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SME Net Zero Monitor
Read time : 3 mins Added: 18/01/2023
The Journey to Net Zero - A SME opportunity
While the journey to Net Zero may feel like it has been placed firmly at the feet of the country's larger companies, the reality is that the nation's SME powerhouse will define sustainability success. If the UK’s 5.5 million SMEs act now - and drive change within their businesses and for their customers - the potential is huge.
From putting plans in place and driving action, to overcoming challenges and collaborating with others there are many ways SMEs can make progress on their journey to Net Zero. Yet for busy business leaders facing immediate challenges, finding the time to understand and prioritise a target that is still decades away, may right now feel at odds with their agenda. So where are SMEs on the Net Zero journey today and what can we do to help them?
Understanding the SME Net Zero journey
To better know and understand the journey that UK SMEs are on towards Net Zero, in 2021 Lloyds Bank undertook research amongst 1,000 SMEs and identified the five stages of their Net Zero journeys.
The progress through these steps was a highly practical one and the 2021 From Now to Net Zero Report recognised that there was clearly a conundrum for many SMEs across the UK. With 89% of SMEs recognising the importance of sustainability for their business and 74% being aware of the government’s Net Zero target, yet 40% saying they did not know what it means for their business - the gap between desire and practical application was clear.
Our new 2022 SME Net Zero Monitor survey took the research one step further and revealed the number of UK SMEs at each stage of the journey. It shows that the majority of UK SMEs are moving towards the Net Zero target, with two thirds (64%) of SMEs saying they have a plan in place to reach Net Zero by 2050. The Net Zero Monitor finds that 7% of SMEs have already reached Net Zero emissions, with these SMEs acting as ‘heroes’ for other businesses, motivating them to drive forward their progress and change.
From planning to action
Whilst awareness around sustainability issues is growing, with 95% of SMEs now aware of the 2050 Net Zero target - with increasing awareness comes the need to take greater action. Crucial to making this move from planning to action is having a firm and realistic plan in place. There are positive signs that an increasing number of SMEs are establishing their plans for reaching Net Zero with 39% having set a Net Zero target and deadline to reach it by.
This growing awareness of and commitment to the Net Zero agenda is coupled by an increasing confidence amongst SMEs around their role in making progress towards the 2050 Net Zero target.
The Net Zero Monitor shows that while the core actions taken on the journey to Net Zero remain the same throughout the journey, they are prioritised differently - showing that different actions have different value for businesses depending on their stage of the journey. The research finds that while earlier stage businesses focus on waste reduction and recycling, SMEs already at Net Zero are creating emphasis on more fundamental long-term changes.
Challenges along the way
The journey to Net Zero isn’t always a straightforward one. Every business has its own unique structure and challenges. However, there are challenges that unify SMEs along the journey. Both SMEs still on the Net Zero journey and those already at Net Zero have cited budget and the cost of the transition (43%) as the biggest challenge they have faced on their journey.
This is followed by struggling to prove a true ROI and the difficulties of measuring the impact of their Net Zero and sustainability-focused activities. Just 26% of SMEs have measured their emissions and put a plan in place for measurement - demonstrating just how challenging this particular area is for SMEs.
Additionally, the role of external forces and factors on the Net Zero journey cannot be ignored. The events happening in the wider world and SMEs’ micro-operating environments impact their ability to do business every day and their Net Zero efforts aren’t immune from this. Rising energy costs (72%), rising inflation (72%) and the rising cost of petrol (70%) are all impacting the progress SMEs can make. These findings reinforce that SMEs are at the front line when it comes to economic challenges, and they often push them off course from their broader business goals.
The power of purpose
Being purpose-driven sits at the very heart of so many SMEs and this sense of purpose extends to their sustainability efforts.
Protecting the environment for future generations is a core motivator for UK SMEs on the journey to Net Zero, this moves to become the top benefit (37%) for SMEs who have already achieved Net Zero demonstrating the realisation of having that impact on the world.
The benefits that SMEs anticipate experiencing are:
- Waste reduction (38%)
- Protecting the natural environment for future generations (37%)
- Employee wellbeing and engagement, attracting new employees (27%)
- Cost savings (25%)
- Improved reputation, brand image, trust or credibility (25%)
These benefits are a clear blend of purpose-driven and commercially driven motivations. Combining these two drivers have become a powerful force in ensuring momentum for SMEs along the journey to Net Zero. This momentum and purpose is enabling so many SMEs to create real change.
Given that the biggest challenge SMEs experience is cost, it’s perhaps unsurprising that the cost savings benefit of being more sustainable is on this list. Saving money whilst being more sustainable is a clear benefit, whether that is achieved through producing your energy, reducing fuel costs by shifting to electrical vehicles and changing production processes to reduce the amount of raw materials required, among just a few of the options available to SMEs.
Contribution and collaboration
SMEs don’t make the journey to Net Zero alone. Their journey accelerates when companies come together and create greater change across their region, sector or supply chains. Our Net Zero Monitor revealed that over half (56%) of SMEs say they are collaborating with other companies on driving change and reaching Net Zero - those further along the Net Zero journey are far more likely to be part of the change ecosystem.
Net Zero Heroes (SMEs already at Net Zero) are important facilitators of this powerful collaborative experience amongst SMEs. Having progressed along the whole journey themselves, they have become its advocates and are powerful change agents. Their ability and enthusiasm for sharing their experiences and bringing others along the path to Net Zero with them, captures the imaginations of the SMEs that cross their paths. These SME Net Zero Heroes are enabling the Net Zero journey of other SMEs by:
- Advising customers and clients on the actions of their business in relation to sustainability / Net Zero (53%)
- Advising suppliers on the importance of sustainability and Net Zero (48%)
- Advising other businesses on the importance of sustainability and Net Zero (47%)
Continuing the journey
The journey to Net Zero for SMEs is varied, rarely straightforward and fraught with challenge, but this does not deter the UK’s robust SMEs from continuing to make steps forward to reduce their emissions and consider the impact of their operations on the environment. The dedication and enthusiasm of SMEs is what is driving real change and enabling progress to be made. Their collaborative power is behind the growing SME nation of Net Zero Heroes.