Smaller businesses account for almost a third (30%) of all current UK greenhouse gas emissions (including emissions from households, industry and government) and around half (50%) of total emissions from UK businesses, according to a 20 October report published by The British Business Bank – the state-owned economic development bank established by the UK government in 2014.
The research report, “Smaller businesses and the transition to net zero“, highlights the potential collective influence of UK smaller businesses and the considerable contribution they could make to wider net zero objectives if they all made changes to reduce their carbon footprint. The report, presented as an attempt to probe deeply into this under-researched topic, seems to incorporate results from fresh data via a bespoke, nationally representative survey of 1,200 smaller businesses, and analysis of public data sources.
Over three in four businesses (76%) are yet to implement comprehensive decarbonisation strategies, capabilities and actions, according to estimates. One example of this is that just 3% of smaller businesses surveyed say they have measured their carbon footprint in the past five years and subsequently set an emissions reduction target.
The early stages of transition
The research finds there to be little in the way of proactive measures from businesses to improve their own knowledge and capabilities, and more than half (56%) in the survey say they have taken no actions to change this.
However, when asked about physical actions, it is encouraging to see that the vast majority (94%) say they have taken at least one action to reduce their emissions, though they tended to be low-effort ones, such as installing a smart meter.
Overall, the most common motive for taking action, mentioned by just over half (51%) of businesses, was that it ‘made financial sense’, speaking to the need to align net zero and financial objectives for businesses in the transition.
The data appears to reveal around half (52%) of smaller UK businesses fall within the ‘Carbon Complacent’ or ‘Carbon Exposed’ personas established by the research based on business characteristics, emissions intensity, actions and attitudes. Businesses falling under these personas are reactive or simply disengaged in their attitudes to cutting emissions and have ‘low carbon transition maturity’.
Awareness is mixed and attitudes split
More than half (57%) of smaller businesses have heard a lot, or a fair amount, about the government’s commitment to reach ‘net zero’ emissions by 2050, and the implications of climate change for their businesses (56%), establishing a strong base for further transition.
However, while nearly half (47%) of smaller businesses state reducing carbon emissions or environmental impacts is a high or very high priority over the next two years, 53% indicate they are not yet ready to prioritise decarbonisation. This split in attitudes demonstrates the need to raise awareness, balance the knowledge gap and ultimately help facilitate change.
Barriers are multiple, complex and business specific
The research found that smaller businesses identified more than twenty barriers preventing action on net zero, demonstrating the complexity in addressing the issues on a wide scale and the need for tailored approaches.
Some common themes have emerged, however – more than a third (35%) of smaller businesses cited costs as a barrier for reducing carbon emissions, particularly upfront capital costs (21%), followed by feasibility (32%), such as lack of control due to tenancy agreements or lack of an appropriate technology. Over one in ten (12%) said that lack of information was preventing them from action.
Finance as an enabler to net zero transition
So far, 11% of the smaller business population – equating to around 700,000 businesses in the UK – have accessed external finance, in the form of loans or equity, to support net zero actions. Looking forward, 22% of the UK smaller business population (equivalent to around 1.3 million businesses) – say they are prepared to access external finance to support net zero actions in the next five years.
Catherine Lewis La Torre, CEO, British Business Bank commented: “Smaller businesses will generally have lower individual carbon footprints than their larger counterparts, but by broadening their vision and committing to action they can collectively produce a significant overall impact.
Action to mitigate the impacts of climate change is at tipping point, and it is crucial for smaller business owners to feel empowered, informed and supported in making the relevant steps to decarbonising their business if the UK is going to meet its wider net zero objectives by 2050.
“More than half of smaller businesses say they’re not ready to prioritise decarbonisation, so clearly more needs to be done.
“The Bank continues to strive to bridge the knowledge gap and work with its partners to improve smaller businesses’ access to the right finance to help them transition to net zero. We hope this report encourages business owners to review their business model, consider where changes can be made and to make the necessary investments to secure a sustainable future for their businesses.”
Small Business Minister Paul Scully said: “Small businesses need to be front and centre in our national effort to reduce emissions, which is why we’re working closely with the government’s British Business Bank to bake our top priority of reducing carbon emissions into the business finance pie.
“We launched our ground-breaking Net Zero Strategy this week and in the run-up to COP26 in Glasgow next month, we are pulling every lever we can to get every part of the UK’s business community on board with the vital need to reduce emissions and build back greener.”
The UK has a target to bring all greenhouse gas emissions to net zero by 2050. For its part, the British Business Bank says it has a revised mission to drive sustainable growth and prosperity across the UK, and to enable the transition to a net zero economy, by improving access to finance for smaller businesses.
Smaller businesses are well placed to respond to the opportunities, as well as the challenges of the transition to a net zero economy. The British Business Bank said it is already supporting smaller businesses in finding the right finance for their transition to net zero, as well as providing funding to businesses that are tackling environmental issues more directly.
Simon Hombersley, CEO, Xampla said: “Reaching carbon neutrality is going to involve disrupting some very big businesses, and the best people to disrupt big businesses are small businesses. Large companies don’t innovate in the way that a start-up can, so that’s how small businesses are going to change the world.”
Shalom Lloyd, Founder and Managing Director, Naturally Tribal, said: “Small businesses are nimble, they’re agile. They can make change very, very quickly, so the support we give small businesses to help reach the net zero target is very critical”
Brendan O’Toole, CEO, Dynamo Motor Company, said; “We are extremely passionate about creating a product that is environmentally friendly and meets the needs of both the drivers and passengers.”
Jake Crute, Founding Director, PlantKind, said: “Small businesses really can make a big difference, and they should focus on the changes they can make now that will produce a longer-term impact. PlantKind products use no plastic, the greenhouse for growing my plants is built entirely from reclaimed materials and they are watered using an underground water tank that collects rainwater. I also donate 1.5% of revenue to offset carbon and am working to achieve B Corp status.”
Sarah Ellerby, Chief Executive, Nova Pangaea, said: “The UK has an opportunity to lead the drive to net zero, specifically for sustainable aviation fuel (SAF). In order to deliver on this net zero target, we will need to lean on smaller scale companies with disruptive technologies to accelerate innovation. This will require significant investment and alignment of finance and stakeholders to deliver this aspirational target.”
Richard Smith, a partner at legal firm Sandstone Law, commented: “Contributing to the fight against climate change and reducing greenhouse gas emissions is, for many, another cost that is hard to bear, even if they want to reduce the carbon footprints of their businesses. The government has provided very little support and guidance to small businesses in the move towards a net zero carbon economy. It expects the free market to adjust and solve the problem over the next 15 years, but without greater leadership, direction and regulation, the transition at SME level will happen very slowly. Big businesses will certainly give their supply chains a green tweak, as they did 30 years ago with CFCs and waste reduction, but without central government guidance and useful carbon reduction toolkits for different business sectors, the change may continue to be too little too late.”
 All references of smaller businesses refer to small and medium-sized businesses, defined as businesses having 0 to 249 employees, based in the UK.
 Estimates based on Bank analysis of emissions and business data from public sources including the Office for National Statistics and the Department for Business, Energy and Industrial Strategy,
 Central estimates shown. Estimates are, respectively, within a range between 600,000 and 800,000, and 1.1 million and 1.5 million. Extrapolated from the Business Population Estimates 2020, published by the Department for Business, Energy and Industrial Strategy.