With small and medium-sized enterprises (SMEs) accounting for 99.9% of all UK businesses, and generating over 40% of the UK’s non-household carbon emissions, they will have an even bigger role to play in the coming years.
The good news is that leaders of SMEs want to fight the good fight and reduce their carbon emissions. The not-so-good news? That ballooning costs and continued inflation are the biggest roadblocks standing in the way of the UK’s 5.5m small and medium-sized businesses’ achieving their green ambitions.
Recent research from iwoca, the SME fintech where I sit on the environmental task force, shows that over half of SMEs believe that while green issues are important, they cannot be prioritised at the expense of running their business.
Sky-high core inflation rates at 6.8% – the highest in 31 years – have already squeezed SME operations, but are now stifling broader green ambitions. In fact, four in ten (42%) say that the rising cost of doing business means going green has become less important – cash flow has taken centre stage, while environmental impact has had to take a backseat.
Most SMEs want to play their part. While high costs are forcing businesses to shelve their green ambitions, the majority of them still back measures to become more sustainable. Three-fifths (61%) of the SME owners we surveyed still firmly believe that small companies should prioritise reducing their carbon emissions.
This has certainly been the case for one of our customers Brian Mair, Managing Director of Nudge Education, a Newcastle-based provider of specialist support to children and young people who are at risk of disengaging from school. We spoke to him about what the difficult financial landscape has meant for his business going green. He said his business has put in place an e-bike scheme that staff can take part in, but some green policies have been hard to get off the ground. “When we speak to leasing companies about electric car hire for our staff, or car-sharing options, the costs quoted to us as an SME mean we’re not in a position to do this. Making our business more green is so important, but it can’t be at any cost,” Brian added.
Fortunately, SME owners aren’t giving up on the climate fight, with over half (53%) predicting that their own business will become more environmentally friendly in the next five years.
How can we support businesses around the country to reduce their carbon footprint and make these predictions a reality? It’s clear that costs are the major factor preventing SMEs from going green. The top three reasons small and medium-sized companies aren’t tackling green issues all relate to this, with a third (32%) blaming the unaffordable costs associated with being an environmentally-friendly business.
What’s the solution? Clearly, the challenge is great, and the courses of action SMEs can take aren’t easy to navigate. Greater access to working capital for SMEs is one important area, and as recent data from iwoca’s SME Expert Index of brokers shows, small businesses are losing out as big banks retrench. Three in four (77%) brokers agree that high-street banks are reducing their appetite to fund small businesses.
Companies also need to build out their sustainability strategies and put in place tangible measures over time. At iwoca, we’re now a carbon-neutral business after an independent audit of our operations. We’ve published our first sustainability strategy, and are funding renewable energy projects around the world to offset our carbon emissions. More businesses are applying for loans across Europe specifically to green their company and reduce their environmental impact, and lenders like us must step up.
