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The top three challenges businesses face to get to Net Zero

Small and medium-sized businesses need urgent support to meet the demands of the climate crisis, or risk being left behind in the carbon economy.

Glenn Bemment
Head of ESG (Sustainability and Regionalisation),
23 November 2021
6 min read

 

Right now, the climate crisis is the single biggest emergency we face.  Yet at the time of writing, it’s only large businesses that are legally required to report their CO2 output in line with the UK Government’s 2050 Net Zero emissions target.1

But the fact is, without the efforts of small and medium-sized enterprises (SMEs) – which make up 99.9% of the UK’s business population – the UK will fall short of reducing its carbon footprint. 

It’s vital that SMEs get the knowledge and financial support they need to kick-start their own journeys to Net Zero. 

All of this starts with identifying where SMEs are struggling, the immediate challenges they face, and working alongside them to fill those gaps – with clear, relevant information and financial support when they need it.

Our new report, From Now to Net Zero (PDF, 4.4MB), sets out the key opportunities and challenges for SMEs, and includes a simple five-step guide to help businesses understand where they are now and what their pathway to Net Zero looks like with practical support for each step of the journey towards a low carbon economy. 

The comprehensive research behind the report includes a survey with over 1,000 SME businesses and in-depth interviews with business owners, sustainability experts and our own clients and relationship managers. 

 

 

 

From Now to Net Zero


The report highlights the key opportunities and challenges for SMEs, and includes a simple 5-step guide to help businesses understand where they are now and what their pathway to Net Zero looks like with practical support for each step of the journey towards a low carbon economy. 

Read interactive report Opens in new tab (PDF, 4.4MB)

 

Why is it important that SMEs reach Net Zero by 2050?

Put simply, the transition to a green economy will require vast leaps in energy efficiency, renewable electricity generation and the creation of cutting-edge technologies. 

But for all the challenges these things will create for small businesses, there will also by huge opportunities for growth too. For example, up to 400,000 people already work in the green economy. And the UK Government will have to invest £1.4 trillion to reach Net Zero by 2050, according to estimates from The Climate Committee.2

 

Up to

400,000 people 

already work in the green economy
 

 

 

Research also shows that consumers will be more likely to buy from a green business. Indeed, a recent report from Deloitte found that 32% of shoppers are extremely driven to adopt a greener lifestyle.3 And as many as 28% have stopped buying from certain businesses altogether due to their sustainability practices. 

The sooner small businesses prepare, the better. 

The From Now to Net Zero (PDF, 4.4MB) report covers some of the challenges and opportunities SME’s face, plus highlights practical steps they can take on their way to decarbonisation whatever part of the journey they’re currently on. 

According to our research the top three barriers to working towards Net Zero for SMEs are:

1. Cost

Around 40% of the SMEs we surveyed for the report said that high costs and insufficient budget were major blockers to becoming Net Zero emitters. This isn’t surprising, though – especially given the economic uncertainty over the last 18 months.

Despite the predicted £3 billion worth of savings4 and considerable commercial gains on the table for enterprises who slash their carbon footprints, going green will require SMEs to spend money.

And the problem is for the thousands of SMEs still recovering from the Covid pandemic, any spare budget they have will, understandably, be used to restore and safeguard their business.

For some SMEs though this initial outlay will be relatively small. Changing to a 100% renewable energy supplier, for example, can significantly reduce emissions and can be cost effective. It’s these small, cumulative steps that can have a real impact on those same businesses carbon footprints. 

But for others at the start of their Net Zero journeys, a radical overhaul of infrastructure and business practices may be needed to reduce their carbon footprint. This could include moving to low-emissions company cars and an all-electric vehicle fleet, plus company-wide staff training to ensure Net Zero is a key priority for their organisation. 

For those businesses financial assistance will be key. Without such support, reaching Net Zero emissions will be a daunting task.

 

2. Supply chain emissions

Our research also revealed that 36% of small businesses have difficulty lowering emissions outside of their own operations. In other words, much of their carbon footprint comes from across their supply chains.

Although improving this is one of the quickest ways to cut down on harmful emissions, building a green supply chain isn’t always straightforward. 

