The challenges preventing SMEs from adopting net zero plans

Small and medium-sized enterprises – that is, businesses with fewer than 250 employees – make the world go round. They make up roughly 90% of global business and provide more than half of employment. SMEs play a crucial role in innovation and job creation. And, they have a vital role to play in the huge economic and societal transition that is necessary to avert climate disaster. But, there are considerable challenges preventing SMEs from adopting net zero plans.

A net zero plan is one of the main weapons in the arsenal of any company looking to do their part to fight climate change and keep global warming below 1.5C. But, there are significant challenges facing SMEs who wish to adopt net zero plans. A 2020 Carbon Trust survey found that 80% of SMEs said they are taking action on energy efficiency. But 68% do not have a documented and implemented energy policy. This article explores the main challenges preventing SMEs from adopting net zero plans. And what SMEs, and anyone invested in their future (which should be everyone) can do.

Why should SMEs adopt net zero plans?

Besides saving the planet, you mean? There are huge monetary benefits and reputational benefits. It’s pretty essential to remain competitive as the world transitions to a green economy.

A UK government study found that SMEs could save up to 25% of energy consumption through cost-effective efficiency measures. Many of these measures are estimated to recoup their investment through energy savings within a few years. Additionally, the same study estimated that 37% of the savings could be achieved with zero capital investment. This is simple stuff, like turning down thermostats.

And customers and potential employees care, very much. Customers are much more likely to ask SMEs to reduce their environmental impact now than 3 years ago. And, more than two-thirds of the workforce are more likely to apply for and accept jobs with environmentally and socially responsible organizations. Nearly half would accept a lower salary to work for such organizations.  

Larger businesses will adopt net-zero plans. And, these plans will involve the whole value chain. We’re going to see increased scrutiny on medium-sized enterprises and, then, the smallest ones.
So what’s keeping SMEs from taking this vital step into the future of their business?

Cost and the pressures of Covid-19 prevent SMEs from adopting net zero plans

Despite the benefits of going green in the long run, net-zero plans do involve an outlay of time and money. This is by far the biggest barrier preventing SMEs from adopting an energy plan. A 2020 Carbon Trust survey found that “Even for engaged SMEs that are planning to put in place an energy policy, a lack of time and money was cited by 46%”

And that survey was conducted in the innocent year of 2019!

The economic uncertainties of the last two years have hit small businesses hardest. The focus for many SMES now is, understandably, on rebuilding from the Covid-19 pandemic and dealing with supply chain issues. Small business owners are preoccupied with these and other concerns, and simply don’t have the resources to invest into a net-zero plan.

Despite this, there are plenty of small steps that SMEs feeling the pressure can take to reduce their carbon footprints. These steps also save money. For example, Air Quality News recommends:

  • Turning the office thermostat down by 1°C – this can reduce annual heating bills by 8%
  • Using energy efficient lighting – this can save businesses about £1,500 a year.
  • Adopting a company-wide switch off policy. Leaving 50 computers on overnight for a year creates enough CO2 to fill a double-decker bus, and costs a business over £600 a year.
  • Installing a smart meter – greater insight into how and where energy is used allows businesses to be smarter and more energy-efficient.

The Carbon Trust has published a Journey to Net Zero Guide that’s packed with helpful tips.

If your business doesn’t currently have the resources to put in place a detailed net-zero plan, that’s okay. Take what actions you can in the meantime, and they all add up.

Lack of support and guidance makes it challenging for SMEs to adopt net zero plans

Small steps are good, and there’s plenty more advice out there. But, until now, SMEs have been left on their own, especially when it comes to measuring impact. Large companies have a raft of tools, such as Life Cycle Analysis (LCA) and Environmental Management Systems (EMS), that don’t scale down to SMEs.

Also, there has been little direction from UK government about the role that SMEs will play in meeting legally binding emissions reduction targets. And lack of guidance is a real problem. Recent research from BSI found 7 out of 10 businesses saying they had either made or were considering making a commitment to net zero. But, 82% also said they needed more guidance about how to achieve the target.
Thankfully, this guidance is starting to arrive, with the 2021 COP26 acting as a catalyst for climate action in businesses of all sizes. There are more and more resources out there for SMEs who want to get serious about net zero. Here are a few:

  • Ahead of COP26, the UK government sponsored the introduction of the UK  Business Climate Hub. The Hub is “that one-stop shop, that all-encompassing place to make a credible climate commitment that’s aligned with the science”. It’s packed with tools and resources for small businesses.
  • The UK Business Climate Hub has produced The 1.5C Business Playbook. This fantastic resource takes you through the process of establishing a four-pillar climate strategy.
  • The Science Based Targets Initiative (SBTi) enables companies to set science-based emissions reduction targets. They offer the global gold standard in net-zero planning and tracking, and have introduced a speedy and simplified option for SMEs. It costs $1,000, but this could be one of the best investments you make in the future of your company. SMEs based in developing countries do not have to pay the fee.
  • Moody’s Analytics have created an ESG Score Predictor. This tool "leverages state-of-the-art advanced analytics to provide 56 ESG scores and subscores for any given company using location, sector and size." That level of detail can really help you get into the specifics of how to reduce emissions.
  • The Department of Energy and Climate Change have produced The SME Guide to Energy Efficiency. This comprehensive guide has great tips for how to save energy in key areas such as Heating, Lighting, Office Equipment and Production Equipment.

Where next for SMEs?

As the race to net zero speeds up, more and more informational resources will become available for SMEs. The path will become better charted, and easier to follow.

SMEs that take the initiative right now are like pioneers. They will reap the richest rewards for venturing into unfamiliar territory.

But, there is no getting around the fact that cost remains the number one factor preventing SMEs from adopting a net-zero plan. A 2021 British Chambers Survey found that getting access to grants (28%), tax allowances (14%) and reducing the costs of making adaptations (14%) were the three steps businesses would most like to see to help them reduce their carbon consumption within the next six months.

Governments and larger businesses must cough up – their financial support is vital to the future of SMEs being green.

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