How Can SMEs Contribute to Net Zero?
When it comes to climate change, most attention is placed on the need for action by governments, big business, and individual householders. There are nearly 6 million small and medium-sized enterprises (SMEs) in the UK, employing 16.8 million people, yet they attract far less scrutiny for their contribution to greenhouse gas emissions, and tend to lag behind when it comes to taking action.
However, the last year has seen a significant increase in activity relating to climate change and SMEs. As a researcher and sustainability consultant specialising in SMEs, I have had more enquiries in the last 12 months than in the previous 5 years. In a recent paper ‘State of the Art’ review for the Enterprise Research Centre, my colleague Richard Blundel and I examine this trend, highlighting the latest research evidence, and outlining gaps in evidence and implications for policy.
Our review begins by outlining the myriad tools and approaches available to promote environmental activity in SMEs. These include those focused on organisations themselves, including energy audits, environmental management systems, carbon footprinting, and lifecycle analysis. We then cite interventions which are external to the firm such as government regulation, green accreditation schemes, sustainable sourcing, financial incentives, and carbon offset schemes. This all amounts to a cluttered landscape of tools available to SMEs, which can make it difficult for individual businesses to know where to start, and for policymakers to know where to direct their resources.
We draw out several key themes from an extensive literature devoted to identifying the ‘barriers’ and ‘drivers’ of pro-environmental action in SMEs (Table 1)
|Common barriers||Common drivers|
|Internal / intra-organisational-level||· Lack of awareness
· Lack of specialist knowledge / technical skills
· Limitations in absorptive capacity / organisational learning
· Competing priorities / lack of time
· Resource constraints
· Access to capital
· Short term tenancy agreements
· Lack of strategic alignment
|· Cost savings
· Risk mitigation
· Pro-environmental values
· Staff morale
|External / inter-organisational level||· Lack of trusted brokers / intermediaries
· Information deficit regarding opportunities
· Principal-agent / split-incentive problem
· Competitive advantage
· New market opportunities
· Corporate reputation
· Public subsidy
The barriers and drivers approach provides a convenient, structured way of analysing the challenges associated with reducing the environmental impact of SMEs, and has been influential with policymakers. However, our review points to criticisms of this approach, including the fact that most studies rely on self-reported surveys of SME owner-managers, who (for obvious reasons) consider external barriers more important than internal factors such as lack of awareness or insufficient motivation. Another criticism is that the barrier / driver framing assumes that pro-environmental behaviours can be unlocked if either barriers are removed, or incentives are put in place. However, as literature on sustainable enterprise attests, organisational decision-making is complex and interwoven with business cultures, individual values and market dynamics. ‘Going green’ involves a journey which will be unique to every business, and involves more than just removing barriers.
Evidence Gaps and Research Agenda
Increasing ambition from SMEs for pro-environmental action has exposed gaps in research evidence. These need to be filled in order to design and implement more effective SME-specific policy; and to develop clear, relevant guidance for climate action.
Our article finishes by outlining six key evidence gaps, and their policy implications. In particular, we call for:
- …better data on SME energy use and carbon emissions
- …evaluation of different models of business support provision
- …evidence on the influence of intermediaries and advisors
- …understanding the role of values in driving environmental action
- …research on the effects of COVID-19 on business sustainability and resilience
- …knowledge on potential of green business networks to effect change.
We also identify two cross-cutting research priorities. Firstly, there is a need for improved signposting, coordination and contextualisation of information and services, to help SMEs navigate through the cluttered landscape of initiatives, guides and projects. Secondly, while there is growing consensus around the need for a just transition, it is not yet clear how the transition to a zero-carbon economy can be made to be inclusive and equitable. The population of SMEs is highly diverse, and further research and policy intervention is needed to ensure that businesses owned by ethnic-minorities and women, rural-based SMEs and those affected most by COVID-19 do not lose out.
If the UK is to achieve its Net Zero ambitions over the next decade, the country’s 5.9 million SMEs will need to make major changes to their day-to-day business practices, and in many cases significant investments of time and resources over a relatively short timescale. The technologies and operational practices needed to facilitate these changes are mostly mature, available, and well-proven. I am passionate about sustainable business and am delighted to see so much enthusiasm from the SME community towards climate action. It is essential that we capitalise on this energy, and to do that we need coordinated leadership spanning the public, private and voluntary sectors.
Sam Hampton, Researcher , Environmental Change Institute at the University of Oxford
Please note that the views expressed in this blog belong to the individual blogger and do not represent the official view of the
Enterprise Research Centre, its Funders or Advisory Group.