UK SMEs facing inflationary pressures as we enter 2023
The latest quarterly edition of NatWest’s Sustainable Business Tracker has found that SMEs experienced a challenging end to 2022- business activity fell in the last half of the year amid shrinking demand and severe pressure on customer budgets from rising inflation.
Inflation looks set to impact the coming months, too- in the latest edition of the tracker, 68% of UK SMEs said that greater operating expenses are likely to hamper progress towards sustainability, with this reported most often by those in the manufacturing sector[i]. Yet, the percentage of SMEs (39%) intending to prioritise climate action over the next 12 months has remained unchanged since September, positive in the sense that whilst the UK has been gripped by the cost-of-living crisis for several months now, this figure has not fallen since Q3 22.
Looking at how businesses will approach sustainability for the coming year, 3 in 4 large companies reported low carbon energy consumption as a high priority for 2023. This saw respondents report investments in solar panels, battery storage and electric vehicles as their main focus in reducing their carbon footprint., as well as note their support for energy-saving schemes.
Separate study identifies driving factors behind SME race to net zero
Whilst cost is a hurdle for sustainability progress, it is not necessarily financial reasons driving change. When looking at the motivation for UK SMEs to move to net zero, the recently released 2022 SME Net Zero Monitor survey from Lloyds Bank discovered that businesses anticipate more than just financial benefits. Instead, waste reduction (38%) and protecting the environment for future generations are core motivators. For those SMEs who have already achieved net zero, the latter is found to be the top benefit. In total, the benefits that SMEs anticipate experiencing are:
- Waste reduction (38%)
- Protecting the natural environment for future generations (37%)
- Employee well-being and engagement, attracting new employees (27%)
- Cost savings (25%)
- Improved reputation, brand image, trust or credibility (25%)[ii]
Similarly to the NatWest Sustainable Business Tracker, the Lloyds study explored the challenges facing businesses, this time in relation to net zero. Well over two-thirds (72%) of survey respondents stated that energy and material costs had the biggest negative influence on their net-zero journey; this was followed by supply chain disruption (59%), whereby engagement on climate issues with suppliers is made far more challenging with disruption[iii]. In fact, 33% of respondents stated that they find collaborating to reduce emissions outside of their own operations challenging. Linked to spiralling inflation, the increase in interest rates was also named as a challenge, with 57% of survey respondents labelling this as a barrier to their net-zero journey[iv].
‘Net zero heroes’ assisting others on their journey
In terms of progress towards net zero, 7% said that they had achieved net zero emissions, whilst contrastingly, 5% said that they are not considering or taking any action towards reaching net zero emissions.
Figure 1: UK SME progress towards net zero
Source: Lloyds Bank
The bank notes that the journey to net zero is becoming a collaborative one- over half (56%) of surveyed SMEs said they are collaborating with other companies to drive change and reach Net Zero. Lloyds state that so-called ‘Net Zero Heroes’ (SMEs already at Net Zero) are: “important facilitators of this powerful collaborative experience amongst SMEs. Having progressed along the whole journey themselves, they have become its advocates and are powerful change agents. Their ability and enthusiasm for sharing their experiences and bringing others along the path to Net Zero with them, captures the imaginations of the SMEs that cross their paths.”
They find that Net Zero Heroes are enabling the Net Zero journey of other SMEs by:
- Advising customers and clients on the actions of their business with regards to sustainability / Net Zero (53%)
- Advising suppliers on the importance of sustainability and Net Zero (48%)
- Advising other businesses on the importance of sustainability and Net Zero (47%)
These findings are made all the more interesting given data from NatWest’s tracker, which found that UK businesses are in need of guidance on monitoring carbon emissions, with SMEs ranking difficulties measuring their carbon footprint (29%) as an important obstacle to future sustainability plans[v]. In addition, respondents commented on a lack of information about carbon emissions across their international supply chain, especially in relation to basic materials sourced from abroad.
The findings highlight the opportunities that collaboration can bring. At Zero Carbon Academy, we are creating a community where those at any stage of their net zero journey can come together to discuss their progress and challenges with like-minded individuals. Alongside this, our growing library of content and whitepapers is here to inform and provide insight into the rapidly changing net zero landscape. If you haven’t done so already, sign up to our newsletter for the latest insight straight to your inbox.
[i] SMEs holding back on climate action due to rising costs | NatWest Group
[ii] SME Net Zero Monitor | Sustainability | Lloyds Bank
[v] SMEs holding back on climate action due to rising costs | NatWest Group
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