The contribution of small businesses to achieving national net zero targets is critical. But the sector is struggling to invest in decarbonisation, putting wider environmental ambitions at risk. So, how can these under-pressure firms up spending in this area?

Worrying trend in SME climate action revealed

Small companies represent a significant portion of the country’s business base, which makes their investment in sustainability integral to national climate goals. However, new data from NatWest bank show that they are having a hard time taking this step.

According to the latest NatWest PMI survey, the prioritisation of climate action has fallen to its lowest point in over three years, with only a third of SMEs intending to take action in the next year. While the decline may prove to be a short-lived dip, it is clear that small firms are finding it difficult to increase investment in sustainability despite the urgency surrounding the issue.

Notably, this reduction in prioritisation comes at a time when awareness of the importance of decarbonisation is growing. According to a new report from Lloyds, 95% of SMEs are now aware of the government’s 2050 Net Zero target.

What is behind the struggle to invest in net zero?

What is causing the disconnect between awareness and action? While education around sustainability is certainly a factor, cost is the key barrier. Tellingly, almost two thirds of SMEs are increasing recycling and reducing waste – it is no coincidence that this is arguably the cheapest climate action to take. Actions such as sourcing renewable energy and switching to electric fleets come with a much larger price tag.

And, of course, small businesses are currently facing unprecedented financial headwinds – not least in the shape of the rising cost of energy, materials and labour. Firms are being hit hard by the brutal combination of the legacy of Covid-19, the war in Ukraine and Brexit.

SME net zero investment and alternative finance help

How can SMEs increase spending on climate action at a time when margins are being squeezed dangerously thin and accessing finance is becoming increasingly difficult? Alternative finance can help.

Services such as invoice finance, asset finance and peer-to-peer lending are proving a vital source of capital for small businesses in a funding climate characterised by prolonged caution from traditional lenders. Indeed, the issue has returned amid highly challenging post-Covid-19 market conditions, with bank loans to SMEs falling by £14 billion in the year to March 2023.

These alternative finance facilities, which offer a more easily accessible, affordable 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.

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 SME finance options

If SMEs are going to turn awareness into action on the scale needed to help make sure the country achieves its net zero goals, spending has to increase. In the current climate, this is a big ask. And this is why it is vital that small business owners 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 Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk.