Stark net zero gap revealed among UK SMEs

With climate talks at the COP28 conference ending this week, all attention has been on how the UK is maintaining and driving forward its commitment to achieving net zero for a 2050 deadline. But following the Government’s revised green targets earlier this year, research from specialist business lending provider, Simply Asset Finance, reveals that UK SMEs are still unclear on how they’ll meet climate goals.

Now, almost three years since the UK Government announced net zero targets ahead of COP 26, almost a third (32%) of UK SMEs admit they have no net-zero plan in place for their business. With SMEs accounting for 99% of all businesses in the UK, this represents a significant portion of the UK’s business population. But perhaps most concerningly, this lack of commitment is not a result of complacency – over half (54%) have outlined net zero as a priority – but because SMEs increasingly feel alone in their pursuit of it.

Over two-thirds of SMEs (63%) are worried about how much net zero will cost their business, while more than half (58%) feel they don’t have enough support to achieve their targets. And while initiatives such as UK Business Climate Hub – launched earlier this year – have been set up to help UK businesses tackle climate change, one in ten (11%) don’t know where to start to implement a net zero plan. In fact, when asked what government policies or initiatives would have the greatest impact on their businesses, a fifth (22%) agreed that more support for achieving net zero or other ESG goals would be needed.

The concerns small businesses have expressed are significant enough to have led business leaders to deprioritise their net zero goals. Over half (54%) of SMEs said they have had to reduce their focus on net zero targets due to financial pressures. The main reason that SMEs had introduced, or improved reporting of ESG criteria in their business was because their partners or suppliers had demanded it (21%) – with around one in ten (13%) doing so.

Mike Randall (pictured), CEO at Simply Asset Finance, said: “The impact of escalating costs on small businesses creates a significant dilemma as they try to balance the growing financial pressure with the desire to grow and future-proof their business. The investment required to reach net-zero is something they are incredibly conscious of, but it was acknowledged as a significant undertaking pre-pandemic, let alone now. The will is there, but unfortunately the means are often not.

“The recovery loan scheme (RLS), introduced by the government in 2021, played an important role in stabilising the availability of funding for businesses during, and after, the pandemic. However, it is soon ending and without the reassurance of this guaranteed support, businesses are being forced to scale back business investment and deprioritise their climate commitments. By either extending RLS or repurposing the scheme to support green investment, the government could make significant strides towards supporting these businesses so they are bolstered for the long term.

“A net-zero shift should not just become achievable for businesses across the UK, but also beneficial to their business models and balance sheets. It’s a competitive advantage, not an unaffordable burden.”