On the eve of COP26, attention is firmly focused on the climate challenge and the need for action by governments, big business, and households. Yet there will be no transition to net zero without small and medium sized enterprises (SMEs).
Why would small business leaders adopt net zero practices?
Many SMEs are still reluctant to transition to green business models: 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.
Increasingly, environmentally aware consumers are demanding low carbon products and services. If business is up to the challenge of meeting this new demand – it will thrive. 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. With a new breed of entrepreneurs starting out with green models and technologies, established entrepreneurs cannot afford to stand still.
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 them on their 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 pin-point 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 size and ability to pivot more quickly than larger firms.
What are SMEs already doing to contribute to the net zero agenda?
Despite the many difficulties since the start of 2020, many UK SMEs are engaged with the net zero agenda. And they do it in different ways depending on the particularities of business and industry. For example, 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.
Aligning the digital and green transitions
In the current digital era small businesses are also encouraged to digitalise processes to reap efficiency and productivity benefits. Another 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 the firm’s reputation.
Removing barriers to adoption?
Small businesses are limited in the resources at their disposal. Several factors 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 businesses to navigate in this space should be a priority for policy makers and support organisations.
Developing a net zero strategy for small firms
So, as COP26 gets down to business in Glasgow, what is the message we can give to small business leaders? Signing the ‘Race to Zero’ pledge in the UK is part of that message but alongside we need simple practical guidance about how they 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 and changing the way things are done is preferable for a truly embedded approach. A more proactive set of actions can provide a greater return to the firm as customers recognise their 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 has a ‘zero carbon journey’ as one of their core objectives. The UK Government’s new Help to Grow: Management programme is one such example.
For more information on the green transition for SMEs, check out the OECD’s latest paper No Net Zero without SMEs, and our new Platform to Promote Financing SMEs for Sustainability.
Mark Hart is Professor of Small Business and Entrepreneurship at Aston Business School, Associate Director of the Aston Centre for Growth and Deputy Director of the national Enterprise Research Centre (www.enterpriseresearch.ac.uk). He leads on business growth and productivity research to understand the dynamics of the private sector over time and the role of SMEs as well as contributing to the work on growth ambition and access to finance. He is one of the Academic Leads for the national Goldman Sachs 10,000 Small Businesses programme and a member of the Expert Advisory Council for the Government’s new Help to Grow: Management programme for small businesses across the UK.
Anastasia Ri is a Research Fellow at Enterprise Research Centre, Aston Business School. She is an applied economist with expertise in financial and economic development and efficiency and productivity analysis. Having joined ERC in 2018 and recently become a member of the GEM (Global Entrepreneurship Monitor) UK team, Anastasia’s current focus is small business economics and entrepreneurship investigating firms’ digital and net zero transformation, as well as entrepreneurial attitudes and aspirations.
Dr Effie Kesidou is an Associate Professor in Applied Economics at Leeds University Business School, a Senior Research Fellow at Enterprise Research Centre, Warwick Business School, and a Visiting Scholar at School of Sustainability, Arizona State University. Her research is interdisciplinary and uses applied economic methods to understand how businesses and regions can become more sustainable.