For the UK to become net zero by 2050, every business and organisation must play its part. However, a combination of regulations and having the resources available mean large enterprises have taken the lead in transitioning to net zero. This may have helped enable the UK to improve its Nationally Determined Contribution (NDC), but it has also led to downstream consequences for UK SMEs.
Already, SMEs are feeling the effect of the switch to net zero, despite not having clear regulations in place. According to the 2024 UK Net Zero Business Census, around 37% of SMEs have been asked to disclose their carbon emissions by customers or as part of tender applications, even though they are not yet subject to regulatory obligations. As big businesses comply with regulations to become net zero, pressure on their supply chains impacts SMEs. But it doesn’t have to be this way.
Net Zero the Growth Driver
Firstly, net zero should not be viewed as a challenge or extra cost by SMEs but as an opportunity. By achieving net zero SMEs become more competitive, particularly when tendering for new contracts. Many companies in the UK and EU already include carbon reduction requirements in their tender processes to ensure that their supply chains align with sustainability goals. By embarking on a net zero transition, SMEs open themselves up to more tender processes, boosting their growth.
Moreover, focusing on net zero and sustainability provides the chance to increase efficiencies, and reduce waste. SMEs can use the money saved through this process to improve other business-critical areas like investments in new equipment, marketing, and HR.
By becoming net zero, SMEs can attract new customers, reduce costs, and expand into new markets, all while reducing their environmental impact. Yet, to achieve this, policymakers must address the obstacles SMEs face.
The Barriers to SME Net Zero Nirvana
The UK Net Zero Business Census highlights several barriers preventing SMEs transitioning to net zero, the most significant being financial constraints. Nearly 59% of SMEs report high costs as the primary obstacle to adopting green technologies and practices. This is exasperated by limited access to financing and a lack of awareness of available funding opportunities. Although government grants and low-interest loans exist, only 25% of businesses currently access these resources. Furthermore, through initiatives like The Willow Review, which Planet Mark is part of the steering board for, efforts are being made to highlight the financial benefits of sustainability for small businesses across the UK.
Six Steps to Support SMEs
This does not have to be the case. To help SMEs successfully transition to net zero, we recommend the following six actions for policymakers:
- Control High Costs with Financial Incentives
Financial pressure is the number one barrier for SMEs, and policymakers must make accessing the financial help they need easier. Offering targeted financial incentives, such as low-interest loans, grants, and tax credits, can reduce the upfront costs and make the process more affordable for SMEs. - Enhance Access to Finance
In addition to financial incentives, SMEs need better access to capital to invest in green technologies and improve processes. Many businesses are unaware of the financing available to them, while the application processes can be cumbersome. Simplifying access to finance and raising awareness of available financial products will make it easier for SMEs to secure the funding they need. - Remove Regulatory Uncertainty
The constantly evolving landscape of climate regulations can be overwhelming for SMEs, many of whom lack the resources to stay informed of new rules. Ensuring clear, accessible guidance on the regulatory requirements for SMEs, helps businesses understand their obligations and how to meet them. - Target Training and Embed Skills
For SMEs to successfully transition to net zero, their employees, from top to bottom, must be equipped with the necessary skills and knowledge. To do this, policymakers must support training initiatives that close the skills gap, including workshops, online resources, and certification programs. This will enable SMEs to empower their teams and ensure that sustainability is embedded at every level of the organisation. - Improve Access to Trusted Information
Many SMEs struggle with a lack of trusted information to make informed decisions about their sustainability efforts. Public bodies and industry organisations can help by promoting resources like the UK Business Climate Hub, which offers practical advice on reducing emissions, tracking progress, and accessing funding. - Acknowledge the Impact of Carbon Disclosure Policies on SMEs
Although SMEs are not yet subject to mandatory carbon disclosure regulations, they are increasingly asked to provide this information. To make it easier for SMEs to comply with these requests, policymakers must recognise the challenges and work closely with industries to provide the necessary resources and support.
The Net Zero Opportunity
To meet the UK’s 2050 net zero target, SMEs must actively reduce their carbon footprints. The recommendations above provide a clear roadmap for policymakers to create a supportive environment that empowers SMEs to achieve their sustainability goals and unlock their growth potential. With the proper support, SMEs can become the powerhouse enabling the UK to achieve its net zero targets, while boosting economic growth.
