The imperative to tackle climate change – still the biggest single issue facing humanity – is more pressing than ever. Since 2021, when NatWest highlighted the key role small and medium enterprises (SMEs) can play in UK decarbonisation, companies have made impressive strides in their climate ambitions.
New research from NatWest has found that SMEs in the UK could generate £175bn from accessing decarbonisation revenue opportunities. On top of this there is the potential for 40,000 new businesses and 260,000 new jobs to be created, the research found.
But, in the context of a turbulent macroeconomic environment, with the prospect of a recession in the UK, and the increasing cost of living due to rising energy prices and global supply-chain issues, SMEs face tighter cash flows and many owners fear for the future of their businesses. As a result, they’ve had to juggle their priorities, often at the cost of environmental concerns.
Yet, against this volatile backdrop, our new Springboard to Sustainable Recovery report found that SMEs in the UK are still well placed, and indeed, pivotal, to driving the next decade of decarbonisation in the UK. Our research shows that, with the right support, SMEs could contribute almost 50 per cent to the UK’s total emissions reduction ambition by 2030.
They can achieve this in two ways. Firstly, by enabling the UK’s decarbonisation and accessing the significant revenue opportunities that exist. Our research found that the opportunities for SMEs have increased by £15bn since 2021 to £175bn.
Secondly, SMEs can help to drive the UK’s transition by decreasing their own emissions. With rising energy costs making the business case for decarbonisation stronger than ever, our research shows that SMEs may see significant savings in their own costs if they decrease their carbon footprint.
The story of SME climate action is not just about individual businesses or the UK economy as a whole, but for achieving regional growth too. The £175bn-plus revenue opportunity has the potential to create substantial regional growth benefits, with new SMEs focusing on specific sectors in different regions to spur green growth. The opportunities vary from region to region. For example, more than 50 per cent of the revenue opportunities for buildings and transport are in the South and North West, where the population centres lie. Conversely, more than 50 per cent of the SME opportunity in renewables deployment lies in the North East and East.
The UK has a track record of climate leadership, decarbonising faster than any other G20 country in the past 30 years, and being among the first countries in the world to set a net-zero target. While the UK is leading the way, the investment opportunity in the EU, at £1,450bn, is five times that of the UK, and the global investment figure is around 28 times. This investment requirement creates opportunities for businesses of all shapes and sizes – and we will do everything we can as a bank to help businesses access that opportunity.
Broader support is also required to realise this. Financial institutions, the government, industry bodies and large corporations need to work together to support SMEs in six key areas:
Funding access: SMEs need financing options that acknowledge the societal benefit of delivering climate action. Examples of this include incentives and access to pricing premiums.
Awareness: SMEs need clarity on how their specific business context can benefit from climate action, and they need to know how to go about implementing these on a practical level.
Knowledge: SMEs need to know which measures might be most impactful in their business context, and how best to measure this impact.
Skills and capabilities: SMEs need support to implement climate action in their organisations, for example, in re-training and upskilling employees and managing accreditation processes.
Market access: SMEs need improved financial certainty about the benefits to their business from implementing climate action.
Navigation: SMEs need assistance navigating the complex and changing field of climate action.
With NatWest’s footprint in every community across the UK, as well as the substantial muscle of our regional boards, national SME Taskforce, and Regional SME Taskforces, we are uniquely placed to assist businesses.
We are making good progress in introducing the practical support that SMEs need to realise decarbonisation opportunities. NatWest demonstrated our clear commitment to help advance the net-zero transition – and ensure SMEs have access to the funding they need – when we set a £100bn Climate and Sustainable Funding and Financing target in 2021, of which we have completed £26bn of financing to date. In February NatWest launched its Green Loans and Green Asset Finance product to help qualifying SMEs achieve sustainability. And in September we launched Carbon Planner, which guides businesses through the practical steps they can take to understand and reduce their emissions.
The UK is entering a new phase of decarbonisation with world-leading targets, a 2050 net-zero target, and a commitment to decrease emissions by 35 per cent between 2022 and 2030. Historically, nearly 90 per cent of emissions reduction has come from highly consolidated sectors such as industry and power, whereas the next 30 years of abatement will require action from all sectors across society, building, transport and agriculture.
The evidence is clear that becoming energy efficient not only reduces costs but makes businesses more competitive and productive and, if applied across the whole economy, supports growth.
We know at the moment that it’s tough out there for many businesses but we recognise that SMEs are a cornerstone of the UK economy and that they will play a central role in its decarbonisation. That’s why we will do everything we can to help them to achieve their ambitions and to support the transition.