsidies or guarantee) (SMEunited and Eurochambres, 2023[23]).
The reporting burden is further exacerbated by the lack of a coordinated policy response. For example, SME associations have highlighted that there is a proliferation of tools and trackers provided by both public and private actors, but it is not clear which ones are really useful for their reporting needs. Moreover, in Portugal, as in many EU countries, there is no single portal or service where SMEs can access all the relevant information on their reporting needs and the tools that can help them meet these demands (OECD, 2022[2]). Finally, SME associations have complained about the lack of involvement in the policy dialogue that normally precedes the transposition of EU laws, notably in this case the CSRD ad the SFDR.
The lack of a standardised and simplified reporting framework – currently under development – has also so far exacerbated the reporting challenge for SMEs, which can receive very different data demands from different entities. In the 2023 OECD global survey of financial institutions, most respondents stated that they utilise their own methodologies and frameworks in addition to any international frameworks or standards when they design SME data questionnaires or KPIs for green/sustainable financing products (OECD, 2023[4]). Sustainability-related data questionnaires for SMEs in the EU can currently range from 20 questions to up to 250 questions (OECD, 2023[30]).
In the absence of standardised and simplified reporting frameworks that take into account the relative size and capabilities of businesses, SMEs face a real constraint to accessing sustainable finance. In sustainability reporting, the European Financial Reporting Advisory Group (EFRAG) is currently creating simplified standards for SMEs. These standards complement the existing European Sustainability Reporting Standards (ESRS), which are mainly designed for large companies under the CSRD. There are two sets of standards: one mandatory for Listed SMEs (LSME) and another voluntary for non-listed SMEs (VSME). The VSME framework is expected to help unlisted SMEs, which represent the overwhelming majority of EU SMEs, to meet sustainability data requests from financial institutions and supply chain partners (EFRAG, 2024[31]).
3.4.1. There is a wide range of potential instruments available to support the offer of sustainable finance for SMEs
Governments have traditionally played an important role in supporting access to finance by SMEs due to market failures such as information asymmetries in credit markets, the fixed cost of lending making small-sized loans more costly for lenders, and the lack of collateral and low financial literacy of small business owners.
Sustainable finance is not an exception. In this specific area, government support can take the form of traditional instruments or more tailored green and sustainable instruments (see Table 3.1), which take certain metrics into account with a view to rewarding green investments or better sustainability performance. For example, green guarantees can have preferential features such as a higher guarantee coverage rate, a lower fee, or a cap on the interest rate charged by on-lenders (AECM, 2023[32]). Similarly, green lending programmes can offer better terms than traditional debt finance programmes, while sustainability-linked financing instruments tie financing conditions to sustainability-related key performance indicators (KPIs) and may therefore offer evolving conditions over time.
According to the abovementioned OECD survey, most financial institutions currently rely on debt instruments, such as green and sustainability-linked loans and green guarantees, while equity instruments are still undeveloped across most observed countries.
Public institutions also play a pivotal role in the offer of non-financial support, such as training and advice (see Table 3.2), which can help SMEs to better understand the steps needed to make their businesses more environmentally sustainable and thereby help them allocate financial resources more suitably. Non-financial support is also critical to support SMEs in the measurement and reporting of their sustainability performance, which is a key requisite for accessing green and sustainable finance from financial institutions.
Source: OECD
3.4.2. The government of Portugal has stepped up financial and non-financial support for SME greening in recent years
In Portugal, financial and non-financial support for greening has been stepped up in recent years, notably through the Environmental Fund, which has served as the key mechanism to implement the environmental objectives of Portugal’s national Recovery and Resilience Plan (RRP) (European Commission, 2023[33]). The RRP, as outlined in more detail in the following chapters of this report, has provided financial support for SMEs to invest in energy efficiency and circular economy practices and encouraged environmental awareness and education. The RRP has included a REPowerEU chapter, which has also supported investments in renewable energy generation and hydrogen production to wean off Portugal (and Europe) from dependence from Russian gas. Portugal is also promoting awareness of climate risks among economic and financial stakeholders, thus fostering sustainable finance in line with the Portuguese Climate Law and the National Adaptation to Climate Change Law (ENAAC 2020) (Assembleia da República, 2021[11]).
Financial support
Financial support is provided through various national and EU institutions and programmes (see Box 3.3). Key domestic institutions that provide green finance for SMEs and start-ups include:
The Portuguese Environmental Fund, which provides SMEs with financial support to improve building efficiency, circular economy practices, and environmental awareness and education (see following chapters of the report), including through measures funded by the national RRP.
The Portuguese national promotional bank, Banco Português de Fomento (BPF), which provides guarantees and direct financing for SMEs seeking to undertake green investments, as well as (limited) risk capital for start-ups in the area of cleantech and green-tech.
The institutions of the mutual guarantee system, which provide support tailored to specific regions or sectors and include: Agroguarante, focusing on SMEs in the agro-industrial sector at national level; Garval, supporting companies in the Azores and central Portugal; Lisgarante, focusing on the capital region of Lisbon, southern Portugal and Madeira; and Norgarante, supporting companies in the north of Portugal.
Portugal Ventures, which is the venture capital (VC) arm of BPF, invests in Portuguese start-ups across various sectors, including clean energy and environmental technologies, and offers access to a network of mentors and investors.
EU financial support is provided through:
The European Investment Bank (EIB), which is supporting SME greening in Portugal through credit lines and risk-sharing facilities, some of which are jointly provided with the European Investment Fund (EIF).
The European Investment Fund (EIF), which provides risk-sharing solutions as well as equity and mezzanine financing to SMEs and start-ups through funds managed by local VC firms and private equity investors.
Some examples of key financing programmes and instruments are presented in Box 3.3. These programmes tend to have some promotional components and thus offer better financing conditions than non-green or non-sustainable financing products. However, as noted by several different stakeholders during the fact-finding mission of the project, the uptake of green and sustainable financing programmes is hindered by the associated reporting burden. Thus, SMEs investing in the green transition may prefer to apply for traditional financing instruments rather than for tailored products, as they often perceive the reporting costs associated with the latter to outweigh the benefits of better financing conditions.
