SMEs and Net Zero: how can we break the cycle of inaction?
In 2019 the UK Government set the goal of achieving Net Zero – where the amount of greenhouse gas emissions produced are equal to or less than the amount removed from the atmosphere – by 2050. This is a commitment that will impact on all businesses, including the more than 5.9 million of firms in the UK that are Small and Medium-sized Enterprises (SMEs), and which are jointly responsible for an estimated 43 to 55% of the UK’s business greenhouse gas emissions[1]. SMEs clearly have the potential to significantly contribute to the UK’s Net Zero goal, but evidence has previously identified an ‘attitude to action gap’ based on cost constraints and information and skill requirements[2], which means that even those that are willing to take action struggle to do so.
Overcoming these barriers will be essential to bridging the gap between their environmental attitudes and actions. However, the latest research by the Enterprise Research Centre in collaboration with business support organisation WENTA suggests that this agenda is further complicated by the competing goals that SMEs must navigate in today’s complex environment. Our new study involved listening to business leaders’ experiences of the net zero agenda, and it has revealed three key tensions that SME leaders experience in the face of competing business, societal and environmental goals. These tensions reflect the fact that SME leaders see competing goals as divergent and incompatible. Ultimately, this can constrain a business’s ability to make progress towards net zero goals. The tensions we identified are:
- Sustainability vs business goals: Many leaders are deeply committed to the net zero agenda and buy in to the importance of sustainability goals. But they are also committed to sustaining and growing their businesses, and they often feel that they must deprioritise sustainability goals in the face of pressing commercial goals.
- The investment required to adopt net zero practices vs the impact it can have: Many SME leaders believe that the significant investments required for net zero initiatives are an unfair burden for small businesses, and that their size means that they are in any case unlikely to make a material difference to emissions.
- Wanting to engage with net zero vs wanting to avoid accusations of greenwashing: For many SME leaders, the net zero agenda is fraught with such concerns, which seem to be borne out of the lack of clarity around what counts, and does not count, as a genuine sustainability practice. This deters many leaders from fully embracing the net zero agenda.
Taken together, these three tensions seem to provoke anxiety and frustration in SME leaders, who find themselves paralysed by the complexity of the situation. This can lead to firms becoming stuck in a cycle of inaction, or minimal action, when it comes to sustainability initiatives. What can policymakers and business support agencies do to help? Well, providing actionable information about net zero practices, including about what constitutes a genuine practice, may help to clarify the difference between true sustainability initiatives and those which count as greenwashing. This could help SMEs to be confident about their actions. Clear, robust data on the impacts that even small steps can make towards overall net zero goals would potentially address SME leaders’ worries that they are investing for little outcome. However, when it comes to the tension between business and green goals, the way forward is less clear. Perhaps, rather than seeing this as a binary choice, leaders will need support and help to learn to embrace the ambiguity and tension and to accept that both business and green goals matter – and that they need continually to strive to work towards both.
Maria Wishart
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
[1] British Business Bank (2021) Smaller businesses and the transition to net zero Available at: https://www.british-business-bank.co.uk/sites/g/files/sovrnj166/files/2023-03/J0026_Net_Zero_Report_AW.pdf
[2] Mole & Ri (2022) Actionable Information enables SMEs to Journey towards Net Zero Available at: https://www.enterpriseresearch.ac.uk/wp-content/uploads/2023/09/ERC-ResPap109-Actionable-Information-enables-SMEs-to-Journey-towards-Net-Zero-Mole-Ri.pdf
