What can SMEs do to accelerate their journey to net zero?

Mark Hart, Professor of Small Business and Entrepreneurship, Aston Centre for Growth
Member of the Expert Advisory Council – Help to Grow: Management

On the eve of COP26 in November 2021, attention was firmly focused on the climate challenge and the need for action by governments, big business, and households. Since then, for obvious reasons perhaps the talk of net zero has almost disappeared from the public narrative. Yet there will be no transition to net zero without small and medium sized enterprises (SMEs).

Many SMEs are still reluctant to transition to green business models given the cost of doing business crisis and their focus on recovery since the economy began to open up after the COVID lockdowns: viewing investments as costly, not fitting with the traditional business model and contradictory to business performance. Is this true?

A recent report by the Enterprise Research Centre shows that it is not necessarily a trade-off. A small business can contribute to the climate emergency agenda without compromising its own growth. This is a win-win situation where business objectives are compatible with environmental goals.

Based on responses from 1,019 SMEs, the report explores three areas:

1. the range of net zero practices, which span across technological and organisational business domains;

2. the external and internal drivers of net zero practices

3. the performance outcomes of net zero practices.

The second area raises a particularly important point for us all. Consumer demand is one of the most potent driving forces encouraging businesses to adopt net zero practices – along with the positive attitude towards the environment of business owners and managers. Businesses up to the challenge of meeting this new demand, will thrive.

And still, introducing environmentally friendly activities and innovations may be overwhelming for a time, and resource, constrained entrepreneur. Where to start? Probably, the most obvious answer to this question would be ‘start small to go big’. Happily, low-cost solutions are easily available to help you on your way.

Even simple organisational changes, prompted by environmental reports and audits for example, may help a small business to measure and recognise its environmental impact. These assessments will not only help pinpoint first steps and then potential areas for further intervention, but also improve communication with consumers who are increasingly looking for transparency and educated choices.

Investing in training on environmental matters may not only allow small businesses to enhance knowledge of employees regarding net zero but also spur their innovativeness and entrepreneurial mindset, driving benefits for the environment but also benefits for the business itself.

Small firms can be at an advantage due to their ability to pivot more quickly than larger firms.

Despite the many difficulties since the start of 2020, many UK SMEs are engaged with the net zero agenda. The approach will vary depending on the particularities of business and industry. For example, the ERC report highlights that around one in three businesses have already switched to more renewable energy and two in five introduced some changes to production or distribution processes to make them more resource efficient.

In the current digital era small businesses are also encouraged to digitalise processes to reap efficiency and productivity benefits. A further ERC report explores potential complementarities between environmental practices and digital technologies in SMEs. The findings show, for example, synergies between the use of customer relationship management (CRM) systems and some net zero practices such as undertaking environmental reports and audits, switching to renewable energy, and introducing low carbon products and services. This provides another incentive and an example of a win-win scenario: increased benefits for firms that jointly adopt customer-focused digital systems and practices aiming to reduce, measure and showcase environmental impact, especially in addressing customers’ needs and improving improving the firm’s reputation.

Small businesses are limited in the resources at their disposal. In its State of Small Business Britain report, the ERC identified several factors that may prevent SMEs committing to net zero goals. And among these, lack of information on low carbon technology is a key constraint for small firms. Other barriers relate to the lack of relevant skills, cost of meeting regulations or standards and uncertain demand for low carbon products. At the same time, evidence shows an overall positive environmental attitude of business owners and managers with little preventing them to engage more. Helping small business leaders like yourself to navigate in this space should be a priority for policy makers and support organisations.

Signing up to the United Nation’s ‘Race to Zero’ campaign is a clear message that the UK Government, and more than half of the FTSE 100 companies are now committed to eliminating their carbon emissions by 2050. So, what is the message for small business leaders? Alongside continued commitment to the Race to Zero from the public and private sector, we need simple practical guidance about how small business leaders can plan their journey to net zero. The mantra ‘just one thing’ is a useful one to push as it can lead to quick and easy wins and encourage a changing mindset.

Offsetting CO2 emissions should not be the first port of call; changing the way things are done is preferable for a truly embedded approach. A more proactive set of actions can provide a greater return for the sector as customers recognise genuine environmental credentials and reward them accordingly with, for example, preferential positions in supply chains. These might include a switch to zero carbon energy suppliers, adopting a ‘zero to landfill’ policy for the business and reviewing the business model to minimise the ‘final mile’. The increasing adoption of ESG principles aligned to the UN’s Sustainable Development Goals by many large organisations can provide small firms with opportunities as suppliers if they start or accelerate their journey to net zero.

However, eventually we need to help small business leaders develop sustainable and agile businesses that can respond to the opportunities a net zero strategy can offer.  It is our experience that the best way to do this is through dedicated SME business support programmes that have a ‘zero carbon journey’ as one of their core objectives. The UK Government’s new Help to Grow: Management programme is one such example. You will remember that in Modules 1 and 2 you were introduced to the United Nation’s Sustainable Development Goals (SDGs) and the importance of developing a digital strategy for your business.  You will also remember that in the final case study module of the programme you saw the actions that Gymshark were taking in their commitment to ‘net zero’.  These actions include:

1. Switch to Zero carbon energy suppliers

2. Begin to implement processes to use recycled fibres within products where possible

3. Go ‘Zero-to-Landfill’ from Gymshark HQ in Solihull

4. Extend the lifecycle of all Gymshark products

5. Review the Gymshark business model to minimise the ‘final mile’

6. Offset all other CO2 emissions

Now it’s over to you……..