This has two important implications for policy makers:
The preferential conditions of green and sustainable finance instruments need to be large enough to outweigh the associated reporting costs. This is also connected to broader regulatory challenges at the EU level, including how carbon is priced and how non-financial disclosure is formulated (e.g., materiality considerations)6. For example, if environmental externalities were adequately internalised in the pricing of all financial products, the cost differential between traditional and sustainable financing instruments would be higher, making sustainable finance more attractive. These considerations are beyond the scope of this report, but they clearly affect the uptake of sustainable finance at firm level.
The reporting burden and associated costs for SMEs need to be reduced. More specifically, reporting requirements should be streamlined as much as possible and should be proportionate to the capacities and resources of SMEs. Furthermore, the introduction of reporting requirements should be gradual to facilitate compliance. In parallel, SMEs should also have easier access to advice, resources and support to meet new reporting needs, including through leveraging digital tools for automated data reporting.
Debt financing programmes
Banco Português de Fomento (BPF), the national promotional bank, has allocated EUR 100 million for the Linha de Crédito para a Descarbonização e Economia Circular (Credit Line for Decarbonisation and the Circular Economy) to be implemented through private commercial banks. This initiative enables SMEs certified by IAPMEI to access financing supported by guarantees for undertaking energy efficiency or circular economy projects. Under this programme, guarantees cover 80% of the loan, with a cap of EUR 2 million per company (Banco Português de Fomento, 2024[34]).
The Linha Turismo + Sustentável (Tourism + Sustainability Credit Line), managed by BPF, is a EUR 50 million credit line aimed at supporting environmental sustainability investments in the tourism sector. Eligible companies can receive up to EUR 750 000 each for projects focused on water and energy management, waste management, biodiversity, and the circular economy. The programme offers a mutual guarantee covering up to 80% of the loan. The credit line has baseline interest rates and fees, but if recipients improve their ESG performance, they benefit from reduced rates in the following years (Tourismo de Portugal, 2024[35]).
The EIB is supporting SME greening in Portugal through credit lines implemented in partnership with private financial institutions, offering favourable terms to encourage SMEs to invest in green projects and technologies. Examples include a EUR 300 million credit line to Banco Português de Investimento (BPI) for on-lending to SMEs and midcaps to support investments in environmental sustainability (EIB, 2024[36]). In 2023 the EIB also signed financing agreements totalling EUR 300 million with Novo Banco for financing SMEs and midcaps in Portugal. Part of this financing is dedicated to green investment in areas such as smart mobility, renewable energies, sustainable agriculture, and industry (EIB, 2023[37]).
The EIF Sustainability Portfolio Guarantee Product, administered by EIF as part of the InvestEU initiative, aims to improve access to debt finance for SMEs engaged in sustainable projects. Compared to typical products available in the market, the EIF Sustainability Guarantee offers more favourable terms to financial intermediaries, including a higher coverage rate of up to 70% and a maximum single lending transaction of EUR 7.5 million. Eligible projects fall into two categories: "Sustainable Enterprises," which could involve the use of clean-tech technologies or acquisition of an eco-label from an EU labelling scheme; "Green Investments," such as SME investments in energy efficiency or usage of sustainable materials (EIF, 2023[38]). This programme is implemented in Portugal through commercial banks, such as BPI and Millennium Banco Comercial Português (BCP).
Equity financing programmes
As part of the InvestEU initiative, the European Investment Fund (EIF) has rolled out equity instruments and private credit funds to support green entrepreneurship in the EU. The EIF “Climate and Infrastructure Funds”, which also cover Portugal, provide targeted financing for the net-zero transition and other ESG areas. Funding can finance the reduction of fossil fuel dependence, sustainable management of natural resources, food security, and climate resilience. Key target areas include, among others, mobility and transport, energy, industrial decarbonisation, land resource management, and the blue economy (EIF, 2024[39]).
Growth Blue I is the first private equity fund focused on the blue economy in southern Europe. It is the result of a partnership between the EIF, BPF and the Portuguese government within the framework of InvestEU. This initiative aims to invest in startups, SMEs, and midcaps operating in blue economy sectors, as well as to boost research activities and promote education and training in marine and maritime fields (EIF, 2023[40]).
Portugal Ventures, the venture capital arm of BPF, in collaboration with the national innovation agency (ANI), manages the Call INNOV-ID initiative, designed to enhance access to venture capital for early-stage projects that contribute to decarbonisation, sustainability, energy efficiency, or the circular economy. Eligible candidates are technology-based firms in their pre-seed, seed, or early stages (less than eight years old). Each selected project can receive an investment of EUR 100 000 to help entrepreneurs secure additional funding (Portugal Ventures, 2024[41]).
Grant programmes
The Empreende XXI programme is implemented by the National Institute for Employment and Professional Training (Instituto de Emprego e Formação Profissional, IEFP) and encourages business start-up creation. Even though the programme is not designed exclusively for green investments, it gives preferential conditions to entrepreneurs who are active in the green transition through an increase in the proportion of investments eligible for public support (from 40% to 55%). In addition, there is a component of interest-free loans that can cover up to 45% of the eligible investment, which together with the grant can reach up to 85% of the total investment amount (maximum of EUR 200 000 per beneficiary).
In addition, “Vouchers for Startups - New Green and Digital Products” has a budget of EUR 90 million from the RRP and aims to foster the development of business models and digital products or services that contribute to the climate transition. Administered by Startup Portugal and IAPMEI, these vouchers support pilot projects contributing to digitalisation, resource efficiency, pollution reduction, circular economy, and new energy solutions. Each beneficiary can receive up to EUR 30 000 (Startup Portugal, 2024[42]). This measure is further analysed in chapter 7 of the report covering direct support measures for green entrepreneurship.
Non-financial support
Non-financial support in the area of sustainable finance mostly takes the form of information and guidance on the regulatory requirements stemming from the EU Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR). For example, SMEs can access resources to understand the EU Taxonomy and the necessary steps to align with it. Through a portal developed by the national SME agency, IAPMEI, they can also access a tool – in the form of a questionnaire – to self-assess their own ESG performance (IAPMEI, 2024[43]). Portuguese SMEs can also access the Enterprise Europe Network (EEN) of sustainability advisors to get technical and funding advice to make their businesses more environmentally sustainable (see Box 3.4) (Enterprise Europe Network, 2024[44]).
