Just 40% of UK SMEs have started on their transition to being a sustainable business

New research from Aldermore’s Green SME Index has revealed that two million (40%) UK small and medium-sized businesses (SMEs) have started on the road to making their business fit for net zero.

Over a quarter of SMEs have ‘green intentions’ and are currently assessing their sustainability goals (27%). Meanwhile, one in 10 SMEs (9%) could be described as ‘greening’, being further along in the journey to transition.

Time, investment and understanding stand in the way of greening the UK economy

Despite the fact that many SMEs are beginning to explore their role in the nation’s transformation, it is not always easy for them to find the time and money to ensure the country meets its ambitious goals. On average, SMEs spend about 15 hours a year considering their approach to sustainability. While one quarter of SME decision-makers (24%) see sustainability as a key priority for the next 12 months, it is one of the least prioritised areas for investment (17%).

The Index has also raised concerns that not all SMEs are aware of the necessary details to make change. A significant number of leaders did not fully understand certain concepts such as carbon offset (27%), net zero (25%) and carbon neutral (22%).

SMEs want lawmakers and large businesses to take the lead

Nearly two-thirds of SMEs looking to ‘go green’, (69%) agree that small businesses play a significant role in how the UK tackles climate change, but even more (72%) feel that strong government legislation needs to be in place to support this.

Seven out of 10 SME decision-makers (68%) think large businesses need to tackle the issue first.

Fears for the financial sustainability of going green

One in four SMEs (28%) believe that sustainable choices can also lead to better business decisions.

However, a similar number (21%) fear that implementing a sustainability strategy could pose difficulties for their business, impacting profits and operations. This is particularly true of businesses that are in sectors that will mostly need to reform to meet new green standards, such as manufacturing (41%) and agriculture (25%).

However, SME leaders are still keen to ‘go green’. One in five small businesses (22%) are willing to accept a lower profit margin to run their business in a more sustainable way.

Tim Boag (pictured), group managing director of business finance at Aldermore comments: “SMEs represent 99% of all private sector businesses in the UK2, so they will be absolutely pivotal in our transition to net zero. However, our Green Index shows that despite the best intentions of SME leaders there are significant barriers to making the leap. SMEs are asking for regulations and guidelines so they can make prudent investments and carry out improvements that will actually make a difference.

“For businesses that do embrace change, there can be commercial opportunities. We’ve seen many of our customers pivot or diversify into exciting new areas which meet the growing demand for greener solutions. A recent example is where Aldermore provided a loan to a waste recycling company for a Gas Energy Recovery Incinerator, which recovers and reuses incineration gas.”