How can we encourage small businesses to play their part in the drive to net zero? David Burrows reports
Small and medium-sized enterprises (SMEs) make up about 90% of businesses and account for 50% of worldwide employment, according to the World Bank. In the UK, they constitute 99% of the business population – 5.6m businesses – and are essential to achieving net zero by 2050.
“We will not get to net-zero as a country without SMEs taking action now,” says Louise Kjellerup Roper, CEO at business and sustainability think tank Volans. “No SME should be forgotten or left behind.”
Many are feeling left out, though. A recent report by Volans and others involved in the Bankers for NetZero initiative identified a “chasm” between early adopters and innovators who are willing to take a risk, and the “early majority” of companies that are already aware of net zero, and are willing to act, but haven’t yet done so. This group constitutes “millions” of businesses, the authors estimated.
Aquobex is one of them. The flood resilience specialist, headquartered in Oxford, is finding the barriers to net-zero progress hard to overcome. “There are hundreds of questions, even if you want to be proactive, and very little advice or real data to enable us to start on this journey,” explains managing director John Alexander. “For those who don’t care, it is very easy to not bother – and that is the danger.”
So, are small businesses stuck on net zero? And what is being done to help them?
An August survey by the British Chambers of Commerce (BCC) and O2 showed that just 9% of small businesses were measuring their carbon footprint – and the number of companies setting emissions reduction targets had actually decreased since February 2020. Around one in three had yet to seek advice or information to help them develop a net-zero roadmap or improve their environmental sustainability.
“One of the challenges here is talking about SMEs as a group, but they’re all very different”
“In my experience, businesses are, by and large, reactive beasts,” explains Anna Graham, business sector manager at Zero Waste Scotland (ZWS). “They are generally not proactive.” While she admits that this is a fairly broad-brush statement, it should be borne in mind that, due to the COVID-19 pandemic, millions of small companies are currently worrying whether they will be here in six months – let alone in 30 years. Asking them to start measuring their energy use, calculating carbon footprints and coming up with a net-zero plan can be a hard sell.
Frameworks such as the Task Force on Climate-Related Financial Disclosures, the Partnership for Carbon Accounting Financials and the Science-Based Targets initiative (SBTi) are geared towards large corporates. SBTi explains that, among the 847 companies that have aligned their climate mitigation targets with 1.5°C and net-zero emissions by 2050, just 66 are SMEs. However, SMEs do now have their own route for setting science-based targets, which “balances the need for them to take account of emissions across their value chains, without imposing too great a burden”.
The government has also been striving to keep things simple: its focus has been on the small steps that, collectively, make a big difference. It has launched an SME climate hub that includes tools, guidance and case studies on everything from LEDs to a simplified emissions reporting process. The information is undoubtedly valuable (and has all been independently evaluated), but it is easy to become overwhelmed: of the businesses quizzed by BCC, 22% didn’t fully understand the term ‘net zero’, and yet on the climate hub you are into greenhouse gas emissions protocols and scope 1, 2 and 3 emissions within a couple of clicks.
Bankers for NetZero said that while the new hub is a start, seeking out advice on decarbonisation remains a “frustrating experience” for SMEs.
Framing the issue
In the rush to get businesses to sign up to net-zero pledges, the government is also arguably losing sight of what exactly it wants businesses to do now. Framing is important, says Debbie Ward, director at Cirklo Consult and knowledge transfer manager at the University of Wolverhampton’s Environmental Technologies and Resource Efficiency Support Services (EnTRESS).
“Businesses just want the practicalities of it all,” she explains. “They just want to know that what they’re doing is making them more efficient, more competitive, and ideally saving them money. They don’t necessarily care whether it’s circular economy, or if what they’re doing would put them in the race to net zero programme.”