In 2024, a private sector initiative has further contributed to improving sustainability reporting for businesses in Portugal. The so-called “Portuguese Ecosystem”, established and operated by a coalition of private actors including 13 commercial banks, payment service providers (SIBS), consultancy and technology firms and business associations, provides a platform that helps SMEs understand and fulfil the necessary reporting requirements for financial institutions. The platform includes a questionnaire that covers different relevant indicators and metrics related to physical risks, taxonomy alignment and GHG emissions. The questionnaire has been agreed and used by the commercial banks that are part of this initiative. The platform also provides ex-ante training sessions for companies on how to complete the questionnaire, as well as a contact centre that can answer further questions. The sustainability reports that are generated through this platform can help SMEs receive more financing or financing at better conditions.
Despite these initiatives, there are a few challenges that need to be addressed in Portugal to strengthen future compliance with sustainability reporting requirements through measurement and advisory services:
The urgent demand for sustainability-related data has led to a proliferation of solutions in the market offered by both public and private entities, making it difficult for SMEs to navigate this complex landscape. A recent study from the UK found that there are currently over 270 carbon reporting solutions (Icebreaker One, 2024[45]). In the current setting, SMEs have a very difficult time to understand what tools they should use and how they should interpret the results (SMEunited and Eurochambres, 2023[23]). This also raises concerns for financial institutions, regulators and policy makers regarding the accuracy of the data reported by SMEs, as there is a risk that business owners choose tools that most favourably assess their sustainability performance. As a consequence, SMEs in Portugal, as well as in the rest of the EU, need better guidance on what tools to use when measuring and reporting on their sustainability performance.
Existing initiatives to support compliance with sustainability reporting could be better streamlined in Portugal. As noted earlier, Portuguese banks have developed together with a payment solution provider (SIBS) a streamlined ESG questionnaire that they are using to offer sustainable finance for SMEs and to meet the upcoming sustainability reporting obligations (OECD, 2024[27]). However, IAPMEI, Portugal’s SME Agency, also provides an ESG questionnaire on its web portal, which is not aligned with the one used by commercial banks and does not lead to the generation of a single ESG report that SMEs can subsequently share with other entities, including financial institutions. These two tools could be better aligned to generate a one single reference document for SMEs to meet their different reporting needs.
Portuguese SMEs also do not have a single reference point for the type of actions that they could take to improve their sustainability, the technologies they could leverage, and the financial and non-financial support they could access. This kind of a portal, which could be merged with the one measuring ESG performance, would help SMEs develop transition plans linking decarbonisation targets with specific actions, thus demystifying the sustainability journey for SMEs.
EU instruments
The EU Taxonomy Navigator is an accessible online platform designed to help users better understand the EU Taxonomy. It enables users to check which activities are included in the EU Taxonomy, to which objectives they substantially contribute, and what criteria must be met for activities to be considered aligned. It offers a range of practical tools to simplify understanding and facilitate implementation, thereby supporting companies in meeting their reporting requirements. These tools include the EU Taxonomy Compass, which provides a visual overview of the Taxonomy, the EU Taxonomy Calculator for step-by-step reporting guidance, a repository of FAQs addressing common queries, and a user-friendly guide tailored for non-experts (European Commission, 2024[46]).
Within the framework of InvestEU, the European Investment Fund (EIF) has introduced the Sustainability Guarantee Tool. This tool enables financial institutions and companies to evaluate the environmental effects of their projects and determine whether they qualify for the EIF’s InvestEU Sustainability Portfolio Guarantee Product (EIF, 2023[38]).
The Enterprise Europe Network (EEN), an EU programme run by the European Innovation Council and the SME Executive Agency (EISMEA), has launched a new Sustainability Advisory Service aimed at helping SMEs enhance their sustainability strategies. This free service supports the EU priorities of sustainability, digitalisation, and resilience. Specialised business advisors across Europe offer tailored guidance, assessing each company’s needs and connecting them with innovation partners and new technologies. The initiative provides a detailed pathway to reduce energy consumption and improve efficiency, pointing to funding opportunities and offering short-term and long-term strategies (Enterprise Europe Network, 2024[44]).
Portugal’s instruments
The Portuguese Agency for Competitiveness and Innovation (IAPMEI), which is the de-facto SME agency of Portugal, has established a knowledge platform focused on “ESG and Sustainable Finance” to assist SMEs in understanding and conforming to sustainability regulations. The initiative serves as a roadmap for companies entering the ESG realm, helping them understand the regulatory landscape of sustainable finance. The project is financially supported by the Operational Programme for Technical Assistance 2020, with funding from the European Regional Development Fund (ERDF) (Portugal.gov.pt, 2023[47]).
To access sustainable and green finance, SMEs need to be able to measure, monitor and regularly report on their sustainability performance. However, this is a challenge, particularly for micro and small businesses, which have limited resources and capacities to undertake this path. Helping SMEs address these challenges is key for boosting the provision and uptake of green and sustainable finance.
3.5.1. Policy recommendations
Key policy and regulatory considerations to support the supply and demand for SME sustainable finance include:
Streamline and harmonise sustainability reporting requirements for SMEs to reduce the reporting burden that originates from the multiplication of different demands, possibly in line with the in-progress Voluntary Reporting Framework for SMEs (VSME), which is being developed by the European Financial Reporting Advisory Group (EFRAG) at the EU level.
Ensure that SMEs better understand the implications of sustainability reporting requirements, but also the associated benefits, through awareness-raising and capacity building activities.
Help SMEs access resources to measure and report on their sustainable performance by offering guidance, data and measurement tools, ideally all in one place.
Establish a one single portal where SMEs can access information on sector transition plans, technologies, actions and available support they can use to improve their sustainability performance.
Set up the necessary data and legal infrastructure to enable the sharing of sustainability-related data across institutions, with a view to making sustainability-reporting more automatic for companies. For example, if it is feasible to transmit data directly from energy providers to financial institutions upon consent of the business owner, the reporting burden on enterprises would be lowered and data accuracy would be enhanced.
Leverage the role of the public development bank and mutual guarantee societies to expand the offer of green credit guarantees.
