New research has discovered a marked rise in the proportion of UK SMEs who are investing in sustainability when compared with results from just a year prior
Author: Lauren Foye, Head of Reports at Zero Carbon Academy
A greener future for SMEs
New research from Aldermore Bank has revealed a positive outlook for SMEs (Small and Medium Enterprises) in terms of adjusting to a green pathway, with over half (53%) of UK SMEs saying that they have invested in sustainability over the past 12 months. The study surveyed a nationally representative sample of 997 senior decision makers in UK SMEs between 9th and 16th March 2022 and showed a positive shift following the previous survey carried out at the end of February 2021. Last year’s results, which came at a time when businesses were very much faced with the challenges Covid-19 brought about, saw just 12% of businesses say that they viewed sustainability as a significant priority. Covid-19 had seen economic recovery, and in some instances, simply economic survival, take precedence over green policies, as a study by Natwest Bank in December 2021 found (discussed here in our blog).
Yet, Aldermore’s research proves positive reading for a green future for SMEs- its key findings include:
- In the last year, over half (53%) of UK SMEs have invested in sustainability – spending an average of £61,250 on being green
- The average SME business plans to spend a further £78,392 on sustainability in the coming year – an increase of 27%
- One in five (21% - 1.1 million) SMEs are considering changing to an eco-friendly product or service.
SMEs investing in sustainability, but will the cost-of-living crisis bite?
Top-level findings from Aldermore certainly paint a rosy picture at first glance; the recent high-profile nature of the green agenda, such as the UK government strategy to ‘build back greener’[i] as well as widely reported events like COP-26, are clearly aiding in a drive for SMEs to address concerns around sustainability and encouraging them to invest in a greener future. In terms of the action being taken by these businesses, the most popular approach has been recycling, with just over “two-thirds (65% - 3.3million) of UK SMEs investing in workplace recycling schemes. Meanwhile, 55% (2.9 million) of UK SMEs have consciously reduced their business travel and half (50% - 2.5 million) have changed the materials they use to be more sustainable.“[ii]
Tim Boag, group managing director, business finance at Aldermore, said: “Businesses across the country are now re-evaluating their priorities and looking ahead to how they can innovate in the future, and a particular area of focus for many SME businesses is the responsibility they have for the UK’s ‘green transformation’. SMEs are going to see increasing demand and expectation from their customers to deliver more sustainable products and services and will face scrutiny in terms of their own operation’s impact on the environment… It’s hugely encouraging to see that businesses are increasingly willing to address the issue of sustainability, and it will be the ingenuity and drive of SME owners that will help make much of the UK’s green transformation possible.“[iii]
Aldermore’s recent findings raise queries around planned SME financing, given how quickly we have seen the cost-of-living rise in the UK over the past few months. The survey findings from mid-March suggest that businesses plan to increase their investment in sustainability over the next year by more than a quarter, spending on average £78,392, an increase of 27% (£17,142) compared to the previous year. It also found that SMEs are willing to take more significant steps to tackle sustainability, with one in five (21% - 1.1 million) considering changing to an eco-friendly product or service. Furthermore, over one in ten (12% - 550,000) will invest in carbon offsetting. Yet when discussing the likely barriers faced when embracing more sustainable practices, 27% think Covid and the broader economic climate are a limiting factor, whilst 7% noted access to finance as a barrier. Given how quickly the wider economic situation has changed since March, it could be argued that if asked again now, these barriers would be being felt by a broader segment of the survey respondents than previously. Given the funding options survey respondents said they would turn to, we may not see the investment levels suggested in Aldermore’s findings:
- 31% of SMEs plan to fund their investment in sustainability with business savings
- 22% will use personal finance products such as personal savings
- 12% personal investments
- 18% their overdraft
- 8% a personal line of credit, such as a credit card (8%).
SME involvement critical in the global drive for Net Zero
SMEs are a crucial component in the global drive to reduce emissions and reach Net Zero. As the IFAC (International Federation of Accountants) noted in a recent article,[iv] whilst the environmental footprint of individual SMEs may be small, their aggregate impact is substantial. Empirical evidence suggests an emissions contribution of between 60 to 70%, as well as large contributions to other environmental issues such as waste. The WTO notes, “While large corporations have been seen as the largest emitters of greenhouse gases, it is estimated that over 80 per cent of their emissions are derived from their supply chains ” McKinsey, 2016)“[v]. According to the WTO, decarbonisation efforts can provide innovation opportunities and business efficiency gains on which businesses of all sizes can capitalise. In 2021 the IEA (The International Energy Association) found that, even though businesses require capital to invest in more efficient appliances and lower-emission vehicles, the cost savings over time can significantly outweigh the expense, and many of these changes are already within reach. According to the WEF (World Economic Forum)
“The eight global supply chains that account for more than 50% of global emissions could reduce around 40% of those emissions by making a few relatively easy and affordable changes that would have marginal cost implications or returns on increased efficiency”[vi].
*Zero Carbon Academy (www.zerocarbonacademy.com) aims to become the ‘go-to’ resource for the learning, information and community that individuals need to assess, plan, execute and monitor their organisation's migration towards a Zero Carbon footprint.
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