SMEs and Net Zero

A net-zero economy does not happen without 95% of all businesses

Small and Medium Enterprises (SMEs) account for over 95% of all businesses. They account for most of the wealth, employment creation, social and environmental impacts, and private sector gross domestic product.

Transitioning to a net-zero economy does not happen if 95% of all businesses are operating as normal. On tackling the climate crisis, widescale buy-in and action from SMEs is essential.

There are several perceived obstacles stopping SMEs taking on new projects to improve their environmental performance. One long standing argument is that action costs money upfront; more than a third (34%) of SMEs say they used cash reserves to make improvement on their environmental performance (according to a study by Lloyds Bank Commercial Banking’s Business Barometer of SMEs).

Using cash reserves will be even less appealing in the context of the last 13 months. SMEs have been hit hard by the pandemic; over two-fifths of SMEs have seen sales decrease in the past 24 months and just under a third have cut jobs. In this context, it would be understandable for organisations to reprioritise and delay environmental action.

A world in a post-pandemic recovery may then seem like the worst time for SMEs to invest in taking climate action. However, there is argument that the time has never been better, and necessary.

  1. It is well established that better environmental performance is an investment that improves a company’s bottom-line over, not a one-off cost.
  2. Despite the pandemic, climate action within the economy has accelerated. We already have governments and the big multinationals committing to be net zero. They will rely on SMEs joining them to fulfil their commitment.
  3. ESG (environment, social, and governance) metrics are increasingly being used by the financial sector. The smart money is rapidly moving to business that can prove it is ready for a low-carbon economy. The momentum is unwavering and will only accelerate. After all, SMEs will still account for around 95% of business in the net zero economy of the future.
  4. Finally, in response to the pandemic, SMEs have proven an agility and adaptability in adjusting their business strategy. SMEs reprioritised the introduction and adoption of new / innovative products, processes, and digital technologies. These new strategies will have supported business efforts to find new ways of meeting customer demand and pivoting to new business models.

In a post-pandemic world action on climate change presents the opportunity to be braver and more agile in decision making. Much like the pandemic has in the short-term, climate action in the long-term facilitates better management of priorities of stabilising businesses and protecting employees.

SMEs do have an impact on climate change, they can take meaningful yet affordable action, and they will have to adapt as we transition to a net-zero economy. If the pandemic is anything to go by, there is every reason to believe they will also thrive whilst doing so.