Banks face a hidden climate risk in their SME portfolios — yet the data to address it is already at their fingertips. By transforming transaction data into actionable ESG insights, banks can reduce risk, guide SMEs in their net zero journey, and unlock new business growth.
A climate risk blind spot hiding in plain sight
Across Europe, banks are facing growing pressure to understand the climate risks in their loan portfolios. Yet one of the biggest exposures remains largely invisible — small and medium-sized enterprises (SMEs).
SMEs make up 99% of European companies, generate over half of economic value, and employ two-thirds of the workforce. SMEs also account for up to 60% of industrial emissions. In other words, the road to net zero runs straight through the SME sector.
The Omnibus amendment to the EU Corporate Sustainability Reporting Directive (CSRD) relieved around 80% of companies from mandatory reporting. While this provided temporary relief, it left banks without critical visibility over a large customer segment.
The regulatory squeeze on banks & SME climate risk
Ironically, while SMEs were granted an easier path, banks are moving in the opposite direction.
Since 2022, the European Banking Authority (EBA) has required financial institutions to report financed emissions, ESG risks, and customer transition plans. By 2026, all banks will need to comply.
Risks include:
- Credit risk from high-emission clients underperforming
- Physical risk from climate events like flooding and droughts
- Compliance risk from EBA reporting obligations
- Reputational risk from lagging peers
Today, many banks rely on proxies — applying average sector data to all SMEs — which obscures true risk and prevents meaningful insight.
The irony: banks already have the data
Every transaction tells a story — not just financial, but carbon-related. Banks already have access to the majority of data needed to map SME emissions.
By enriching transaction data with emissions factors (through emerging tools and partnerships), banks can:
- Estimate company-specific emissions quickly and cost-efficiently
- Compare clients to sector benchmarks
- Identify risk hotspots
- Support SMEs with personalized transition plans
The missing piece isn’t the data — it’s how it’s used.
Turning SME climate risk into business growth
With the right tools, banks can transform a compliance challenge into a business opportunity:
- Deliver precise ESG insights across SME portfolios
- Strengthen client relationships with actionable guidance
- Develop financing products tied to measurable sustainability outcomes
- Prepare SMEs for upcoming VSME reporting standards
Climate risk management and business growth aren’t mutually exclusive — in fact, they are deeply interconnected. Explore emerging solutions now or do some deeper reading with by downloading a whitepaper.
A clear market signal
Banks are waking up to a critical truth: SMEs are where meaningful climate impact and competitive advantage reside. The data is already in their hands. The technology exists. The time to act is now.
Interested in how your bank can transform SME climate risk into opportunity? Contact us at niclas.persson@deedster.com or terese@deedster.com to explore scalable solutions for ESG insight and growth.
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