The most recent quarterly edition of NatWest’s Sustainable Business Tracker has revealed that UK SMEs have shown a decline in business activity during September, with the NatWest SME PMI® Business Activity Index[i] registering a reduction in SME output volume from 48.1 in August, to 47.3 in September, making this the sharpest decline since October 2022.
In January this year, the Q1 2023 edition of the tracker suggested that Inflation was set to impact progress on sustainability[ii] with 68% of UK SMEs saying that greater operating expenses are likely to hamper progress towards sustainability, with this reported most often by those in the manufacturing sector[iii]. However, the latest data from the Q3 2023 edition finds that this hasn’t come to fruition. In fact, the most recent data revealed a slight increase in the number of SMEs prioritising environmental sustainability actions in the coming 12 months, up to 36%, compared with 35% last quarter, marking the first uptick since Q2 2022[iv]. It is worth noting however that this figure is still much lower than the 43% reported in June 2022 before the cost of living crisis hit[v].
Further, the long-term outlook for SMEs looks positive, with reports of marginal overall employment gains alongside upbeat business activity expectations for the year ahead. NatWest notes that this reflected confidence around long-term growth opportunities, new product launches, and hopes of a further slowdown in cost inflation.
Looking more specifically at the sustainability intentions of SMEs, when asked to state which actions (if any) their business would be prioritising to improve environmental sustainability in the next 12 months, two of the five actions showed an uptick in the proportion of firms planning to undertake them. According to NatWest, the largest increase was recorded for low carbon energy consumption, up 3 percentage points on last quarter, with many SMEs citing net zero goals and investing in green energy alternatives (notably solar). Further, an increasing number of SMEs (44%) stated their intent to invest in cleaner business processes, such as switching to EVs (electric vehicles). Concerningly, the action of monitoring supply chain sustainability saw a decline in priority, with SMEs stating difficulty obtaining information on sustainability from their suppliers as an influence on this.
In a special feature in the Q3 tracker, NatWest also asked SMEs questions around their long-term sustainability intentions, in terms of priorities over the next 5 years. It revealed that the most popular business action is improving energy efficiency- likely an ongoing effect of the recent fears around energy security and price volatility. 62% of SMEs expect to have improved their energy efficiency by 2028. Sebastian Burnside, NatWest Group Chief Economist, said:
“After a year of volatile energy prices, it’s understandable that most SMEs are putting energy efficiency at the top of their list of priorities for the next five years, which could help to reduce their utility bills and give them a competitive edge.”[vi]
Other actions being taken by SMEs were switching to greener travel options (49%) and reporting on carbon emissions and environmental impact (48%). Actions which were seen as less popular included obtaining ESG credentials, which ranked last, with just 23% of SMEs expecting to invest in the next five years, followed closely by offsetting carbon emissions (24%).
[ii] UK SMEs blame rising business costs as the greatest obstacle to increased sustainability in 2023, but those on the road to net zero say they are chasing more than financial benefits (zerocarbonacademy.com)
Lauren has extensive experience as an analyst and market researcher in the digital technology and travel sectors. She has a background in researching and forecasting emerging technologies, with a particular passion for the Videogames and eSports industries. She joined the Critical Information Group as Head of Reports and Market Research at GRC World Forums, and leads the content and data research team at the Zero Carbon Academy. “What drew me to the academy is the opportunity to add content and commentary around sustainability across a wealth of industries and sectors.”