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SMEs matter! Small to medium-sized enterprises are part of corporate and public sector supply chains, employ millions of people, are key stakeholders in our communities, and many act as drivers of technology innovation. But our 5.5 million SMEs also emit around half of the UK’s business carbon emissions. We know that small businesses are concerned about the climate – indeed, 47% identify decarbonisation as a business priority – yet, change is limited by a lack of time and knowledge, and, of course, cost.
External pressures, such as the regulatory environment that larger companies operate within, just don’t exist for most SMEs, and market drivers are much more limited. To try to overcome these barriers, successive governments have offered energy efficiency audits and grants to support SMEs, but they are estimated to have reached only 1% of the SME population. So how do we speed up SME decarbonisation, and at scale? How can the market and government collaborate to drive this change?
Researchers from the University of Bath considered these questions in a six-month study of the current market for SME decarbonisation support. We mapped 20 distinct products and services that covered both the planning and implementation phases of carbon reduction – from raising awareness through to carbon calculators, energy demand management and comprehensive sustainability platforms offering ongoing monitoring and improvement (see Figure 1 below).
Encouragingly, business models are rapidly evolving, especially within the planning phase of the decarbonisation journey, with more than 270 carbon accounting providers targeting SMEs. Carbon footprinting is increasingly being offered as a ‘free’ service, with software supplier Sage now including emissions tracking in its standard accounts packages.
Technology is reducing entry barriers, enhancing guidance, enabling app-based training and increasingly, through artificial intelligence, the opportunity to offer large-scale ‘personalised’ SME action planning. Our report offers greater detail on each of these areas, providing information on developing trends and business examples.
While we see growth and diversification of offers, we acknowledge a continued imbalance between supply and demand – only a few SMEs are engaged in the market. Lack of knowledge, or low perceived business relevance endure, and for SMEs looking to make an investment there is a general reluctance to borrow money, even at preferential rates.
But there is change, and we have identified three market routes that appear to overcome the inertia:
Value chain. Large organisations include supplier emissions reporting as a procurement requirement. Within the public sector, the NHS is highlighted as having a particularly strong engagement with SMEs. Demand for better-quality carbon data and collection automation is enhancing the asset value of emissions data. Recent research suggests that 56% of members of the Federation of Small Businesses (FSB) have been asked to provide emissions data to business customers. This is the strongest of the three routes.
Evident benefit. Here, the motivation comes from cost reductions and operational improvements, often led by rising energy prices and falling technology costs. For example, the levels of return on investment are high for LED lighting and, increasingly, solar.
‘Walk the talk’. SMEs have sustainability at the centre of their identity, and seek certification and recognition for decarbonisation to support their market offer. Research suggests this is a growing but small group.
And the future? While these routes suggest positive signs of growth, the market can’t achieve decarbonisation by itself. Government, too, has a role, but rather than offering large-scale grant programmes, it is much more likely that we will see it use soft policy levers around procurement, emissions reporting, value chains and private sector finance to help drive change.
Dr Erica Russell PISEP, University of Bath is a visiting research fellow at the Centre for Environment and Sustainability, University of Surrey.
Download the report here: SME decarbonisation in the UK: emerging market trends and their implications for government.
