The rising cost of doing business is proving to be a major hindrance for small and medium-sized enterprises (SMEs) in the UK when it comes to adopting environmentally friendly practices, according to new research.
With core inflation rates currently at 6.8%, the highest in 31 years, the increased costs are causing SME owners to delay their plans of going green. A recent analysis conducted by iwoca, Europe’s largest small business lender, reveals that businesses across the country are struggling to prioritize measures aimed at reducing their carbon footprint.
Oxford Economics’ research further highlights the significant impact of SMEs on the UK’s non-household carbon emissions, contributing to as much as 44% of it, with an estimated 160 million tonnes of greenhouse gases emitted.
The main obstacle hindering the adoption of green practices by SMEs is the cost involved. Over 42% of SMEs surveyed stated that the rising cost of doing business has made going green less important. Additionally, 54% believe that while green issues are important, they cannot come at the expense of running their businesses.
The top three reasons cited by small and medium-sized companies for not going green all revolve around cost, with 32% attributing it to unaffordable expenses associated with being an environmentally friendly business. A quarter of SMEs (26%) feel that the lack of government support and grants is the biggest barrier, while nearly a fifth (19%) believe it’s due to a lack of tax incentives.
Despite the cost challenges, SME owners acknowledge the importance of reducing their carbon footprint. Approximately 61% believe that small companies should prioritize efforts to reduce their carbon emissions, and over 53% predict that their own businesses will become more environmentally friendly within the next five years.
In a notable move, iwoca, the research’s sponsor, has become a carbon-neutral business in 2023 following an independent audit of its operations. The company has published its first sustainability strategy and is actively funding renewable energy projects worldwide to offset its carbon emissions. iwoca has also observed a growing trend of businesses across Europe applying for loans specifically to make their operations more eco-friendly and reduce their environmental impact.
Alex Sheard, Product Manager at iwoca and part of the company’s environmental task force, emphasized the challenges faced by SMEs, stating, “This research couldn’t be clearer – SMEs want to go green and understand its importance, but the current economic environment is a significant inhibiting factor. To meet the UK’s net-zero targets, we must not overlook SMEs, which account for 99.9% of the business population and generate over 40% of the UK’s non-household carbon emissions. Going green appears to be a considerable operational challenge for SMEs, and access to capital is crucial in addressing this.”
Brian Mair, Managing Director of Nudge Education, a Newcastle-based provider of specialist support to at-risk children and young people, highlighted their focus on making the company greener in the coming year. Mair stated, “As we’ve expanded our business with operations nationwide, we’ve become acutely aware of our environmental impact. The nature of our work means our staff drive to schools and communities every day to deliver one-on-one sessions with young people, resulting in a larger carbon footprint. While we have implemented an e-bike scheme for our staff, some green policies have been challenging to implement. When we inquire about electric car hire or car-sharing options with leasing companies, the costs quoted to us as an SME have made it unfeasible. Making our business more environmentally friendly is of utmost importance, but it cannot come at any cost.”
The findings of the research shed light on the significant obstacles faced by SMEs in their efforts to embrace sustainability. Overcoming financial barriers and providing support in the form of grants and tax incentives could play a vital role in encouraging SMEs to prioritize eco-friendly practices. As the UK strives to achieve its net-zero targets, it is crucial that the unique challenges faced by SMEs are addressed to ensure a more sustainable future.