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The UK needs SMEs to reach net zero

Small businesses need more than economic stability to take action on the climate.

As SMEs continue to adjust to the new economic realities of 2023, the NatWest SME Taskforce met to discuss the short-term outlook, alongside the long-term milestone that is the climate transition.

The economic signs for the near term have improved in recent months. Martin McTague from the Federation of Small Businesses (FSB) said he was “seeing an early stage return to optimism. It’s a big improvement on the final quarter of last year. Although still behind where we were this time last year.” Retail, hospitality and wholesale had seen an improvement, McTague noted, but a lot of SMEs were finding it difficult to access finance.

These findings were echoed by Philip Bartlett, economist at NatWest Group, who noted that he was expecting the economy to grow over the next two years but added: “We know your cost pressures are still acute and as a result of that the Bank of England are widely expected to keep interest rates quite high for the time being.” There is little sign of a return to the lower interest rate environment of the 2010s that consumers and businesses have become accustomed to in the near term, Bartlett warned.

[See also: Net zero jobs growth “not guaranteed”, says Climate Change Committee]

Following the government’s series of announcements in the Spring aimed at supporting the climate transition in the wake of the US’s $169bn pledge to support domestic industries, the Taskforce turned its attention towards the barriers and opportunities facing SMEs in the net-zero race.

Edward Lockhart, of the government’s new Net Zero Council, joined the Taskforce to discuss the need to bring government and the private sector together into one forum to identify the policy and financing barriers individual sectors are facing, as well as how to best support SMEs to get involved in the climate journey.

Taskforce members were supportive of the new Net Zero Council as a facilitator for climate action, and were keen for an emphasis on action now if the UK is to avoid falling behind competitors. “Twice as many SMEs are now monitoring climate risk as in previous years, but this is skewed towards larger firms,” noted Bartlett, with access to data and understanding of the action needed key barriers. Across the Taskforce there was a desire for SMEs to be placed at the heart of the UK’s climate transition, but a concern that the government was focusing too heavily on larger companies.

Emma Kisby, CEO of the carbon management company Cogo, underlined the importance of simplicity when it comes to communication with businesses and the decarbonisation requirements they need to meet to avoid overwhelming them. “Simplifying the messaging and making it actionable is critical,” Kisby argued, pointing to research Cogo had undertaken alongside the FSB. Shalom Lloyd, founder of Naturally Tribal Skincare, agreed, citing her own experience as a business founder, on the need to embed simplicity and remove duplication for SMEs when completing carbon accounting tools. Lockhart agreed on the need for clear communication, pointing to the work to grow a Climate Hub for SMEs to act as a “one stop shop” for advice.

Clear and consistent data and measurement was highlighted as a key next step for the government and industry to tackle if businesses were to engage, or risk hitting a supply chain crunch as larger companies look to address their emissions. Kisby and Julia Groves, of the British Business Bank, raised the importance of ongoing private sector work to create a clear framework for measuring emissions data, and unlock capital for businesses across the country. “I honestly can’t tell you how many assessment tools I have completed to find that emissions benchmark,” Lloyd summarised.

McTague argued that government and industry needed to highlight the opportunities for new and existing businesses looking to capitalise on the net-zero transition. “Net zero should be viewed not as a cost limiting exercise but a milestone for the UK economy,” he added. Andrew Harrison, managing director of business banking at NatWest, fully endorsed this view, pointing to the £175bn opportunity for UK businesses if SMEs are able to play their part in the transition. “There are huge opportunities across each and every region of the UK, from clean buildings to energy to clean transport, which SMEs can and should be driving.”

So while a measure of stability appears to have emerged for the UK economy, the path for SMEs seeking to decarbonise and embrace new market opportunities presented by the transition remains challenging. Producing clear communications on the actions needed, alongside unlocking easy to use measurement and data to aid businesses looking to decarbonise and financiers looking to support them will be among the main tests for the UK’s climate agenda.

Read more:

Net zero strategy: industry is key

The net zero asset managers “doubling down” on oil and gas

Small businesses need support to make the most of Net Zero

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