Once reporting requirements are enhanced and more commonly used, encourage the use of sustainability-linked financing instruments (grants, concessional loans, and credit guarantees), which partly link financing conditions to the sustainability performance of the company.
Expand the role of the public development bank in venture capital funding of green technologies, as there is evidence that green start-ups find it more difficult than others to secure equity finance due to higher uncertainty related to environmental regulations and technologies (Marchese and Jimenez-Suarez, 2025[48])
Specific suggestions on how some of these recommendations, notably those on reporting, can be addressed are provided in the Action Plan in the Annex, alongside some examples of similar initiatives in other OECD countries. The OECD can further support Portugal in these endeavours through the work of the OECD Platform on Financing SMEs for Sustainability (OECD, 2021[49])7.
Rationale and description of the initiative
Portuguese SMEs will increasingly need to report on their sustainability performance in order to access finance or the supply chains of large enterprises that are subject to mandatory sustainability disclosure. In order to meet these demands, SMEs need to understand their reporting obligations, obtain the relevant data and information, including through accessing relevant tools and trackers (e.g., to calculate carbon footprint), input these data and information in the relevant reporting forms/interfaces, and then continue to regularly monitor and respond to further demand requests. However, here are many challenges that SMEs face in this endeavour:
Data requests are not harmonised and come from different sources, amplifying the reporting burden of SMEs.
The proliferation of trackers and tools related to sustainability metrics leaves SMEs inundated with resources and unsure about which ones to use.
SMEs may not be aware of programmes and resources that are available to help them in this reporting endeavour.
There are some existing initiatives to provide this kind of support for SMEs in both the public and private sector, but they are not aligned and there is effectively an absence of a single one-stop-shop where SMEs can access the relevant information and support on sustainability reporting.
A centralised reporting portal/tool can help SMEs better manage the complex process of meeting reporting demands. By bringing together information on what SMEs need to report on – which can initially be based on the common sector-agnostic questionnaire developed under SIBS and eventually harmonised with the VSME standard when the latter gets adopted by EFRAG – with resources and tools that SMEs can tap into to obtain the required data and information (e.g. an emissions calculator), the portal can simplify the reporting journey of SMEs. By identifying key resources and tools, the portal can also simplify SMEs’ decision-making process and reduce the unnecessary complexity and confusion brought on by the proliferation of calculators and trackers.
Additional beneficial features of such a portal may include the creation of a standardised ESG report that SMEs can then share with financial institutions and supply chain partners. The tool can also potentially serve to generate certain labels or certifications on the basis of the ESG metrics that can simplify banks’ provision of green and sustainable finance for SME clients.
Expected results
The anticipated outcomes of the data and reporting portal include streamlined and more efficient reporting by SMEs on their sustainability performance; a standardised reporting system that can reduce the burden on SMEs; and the overall simplification of the process of obtaining granular sustainability data by financial institutions and other stakeholders.
Key Performance/Monitoring Indicators
Key performance and monitoring indicators for assessing the effectiveness of the portal can include:
Tracking the number of SMEs registered on the portal.
Monitoring the utilisation rate of various tools and resources offered.
Soliciting feedback and satisfaction surveys from SME users on the use of the Portal and its different features (data and information guides, tools and trackers, sustainability report)
Key Authorities
The Portal could be added to the main government website (.pt) or other relevant government website, but links to the Portal should be provided on the websites of all relevant ministries, agencies and institutions, such as the Ministry of Economy and Banco Português de Fomento. Information about the portal should also be disseminated to chambers of commerce and SME associations, financial and guarantee institutions, accounting bodies and other relevant stakeholders that work closely with SMEs and can guide them to the use of this resource.
Collaboration with industry stakeholders, particularly the Portuguese Banking Association can also be beneficial in this effort. Their initiatives to support SMEs, such as through the SME Leader and SME Excellence labels, provide a solid foundation for integrating ESG criteria into existing certification and labelling frameworks. By revising the criteria for these labels to include ESG factors and potentially creating a specific label for sustainable SMEs which could then be integrated into the services of this portal, these stakeholders can play a pivotal role in promoting sustainability within the SME sector and facilitating the provision and uptake of sustainable finance for SMEs.
International policy example: CSR Portal, France (complemented with features from ESG trackers of development banks and SME Climate Hub tools)
Description of the approach
The data portal can be partly inspired by some features of France’s CSR portal8 to complement those already developed in the ESG portal developed by IAPMEI. This portal provides businesses with a streamlined process to understand and comply with their Corporate Social Responsibility (CSR) and ESG obligations. Through a user-friendly interface, companies can conduct a simplified simulation by entering their SIREN (business directory identification system) number and information such as headcount, turnover, and balance sheet data to find out what sustainability-related regulations their firm is subject to. Upon registration, businesses gain access to a personalised dashboard where they can further refine their criteria and manage their obligations effectively. Businesses can also use the Portal to conduct the so called BDESE (Economic, Social and Environmental Database) reporting, whereby they can fill out relevant forms and be directed to appropriate reporting platforms (e.g., Egapro index, transition plans, etc). These last steps are more relevant and used by large enterprises in France; as proposed above, a sector-agnostic approach can be taken in Portugal, but the key is to redirect SMEs to tools and resources relevant for them so that they can be supported in the development of the ESG report and completion of the ESG questionnaire for banks.
The CSR portal is currently also piloting the inclusion of indicators relevant to the mandatory reporting under the CSRD, which covers large enterprises and listed SMEs.
Complementary features and approaches that can be considered in the development of this tool in Portugal can also come from the reporting tools and solutions developed by the Hellenic Development Bank9, Wallonie Entreprendre (still in pilot phase) and the SME Climate Hub10. They incorporate, for example, relevant calculators to help SMEs with the measurement and reporting on specific indicators. In the case of the SME Climate Hub the reporting tool can also be connected to specific net-zero commitments, which can then be used to access financing solutions in a similar vein as a net-zero transition plan. For example, in a pilot project implemented in collaboration with the Finnish Bank Nordea, SMEs who have made the SME Climate Hub commitment and are reporting on their progress through the tool can get preferential financing conditions. As suggested above, this approach could also be linked to the results of the completed online ESG questionnaire developed by SIBS, which can also be connected to a proposed labelling or certification scheme.
