Will high energy costs hamper British SMEs’ net-zero efforts?

A survey of more than 1,000 decision-makers at small and medium-sized businesses (SMEs) in the UK has revealed that more than four in ten believe they don't have insufficient financial resources to reduce their emissions in line with climate science.

Will high energy costs hamper British SMEs’ net-zero efforts?

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The survey was conducted by Lloyds Bank this June, in order for the bank to produce the latest edition of its Net-Zero Monitor for SMEs. That resource has been published this week. 1,074 people from different businesses were surveyed. Lloyds Bank classes an SME as a company with fewer than 250 employees and an annual turnover of less than €45m. Micro-businesses with fewer than 10 employees were not included in the survey.

Promisingly, the survey revealed an uptick in net-zero-related knowledge and climate strategy development at SMEs. The vast majority (87%) of survey respondents said they now understand what the UK Government’s 2050 net-zero target means for their business.

Moreover, almost two-thirds (64%) of those surveyed said that their business has developed a plan to reach net-zero in or before the national legal deadline. 7% said they had already achieved net-zero carbon emissions.

This does not mean that the net-zero transition for SMEs is necessarily becoming easier, especially in the current economic context. All of the businesses already at net-zero have stated that it was hard to achieve this milestone when they had multiple crises to manage, including the Covid-19 pandemic, current recession and adapting to Brexit.

Of the businesses that have not yet reached net-zero, Lloyds Bank asked representatives to describe their biggest challenges to delivering and implementing decarbonisation strategies. More than seven in 10 (72%) said increased energy and material costs are the biggest negative influence on their net-zero journey.

Another significant challenge is supply chain disruption, cited by 59% of survey respondents. Supply chain disruption takes up time and resource, for one, and also makes for a more challenging environment in which to engage suppliers on climate issues. Indeed, 33% of survey respondents said they find it challenging to collaborate to reduce emissions outside of their own operations.

Increasing interest rates were also found to be a shared challenge. 57% of survey respondents said this was a significant challenge to their net-zero journey.

“While every SME’s journey to Net Zero is different, there are common and significant challenges that all SMEs face along the way, with inflation and high energy costs cited as having the greatest impact,” said Lloyds Banking Group’s managing director for SMEs and mid corporates Paul Gordon.

“However, SMEs should not be discouraged from continuing to make the next step on their journey. Investing in transitioning their business can create long-term cost savings, such as by becoming more energy efficient and reducing energy bills.”

SMEs are believed to account for at least 40% of the UK’s non-domestic emissions, meaning that they have almost as much of a significant role to play in the net-zero transition as large businesses.

Carbon data

In addition to the challenges with finance and resourcing detailed above, Lloyds Bank’s survey also found that many SMEs are grappling with challenges relating to data on emissions.

Of those polled, half (49%) said their business is already measuring its emissions footprint. A further 15% are researching how to gather data to provide an emissions baseline. This still leaves more than one-third with no idea of what their emissions are, or a plan to find out.

Data collection was found to be a challenge for firms at all stages of their net-zero journey. Three in ten of the businesses already at net-zero confirmed to Lloyds Bank that they found it “hard to measure their business’s environmental impact or performance”.

Lloyds Bank is calling on SMEs that have already measured their emissions to share best practice with their peers.

There are also several free resources available for SMEs looking to baseline their climate impact. One such tool, the SME Climate Disclosure Framework, comes from CDP and the SME Climate Hub. For UK firms specifically, the Government has provided guidance on how SMEs can and should measure and report emissions, following a call to action from then-Prime Minister Boris Johnson in May 2021.

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One of these features is a new Net-Zero Stage, which will be of interest to readers of this article. Speakers lined up for the stage over our jam-packed two-day programme include representatives for Virgin Media O2, L’Oreal, Lawyers for Net-Zero, Whitbread and the British Retail Consortium.

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Comments (1)

  1. Kim Warren says:

    This is insane – typically 40% energy savings are possible for no net cost. The higher the energy price, the greater the potential savings.

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