Small firms are keen to spend more on reducing their carbon emissions, but the pace of progress remains underwhelming. What is the barrier stopping businesses from investing and how can they overcome it?

Why small firms are struggling to ramp up net zero investment

The results of two recent studies provide a clear answer to why smaller firms are struggling to ramp up net-zero investment.

Research from the latest Lloyds Net Zero Monitor found that while over 90% of SMEs in its survey believe sustainability challenges are important, with over three quarters signalling that the subject had grown in importance over the last 12 months, almost a half cited insufficient budget and high costs as the major barriers to investment.

New figures from the SME Climate Hub paint a similar picture. According to the initiative’s annual survey, 80% of the SMEs polled believe that reducing emission is the right thing to do, with almost two thirds stating that climate action would be a key differentiator. However, nearly three quarters cited a lack of available funds as the reason why they are unable to take action or accelerate plans.

The findings are hardly a surprise. The small business sector is under enormous pressure, thanks to Brexit failures, the impact of the war in Ukraine and government financial mismanagement. High inflation and rising interest rates are leading the assault on borrowing and spending power, with small businesses feeling the hit as they fight to safeguard cash flow and protect their capital base.

Net zero planning and how alternative finance can help

Investment in reducing carbon emissions is clearly important and small businesses have a key role to play in achieving net zero targets, but given market conditions, it is understandable that many firms may not feel confident to invest. This is where alternative finance can help.

In the wake of prolonged caution from traditional lenders, which is an issue that has returned during the pandemic and amid challenging post-COVID-19 market conditions, services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses.

These facilities, which offer a more easily accessible and personalised approach to lending, are helping small businesses survive and target recovery, stability and growth. Notably, alternative lending played a prominent role in the government’s headline emergency support schemes in 2022. This profile has helped cement the reputation of alternative finance in the business sector, with a recent study showing that more than 50% of small businesses are looking to use finance to achieve growth in 2023.

Climate action and small business finance options

It is not a shock to learn that net zero investment is one of the top challenges for SMEs in 2023 – there is a clear urgency about reducing carbon emissions, but such is the state of the market, upping investment is too risky for many. Nevertheless, changes have to happen. This is why it is vital that businesses are aware of all the funding 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.