Factors of success
The success of France’s CSR portal can be attributed to its user-centric design and collaboration between the Ministry of Economy and Finance and the digital services incubator. By incorporating user feedback and iterative development, the portal continually evolves to meet the needs of businesses navigating complex sustainability-related regulations. The portal’s comprehensive database and fact sheets on CSR regulations contribute to its effectiveness in not only guiding companies through compliance requirements but also in helping them develop relevant reporting documents and transition plans that they can then share with relevant authorities, financial institutions and supply chain partners.
Obstacles and responses
One potential obstacle faced by the CSR portal is the complexity of CSR and other sustainability-related regulations and varying interpretations among businesses. To address this challenge, the portal provides the initial simulation space, emphasises simplicity and clarity in its interface and provides accessible resources such as fact sheets to demonstrate regulatory requirements. Moreover, ongoing collaboration between government agencies and digital innovation teams ensures that the portal remains responsive to the evolving regulatory landscape and user needs.
Relevance to Portugal
France’s CSR portal serves as a good reference point for developing a reporting portal tailored to SMEs in Portugal. Even though there are some notable differences – for example the CSR portal is mainly targeting and used by large enterprises – the principle and approach implemented by the portal is similar to what Portugal could implement. By adopting a similar approach, Portugal can provide SMEs with a centralised platform to understand and fulfil their reporting needs. As noted above, the objective would be to start with the VSME and the ESG questionnaires developed by the Portuguese banks under the SIBS system as the relevant reference points for the reporting tool. This can simplify the solution by eliminating the need for an initial simulation function. However, the flexible approach of the CSR Portal and its constant evolution with the emergence of new regulations should also be adopted in the development of the Portuguese data and reporting tool.
For further information
Ministry of Economy and Finance France (2024), Portail RSE, https://portail-rse.beta.gouv.fr/ .
Nordea (2023), Climate hub provides businesses with easy tools to tackle their net zero journey, https://www.nordea.com/en/news/climate-hub-provides-businesses-with-easy-tools-to-tackle-their-net-zero-journey (accessed on 26 May 2024).
Rationale and description of the initiative
Reporting on environmental sustainability is increasingly required of SMEs and it places a significant additional burden on these businesses, particularly the micro and small enterprises. Reporting of granular data from SMEs is a particular challenge and is also one of the main barriers to the provision and uptake of sustainable finance for SMEs. Banks have also noted that granular data can often come from tools and trackers that provide estimates based on the use of other indicators (e.g. using spending data to calculate carbon footprint) which can affect the accuracy of the reported data. In particular, different trackers can produce different results, which means that there can be a selection bias in the use of trackers by reporting enterprises.
In this context, Portuguese authorities should seek to deploy digital solutions to automate this reporting process as much as possible. Under the proposed initiative, an institutional and technological infrastructure would be put in place to automate the transmission of data from relevant data generators and providers (e.g. utilities, data aggregators) to the entities that need the data for operational or reporting purposes (e.g. banks, accountants), with the SMEs’ consent.
This automated reporting system could entail, for instance, the automatic transmission of energy consumption data from energy providers to financial institutions or other entities. A similar principle could be applied to water use, waste generation and other relevant metrics that are useful to sustainability reporting. This would aid significantly in reducing SMEs’ reporting burden, as their main task would simply be giving consent. With the relevant digital and institutional architecture in place, this can be done with just the click of a button.
This proposed initiative would seek to initially pilot and then expand the automated reporting of relevant metrics. It could initially start with the automated reporting of energy data and then gradually expand to other indicators by developing the needed infrastructure and engaging with the relevant actors to enable secure data sharing across institutions.
Key performance/monitoring indicators
Performance and monitoring indicators for the initiative would include:
tracking the rise in automated reporting adoption among SMEs.
gathering feedback on automated reporting effectiveness and conducting regular assessments for improvement.
Expected results
The initiative would aim to reduce the administrative burden of environmental reporting for SMEs, improve data accuracy through digital solutions, increase adoption of automated reporting, and improve compliance, thereby facilitating transparency and accountability in the SME sector. This would also allow financial institutions to better tailor financing instruments to SME clients. In turn, SMEs would be able to access sustainable financing solutions and benefit more easily from the more favourable financing conditions provided by these instruments.
Key authorities
Due to the complex nature of this data sharing solution, the engagement of relevant authorities and stakeholders is critical for the successful execution of this action. This should include relevant ministries from the Portuguese government (e.g., the Ministry of Economy and Ministry of Environment and Climate Action), Banco Português de Fomento, major commercial banks, carbon and accounting solution providers, accountancy bodies, SME associations, and others. The involvement of relevant regulators, such as those dealing with energy supply as well as waste and water management, is also key to ensure that the regulatory aspects of data sharing are also adequately addressed.
International policy example: Project Perseus
Description of the Approach
Project Perseus is a multi-stakeholder initiative seeking to develop automated sustainability reporting in the UK. Implemented by Bankers for Net Zero (B4NZ), the UK’s chapter of the Net-Zero Banking Alliance, and Icebreaker One, a non-profit entity that designed and implemented open banking in the UK, Project Perseus uses smart meter data to simplify sustainability reporting and improve SMEs’ access to green and sustainable finance.
Project Perseus has developed a pilot architecture for sharing of data from energy providers with financial institutions and other relevant stakeholders (e.g., accountants, reporting service providers) with the consent of the business. By bringing together a coalition of stakeholders and experts, the initiative has sought to develop a solution that will be piloted with several financial institutions within a sandbox setting in early 2025. Key features of the solution include automatic transmission of energy data from energy providers to relevant destinations (e.g., accounting and reporting software solutions).
Factors of success
The initiative builds on the concept and experience of building the open banking system, which enables data sharing across financing providers. It engages Icebreaker One, the organisation that implemented open banking in the UK as well as a wide range of other stakeholders (over 150 people), including the UK Government, the British Business Bank, carbon and accounting solution providers, major private financial institutions, trade associations such as UK Finance, and others. International organisations such as the OECD are also engaged as observers in the initiative. Partner financial institutions have also supported the initiative financially.