Has the publicity around net-zero and the UK’s hosting of the COP26 climate talks resulted in a bump in calls to advisory services? “It’s an easier sell,” says EnTRESS project manager Andrew Stott – but most are still focused on the day-to-day of their business, juggling the impacts of COVID-19 and Brexit. “Free support isn’t the catch-all for helping businesses to make change,” adds ZWS’s Graham. “They need to be convinced that they need to make the change themselves”.
“For those who don’t care, it is very easy to not bother – and that is the danger”
This was a theme picked up in a 2018 paper for the journal Local Economy. A huge amount of public funding has been invested in helping SMEs reduce energy consumption and carbon emissions, but there has been little research into the experiences of those who run the schemes – so Sam Hampton from Oxford University’s Environmental Change Institute interviewed 19 low-carbon advisers. The current approach when engaging with SMEs is to focus on buildings, technologies, payback periods and assistance with the purchase of new equipment. This hooked people in.
However, more in-depth conversations about organisational culture, corporate responsibility, values, risk and energy use had been sidelined. The softer stuff was proving a harder sell – but will be crucial in achieving net-zero.
In a recent paper co-written with Professor Richard Blundell from the Open University Business School, ‘How can SMEs contribute to net-zero?’, Hampton wrote: “programmes designed to deliver emissions reductions via financial incentives tend to result in short-term and purely transactional forms of engagement […] This is particularly problematic, given that net-zero commitments require businesses to embark on a longer-term journey, and to make changes that may offer few, if any, immediate financial returns.”
Hampton has called for a “shift in the culture of advice-giving” – but there will need to be sticks, as well as carrots. The money-saving message could in fact be tertiary among the key triggers that will get businesses moving; regulation and customer pressure could push SMEs further and faster.
The government has talked up the green recovery, but is reticent to roll out more red tape. Still, there are opportunities for more joined-up thinking. The tension between landlords and tenants is an obvious sticking point for energy efficiency programmes. “The government needs to work with the small business sector to identify where there is a mismatch between the person with the power to invest in low-carbon changes (such as the landlord in a commercial property), and the person who would benefit from those changes (that is, the tenant),” says Friederike Anders, policy adviser at the Federation of Small Businesses. She wants to see “smart policy decisions”.
Unfortunately, these decisions are sorely lacking. In the run-up to COP26, ministers sidelined any real strategies and focused on the number of firms making net-zero pledges. Most ministers were still trotting out the old adage that ‘saving carbon saves money’. If businesses “just turn the thermostat down or invest in LED light bulbs, they are clearly going to save energy costs, which are a hot topic at the moment”, said Paul Scully, minister for small business, during autumn’s 2021 Net Zero Festival. At times, you have to check it’s not 2010.
The heterogeneity of the SME population has been forgotten in attempts to engage far and wide (Ward describes the number of businesses that need to be reached as “frightening”). Comprehensive data on SMEs’ greenhouse gas emissions is sorely lacking, but the aggregate impact of such a large component of the economy is impossible to ignore, say Hampton and Blundel. The best estimate so far is 12%; better data would help target hotspots.
“One of the challenges here is talking about SMEs as a group, but they’re all very different,” said Net-Zero Now executive director Simon Heppner at the Net Zero Festival. He is focused on sector-based solutions. “We feel it’s absolutely essential that we provide guidance, resources and tools to businesses that are in their language, that speak to them about the things that they do every day.”
With help of the Sustainable Restaurant Association, Heppner has launched a net-zero accreditation scheme for pubs and bars. “We couldn’t have chosen a more difficult sector,” he said at the launch. Hospitality has been battered more than any other by COVID-19; it also has a high climate impact and very low margins, and is very time-poor. However, Heppner is more optimistic than he has ever been. “Net zero has given a clear destination and a common sense of purpose,” he said. “Now we have to capitalise on that.”
Once the hype from COP26 has dissolved, attention will turn to 2022 and action. This includes mobilising the 99% of British businesses that have fewer than 250 employees, which currently face a climate chasm. Saving a couple of hundred pounds on their electricity bills is unlikely to cut it.