This can take time, effort and resource. However, the benefits are clear. A green supply network comprising firms that make products in an environmentally friendly way will help SMEs reach Net Zero emissions quicker. Not only that, but smaller companies can learn from larger organisations, and vice versa.

It’s also worth mentioning that SMEs should consider their own place within the supply chain. According to figures from CDP, large organisations’ logistical networks account for 5.5 times greater emissions than their operational chain and make up the vast majority of their overall carbon footprint5.

In short, to remain competitive and ensure longevity small and medium-sized businesses must work closer with their supply chains to find greener solutions, sooner rather than later. 

"Our research also revealed that 36% of small businesses have difficulty lowering emissions outside of their own operations. In other words, much of their carbon footprint comes from within their supply chains."

3. Measuring impact

30% of SMEs said they found it difficult to measure their business’ environmental impact and performance. Currently, just one in ten UK SMEs are assessing their carbon emissions, according to a poll by O2 and the British Chambers of Commerce (BCC)6. 

Unsurprisingly those organisations that fail to record and reduce their emissions risk losing a competitive edge, and ultimately being left behind in the green economy. 

The good news is, there are many  market-leading carbon calculators out there that can help accurately measure carbon footprint – making it easier for SMEs to set clear, achievable goals on their road to Net Zero.

It’s clear that more must be done to ensure that the relevant tools are available to SMEs. Otherwise they’ll risk being left behind as the UK transitions to a greener economy.

To help with this, our sustainability hub is an excellent knowledge resource for small and large businesses alike, and includes access to practical solutions such as our Green Buildings Tool which helps our clients identify, evaluate and understand the impact of potential investments in a clear, simple way. 

And we have around 1,000 Relationship Managers, trained in sustainability from the Cambridge Institute of Sustainability Leadership, to provide specialist advice to businesses looking to transition to the low carbon economy.

What is Lloyds Banking Group doing to help SMEs reach net zero?

We’re putting sustainability at the heart of our organisation. 

  • So far, we’ve lent over £8.6 billion of total green finance for businesses to invest in sustainable business practices since 2016. 

But our commitment doesn’t end there…

  • To ensure our clients get the financial help they need to reach Net Zero, this year, we have expanded the funding available under our green finance initiatives from £3bn to £5bn.
  • In addition, we’re focused on those sectors that have the biggest impact. For example, we’ve assessed the energy retrofit requirements of around 240,000 UK homes in the social housing sector. 
  • We’ve also partnered with The Woodland Trust to plant 10 million trees over the next decade which could absorb as much 2.5 million tonnes of carbon dioxide.

These are just some of the commitments we’ve made to help tackle the climate crisis, and help businesses across the UK transition to, and thrive in, the green  economy.

 

About the author Glenn Bemment

Glenn Bemment, Head of ESG (Sustainability and Regionalisation), SME & Mid Corporate, Commercial Banking

Glenn is head of the LBG Commercial Banking Design Distribution team, the team responible for executing the strategic plans for SME & Mid Corporate Banking. With specific focus on Sustainability, Regionalisation, SME Productivity & Resilience and Race Action Plan.

Previously, Glenn was head of a corporate banking team which works with clients based across the north of England. The team provides the full range of banking services, including financing, payments, treasury and liquidity, and risk management. Glenn joined Lloyds Banking Group in 2012 after a 15 year career with HSBC. His previous role at the Bank was as Regional Director for Lloyds in the North West.

Glenn is a member of the Lloyds Ambassador Group for the north of England. He is also a Vice Chair of Governors and an FA qualified coach.

 

 

Glenn's background Read less

References 

1.  Streamlined Energy and Carbon Reporting (SECR) for academy trusts - GOV.UK (www.gov.uk)

2.  Seizing the green growth opportunity - Lloyds Banking Group plc

3. Sustainability & Consumer Behaviour 2021 | Deloitte UK

4. Why it's important for SMEs to be net zero | Funding Options

5. Changing the Chain - CDP

6. Just one in ten UK SMEs measuring their carbon emissions, survey finds (edie.net)

 

 

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