Obstacles and responses
This complex endeavour has required addressing various challenges:
Stakeholder engagement and buy-in has been assured through proactive outreach efforts to build a coalition around a common goal. Modalities include regular meetings of steering group members and observers, and rapid advancement of different facets of the data-sharing solution.
Building trust among participating institutions and for SMEs that will use the solution: Safeguarding data privacy and security was enabled by the engagement of the UK energy regulator. The initiative noted that the sharing of energy data is legally more complex than the sharing of financial data as per the open banking model, so it worked with the energy regulator to address these issues.
Building trust for SMEs that their data would be used, stored and handled in the appropriate manner is being undertaken through targeted communication and awareness-raising campaigns.
Relevance to Portugal
As sustainability reporting is increasingly necessary for SMEs in Portugal, an automated reporting solution could aid in reducing SMEs’ reporting burden and improving SMEs’ access to and uptake of green and sustainable finance. This solution can also be highly complementary to the proposed action above: the development of a data and reporting portal that can serve as a one-stop-shop for the data and reporting needs of SMEs. Feedback from the fact-finding mission of the project as well as from a thematic workshop on green and sustainable finance organised in Lisbon in February 2024 under the auspices of the same project, also indicated a strong interest in introducing this type of solution in Portugal.
For further information
Icebreaker One (2024), Perseus: automating SME emissions reporting, https://icebreakerone.org/perseus
Rationale and description of the initiative
Once the Voluntary Reporting Standard for SMEs (VSMEs) is adopted in the EU, the Portuguese authorities, including the public promotional bank (Banco Português de Fomento), should consider organising educational and awareness-raising campaigns to promote the benefits of using this voluntary reporting scheme among SMEs. In addition to helping SMEs access sustainable finance, the measurement, monitoring and reporting on their sustainability performance can also help them with transition planning and taking sustainability actions, accessing green and sustainable supply chains, and communicating their sustainability performance with an increasingly sustainability-conscious customer base.
Together with the other initiatives highlighted in this Action Plan, which aim to simplify and, to the extent possible, automatise SMEs’ reporting journey, these awareness-raising campaigns can serve to promote the uptake of these solutions, thus fostering greater transparency, accountability and sustainability action in the Portuguese SME sector.
Where the use of the reporting and transition planning can be linked to specific additional benefits like tax incentives, certification or financing schemes, these should also be closely linked to and highlighted through these awareness and education campaigns.
The proposed approach entails the development of relevant outreach campaigns such as written materials as well as dedicated trainings and information sessions. The campaigns can leverage existing outreach events such as the EU Sustainable Finance days or others that are conducted in EU Member States (see below), or they can be organised independently. Relevant materials should also be posted on relevant websites, including the website of Banco Português de Fomento, the IAPMEI portal, and any potential dedicated portal on sustainability reporting.
Expected results
These awareness-raising campaigns should help SMEs to better understand the benefits of sustainability monitoring and reporting and encourage them to take up the voluntary reporting solutions offered, including the ESG questionnaire prepared by SIBS and the private banks, which is being aligned with the VSME.
Key Performance/Monitoring Indicators
Key performance and monitoring indicators for assessing the effectiveness of the portal can include:
Tracking the number of SMEs and SME organisations that have been reached through the campaign (receiving the events, visits to website, attending trainings and information sessions).
Soliciting feedback and satisfaction surveys from the users of the campaign materials and events.
Monitoring the utilisation rate of various sustainability reporting tools and resources on offer.
Monitoring the share of Portuguese SMEs that are reporting on their sustainability performance.
Monitoring the share of Portuguese SMEs that are developing transition plans.
Key Authorities
The campaign should be developed by one or more of the Government authorities working on SME policy and the provision of financial and non-financial support for SMEs in Portugal. This can include the Ministry of Economy, Banco Português de Fomento, and others. It should be primarily targeted at chambers of commerce and other industry associations as well as SME representative organisations.
International policy example: Leveraging EU Sustainable Finance Days and EEN trainings
Description of the Approach
Portugal could take inspiration from the EU Sustainable Finance Days and the trainings of the Enterprise Europe Network (EEN) – possibly even build on these events – to deliver targeted education campaigns on the benefits of sustainability reporting and the available business support offered in this context.
The EU Sustainable Finance days are organised by the European Commission and main partners from the financing industry and provide data and information on the EU’s sustainable finance policies, financing instruments and non-financial support for both financial institutions and SMEs.
The EEN provides advisory and technical support to SMEs across Europe. As the largest support network for SMEs, it brings together experts from member organisations (chambers of commerce and industry, regional development organisations, universities and research institutes, innovation agencies and others) to help EU SMEs innovate and grow internationally. The EEN provides dedicated trainings on sustainable finance for SMEs. The trainings cover a range of different topics including the challenges of providing and taking up sustainable finance in the EU the support available from EU and national governments.
Factors of success
These events already bring together many stakeholders from around the country, so they provide a good opportunity to reach a wider audience. Leveraging these networks and events can also help identify experts from around the EU and the broader international community that can support the national awareness-raising events and campaigns.
Obstacles and responses
These EU events may not be sufficiently tailored to the specific national context and are also not specifically targeting SME sustainability reporting. The proposed awareness-raising campaigns for Portugal would need to be more tailored to the specificities of the reporting challenges, and the support offered by national and EU actors. They may also need to consider sector-specific challenges and the heterogeneity of SMEs’ starting points and incentives for greening. The OECD Platform on Financing SMEs for Sustainability shares some approaches in this area, taken by partner institutions, that could also be of interest to Portuguese authorities. For example, the British Business Bank (i.e., the UK’s public development bank) collaborated with a marketing agency to research what kind of net-zero related messaging would best appeal to SMEs.
Relevance to Portugal
The awareness-raising campaigns, alongside the non-financial technical support services offered to SMEs through the EEN, serve as a good example for implementation in Portugal. Tailoring these events and programmes to the Portuguese context, elaborating on which support programmes are available to Portuguese SMEs and addressing sector-specific challenges, would enhance SME uptake of sustainable finance solutions. Taking into account the varying readiness levels amongst SMEs, targeted guidance which simplifies reporting while highlighting its benefits, such as increased transparency, accountability and easier access to green financing, would further help to increase uptake. The networking opportunities offered by these events would also help Portuguese SMEs in establishing the relevant connections to access sustainable financing from relevant institutions.
