Despite the offer of economic benefits and eco credentials, small firms are proving slow on the uptake when it comes to decarbonisation and net-zero planning. The big questions are, what is stopping them and how can they afford to invest in greater sustainability?

The status of small business net-zero activity

While ambition and optimism are not in short supply in the sector when it comes to reducing greenhouse gas emissions, recent studies show that many small firms have yet to fully embrace decarbonisation and net-zero goals.

According to new research from Start Up Loans, which is part of the British Business Bank, two thirds of micro-businesses have never sought information on reducing their carbon footprint, while 40% believe that reducing their emissions won’t make a difference to the impact of climate change.

A study from Lloyds Bank Business paints a similar picture, with 50% of the SMEs taking part in the research not knowing what the term “net zero” means and almost 80% either not having a strategy in place to reduce carbon emissions over the next three year or not sure of their plans in this area. Notably, only just over 10% said that they calculated their carbon footprint.

What is holding back SME decarbonisation action?

With urgency building ever greater in relation to climate change, after a summer of brutal heatwaves and damaging wildfires, there is a clear need for small businesses to accelerate their decarbonisation plans and increase their contribution to net-zero targets.

So, what is behind the heel dragging by some small firms? The major barriers are a lack of understanding, finance and time. Tellingly, the Start Up Loans survey revealed that 50% of firms find the language, terminology and information around sustainability inaccessible, with almost the same amount unsure about where to source information on the matter.

SME sustainability planning and how alternative finance can help

There is a clear need to introduce more eco-friendly policies and to overhaul more practices to accelerate decarbonisation, but doing so comes at a cost, in particular with regard to making structural changes, the sourcing of knowledge and the provision of training. And at the moment small firms have very little money to spare.

In order to finance sustainability strategies, under-pressure small businesses need access to capital and this is where alternative finance comes in.

In the wake of prolonged caution from traditional lenders, which is an issue that has returned during the pandemic and amid challenging market conditions in 2022, services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses, both for maintaining cashflow and for essential investment.

These facilities, which offer a more easily accessible and personalised approach to lending, are helping small businesses survive and target recovery and regrowth. Notably, alternative lending has played a prominent role in the government’s headline emergency support schemes, including the Recovery Loan Scheme. This profile has helped cement the reputation of alternative finance in the business sector.

Net-zero strategy development and SME finance options

Increasing investment in decarbonisation strategies right now is a hard ask for cash-strapped small firms, but with these companies representing such a large proportion of the overall business sector, their contribution to achieving net-zero targets is vital. Against this backdrop, it is essential that firms are aware of all the finance options available to them, including the services of alternative lenders.

To find out more about A&T Business Associates services, contact Tony Hedger on 01903 602211 or tony.hedger@atbusinessassociates.co.uk.