For further information
Enterprise Europe Network (2024), Sustainability, https://een.ec.europa.eu/about-enterprise-europe-network/advice-support/sustainability .
EU Sustainable Finance Days, https://investeu.europa.eu/news-and-events/events/eu-sustainable-finance-days-2024-2024-04-10_en .
Description of the approach
SMEs vary widely in size and sector which means that they need tailored support for effective greening actions. In order to aid SMEs in their journey to net zero and sustainability, the Portuguese government could consider the development of a greening support centre as part of its expanding offer of non-financial support for SMEs. This Green Business Support Centre, which can be entirely implemented in a digital format, would include the provision of expert advisory services on sustainability, a comprehensive list of sustainable financial products available, and tailored transition planning support for different sectors. As climate- and sustainability-related regulations, technologies, and best practices are constantly evolving, the centre would also play a key role in providing the most up-to-date and relevant advice and support for SMEs.
Expected Results
The Green Business Support Centre would aim to boost SME greening actions and associated demand for financing solutions by helping to close existing knowledge and awareness gaps. In doing so, the initiative would help to advance the adoption of sustainable practices by SMEs, thereby contributing to the advancement of broader national sustainability targets. It would also help to improve the competitiveness of SMEs in the increasingly green global economy, potentially opening new markets and meeting the growing consumer demand for environmentally responsible products and services.
Key performance and monitoring indicators
To ensure the success of the centre and effectively track its progress, several KPIs and monitoring mechanisms could be implemented. These include:
Tracking the number of SMEs engaged with the centre, receiving advisory services, and utilising its resources.
Measuring the aggregate reduction in carbon emissions among participating SMEs.
Monitoring the uptake of listed sustainable financial products by SMEs.
Evaluating the use and effectiveness of tailored transition plans within different sectors.
Regularly collecting feedback from SMEs and other stakeholders to assess the effectiveness and relevance of the support provided, ensuring continuous improvement of the initiative.
Key Authorities
Similar initiatives are frequently implemented by public development banks, so Banco Português de Fomento would be a primary candidate for the implementation of such an initiative. The successful implementation of the support centre will also require collaboration – both at conceptualisation and implementation stages among various stakeholders, including other government bodies that are providing advisory support, financial institutions, chambers of commerce and other industry associations.
International policy example: Business Development Bank of Canada’s (BDC) Climate Action Centre
Description of the Approach
The Business Development Bank of Canada’s (BDC) Climate Action Centre is an initiative aimed at helping SMEs reduce their carbon footprint and turn climate action into business opportunities. The initiative offers a variety of resources, including access to over 60 green governmental grants, tax credits, and loan programmes. It provides educational tools such as quizzes to assess knowledge on climate change, toolkits for calculating carbon footprints, and “how-to” guides for specific climate actions tailored to different business needs. Key focus areas include transportation management, building management, and climate leadership.
Factors of success
The Climate Action Centre provides a wide range of resources that address various aspects of sustainability, from financial support to practical guides on reducing carbon emissions. The initiative educates businesses about the importance of sustainability and helps them take the first steps to reduce their carbon footprint. The platform customises its advice based on the specific characteristics of the business, such as the sector, number of employees, and the type of workspace, making the guidance relevant and actionable.
The centre is operated by the Business Development Bank of Canada. As Canada’s public development bank and one of the main public providers of financing support and business support services for Canadian SMEs and entrepreneurs, this institution is a good fit to host and manage this platform.
Obstacles and responses
As SMEs vary significantly in their needs and business models, it can be challenging to offer tailored approaches that effectively support each unique case. To overcome this problem, the centre is seeking to develop sector-specific transition plans and provide links to the most relevant advisory and consultancy services. This approach ensures that a range of advice is available, tailored to the diverse needs of SMEs, allowing them to receive support that is specific to their industry and business model.
Relevance to Portugal
By providing financial resources, educational tools, and tailored guidance, the initiative can help Portuguese SMEs overcome barriers to sustainability, drive innovation, and enhance their competitiveness in a global market increasingly focused on environmental responsibility. This can also drive their demand for green and sustainable finance.
For further information
BDC, Climate Action Centre, https://www.bdc.ca/en/articles-tools/sustainability/climate-action-centre
References
[32] AECM (2023), Guarantee Institutions Promoters of the Sustainable Transition.
[11] Assembleia da República (2021), Lei de Bases do Clima.
[18] Axios (2022), Poll: Investors feel growing pressure to move away from fossil fuels.
[15] Banco de Portugal (2024), Relatório Anual sobre a Exposiçaão do Setor Bancário ao Risco Climatico, 2024.
[10] Banco de Portugal (2023), ANNUAL REPORT ON THE BANKING SECTOR’S EXPOSURE TO CLIMATE RISK.
[34] Banco Português de Fomento (2024), Linha de Crédito para a Descarbonização e Economia Circular.
[26] Bankenverband (2024), Analysis of the taxonomy profile of industry.
[28] EBF (2023), An EU Framework for Financing the Transition, https://www.ebf.eu/wp-content/uploads/2023/02/Transition-Paper-EBF-FINAL.pdf.
[12] ECB (2021), Climate-related risks to financial stability.
[31] EFRAG (2024), VSME Exposure Draft.
[36] EIB (2024), EIB boosts investment commitments in Portugal with a focus on companies and green transition, https://www.eib.org/en/press/all/2024-115-eib-boosts-investment-commitments-in-portugal-with-a-focus-on-companies-and-green-transition (accessed on 25 May 2024).
[37] EIB (2023), NB LOAN FOR SMES & MIDCAPS AND CLIMATE ACTION.
[17] EIB (2022), European Investment Bank Climate Survey.
[39] EIF (2024), Invest EU Equity Products.
[38] EIF (2023), EIF InvestEU sustainability guarantee.
[40] EIF (2023), PORTUGAL BLUE launch Growth Blue I, the first blue economy focused private equity fund in Southern Europe.
[44] Enterprise Europe Network (2024), Sustainability.
[7] European Banking Federation (2024), Green Asset Ratio cannot be to sustainability what CET1 is to capital.
[16] European Central Bank (2024), Risks from misalignment of banks’ financing with the EU climate objectives Assessment of the alignment of the European banking sector.
[9] European Central Bank (2022), 2022 climate risk stress test.
[6] European Commission (2024), Corporate sustainability reporting.
[24] European Commission (2024), EU Sustianable Finance Frameworks and SMES - Presentation at AECM event.
[46] European Commission (2024), EU Taxonomy Navigator.
[21] European Commission (2024), SME Disclosure on Taxonomy Alignment: Cost-Benefit Analysis.
[19] European Commission (2023), Corporate Sustainability Reporting, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32022L2464 (accessed on 16 May 2024).
[5] European Commission (2023), EU Taxonomy for sustainable activities.
[33] European Commission (2023), Portugal’s recovery and resilience plan.
[3] European Commission (2022), SMEs, Resource Efficiency and Green Markets.
[22] European Commmission (2024), EU ecolabel facts and figures, https://environment.ec.europa.eu/topics/circular-economy/eu-ecolabel/business/ecolabel-facts-and-figures_en (accessed on 15 May 2024).
[8] Greenomy (2023), Essentials of SDFR: Guide to Accelerate Your Green Transition (greenomy.io).
[43] IAPMEI (2024), Ferramentas ESG.
[45] Icebreaker One (2024), Carbon reporting solutions for UK SMEs: a landscape review, https://icebreakerone.org/ecosystem/2024-carbon-reporting-solutions-report/.
[14] IPCC (2022), Climate Change 2022: Mitigation of Climate Change.
[48] Marchese, M. and M. Jimenez-Suarez (2025), “Benchmarking government support for venture capital: A comparative analysis”, OECD SME and Entrepreneurship Papers, OECD, Paris.
[13] Network for Greening the Financial System (2019), A call for action- Climate change as a source of financial risk.
[29] OECD (2024), Financing SMEs and Entrepreneurs 2024- An OECD Scoreboard.
[27] OECD (2024), Portuguese bank roundtable -fact finding meetings.
[4] OECD (2023), Financing SMEs for Sustainability - Financial Institution Strategies and Approaches.
[30] OECD (2023), OECD Platform on Financing SMEs for Sustaianability webinar: How can we unlock transition Finance for SMEs?.
[2] OECD (2022), “Financing SMEs for sustainability: Drivers, Constraints and Policies”, OECD SME and Entrepreneurship Papers, No. 35, OECD Publishing, Paris, https://doi.org/10.1787/a5e94d92-en.
[1] OECD (2021), No net zero without SMEs.
[49] OECD (2021), OECD Platform on Financing SMEs for Sustainability, https://smeclimatehub.org/ (accessed on 26 May 2024).
[20] OECD (2020), ESG Investing: Practices, Progress and Challenges.
[41] Portugal Ventures (2024), What is Call INNOV-ID.
[47] Portugal.gov.pt (2023), IAPMEI launches knowledge space on sustainability in companies.
[23] SMEunited and Eurochambres (2023), Access to sustainable finance for SMEs, https://www.smeunited.eu/news/sme-survey-smes-have-very-limited-access-to-sustainable-finance.
[42] Startup Portugal (2024), Vouchers for Startups – New Green and Digital Products.
[35] Tourismo de Portugal (2024), Linha Turismo +Sustentável - brevemente disponível.
[25] UNEP FI (2021), Testing the application of the EU Taxononmy to core banking products: High level recommendations, https://www.unepfi.org/wordpress/wp-content/uploads/2021/01/Testing-the-application-of-the-EU-Taxonomy-to-core-banking-products-Final-v2.pdf.
← 1. Green finance refers to any structured financial activity that aims to ensure a better environmental outcome including products such as green loans and green investments. Typically, these instruments finance investments in renewable energy, pollution prevention, biodiversity conservation, circular economy and sustainable land use. Sustainable finance is an evolution of green finance, as it incorporates environmental, social and governance (ESG) issues with the aim of spurring long-term investments in sustainable economic activities. Environmentally sustainable finance instruments link financing conditions to environmental performance, regardless of whether the finance product involves explicit greening activities.
← 2. The results cited in this report reflect findings from the survey “Financing SMEs for Sustainability – Financial Institution Strategies and Approaches” (2023) that the OECD conducted among 70 public development banks and private financial institutions, complemented with results from the administration of the same survey among Portuguese financial institutions in early 2024. Responses to the survey were voluntary.
← 3. Physical risks are risk factors due to the exacerbation of extreme weather events as well as chronic changes resulting from climate change including elevated mean temperatures, rising sea levels, and others. This results in heat stress, water stress, fires, and floods that may cause increased energy costs, damage/loss of property, and reduction of economic activity.
← 4. Transition risks encompass the effects of increased pricing of GHG emissions, changing consumer preferences, reputational considerations, exposure to litigation, underwriting risks, etc.
← 5. Chapter 2, however, shows that 90% of Portuguese companies (SMEs and large enterprises together) believe that physical risk has either no or minor impact on their business, despite the increasing frequency and intensity of extreme weather events in Portugal. However, at least in part, this might be due to more companies taking measures towards building resilience towards physical risk in Portugal than in the EU and Southern Europe.
← 6. How materiality is accounted for in sustainability reporting can also affect the pricing of financing instruments. For example, if financial institutions have to report on how their operations and portfolios affect the environment (double materiality) and not just how environmental risks and opportunities affect their bottom line (financial materiality), they will face greater incentives to improve the sustainability of their portfolios and reduce their financed emissions. This has implication for their provision and pricing of sustainable finance. The EU has adopted a double materiality approach in the CSRD, but this is not the case for other OECD countries.
← 7. The OECD Platform on Financing SMEs for Sustainability, launched in November 2021, contributes to efforts to reduce the barriers to the demand and supply of sustainable finance for SMEs. By convening key stakeholders from the SME sustainable finance ecosystem (public and private financial institutions, SME associations, policy makers, etc.), the Platform fosters knowledge sharing and policy dialogue whilst also advancing the data and analytical work on SME sustainable finance to accelerate SMEs’ net-zero transition (OECD, 2021[49]).