Overlay

SMEs turn focus to clean energy

NatWest’s latest PMI report outlines where SMEs need help to boost their sustainability.

As the world’s climate summit draws to a conclusion, NatWest’s UK Sustainability Purchasing Managers Index (PMI) report reveals that the nation’s businesses are committed to going green, but need more help to deliver on their environmental ambitions.

New data shows that the majority of UK firms say action on recycling (52%) remains a high priority over the next year. But this has slipped over the course of the pandemic from 63% in February 2020. The drop in sentiment largely reflects the difficulty of identifying new opportunities for increased recycling, as UK businesses noted that this is complicated and resource intensive.

Low carbon energy consumption has become an increasing priority for manufacturing companies, with the percentage rising to 48% from 40% in February 2020. There has also been a positive trend in around 35% of service sector businesses considering monitoring supply chain sustainability as a high priority, up from 32% before the pandemic.

The recovery from the pandemic has diverted some focus away from sustainable product launches, with the number dropping from 28% to 25% in September. With 30% of UK carbon emissions coming from SMEs this sector would particularly benefit from help to ensure competing demands don’t take away from potential environmental progress.

The report also found that customer expectations are the biggest reason for action on environmental sustainability (51%), followed by company image and reputational risks (46%). Four-in-five UK households (81%) say it is important to align their spending habits with net zero goals with increased recycling being the top priority for them (83% of UK households).

The research, conducted by IHS Markit, surveyed the actions planned by UK businesses to improve their environmental sustainability over the next 12 months. These findings are based on a survey panel of approximately 1,300 manufacturers and service providers. Results from September 2021 are compared against those seen prior to the pandemic.

The findings show that UK businesses and consumers are prioritising sustainability, but support is needed to give business the boost it needs to realise its climate goals. NatWest’s Springboard to Sustainability report, published in October, found that half the UK’s carbon reduction ambition can be delivered by the country’s SME sector. There is also a £160 billion revenue opportunity for SMEs thanks to the drive to tackle climate change. 

NatWest found that SMEs need specific help to boost their sustainability and outlined these opportunities in the report: 

  1. Funding access: SMEs require financing options that reflect the societal benefit of delivering climate action to ensure that business initiatives make financial sense
  2. Awareness: SMEs need support to recognise the strengthening opportunity from climate action. This support needs to be applied to their specific business context and should highlight the key skills required to transition successfully
  3. Knowledge: SMEs need help to improve their climate action knowledge, specifically (i) their ability to measure and report climate impact in line with the range of standards and rulebooks that exist, and (ii) sector-specific knowledge on how to reduce their impact – for example, through new farming practices or heat pump installations
  4. Skills and capabilities: SMEs need support to develop new skills to deliver a business transition, including re- training and upskilling employees
  5. Market access: SMEs looking to unlock broader climate action need improved financial certainty of the benefits of doing so. For example, regulation can help to ensure that roll-out rates for infrastructure like electric vehicle charge points identified by the Climate Change Committee are achieved, or to reduce the costs of the transition
  6. Navigation: SMEs need support to navigate the complex and evolving landscape, including prioritising different opportunities, understanding what support is available, and, ultimately, realising the benefit to their business

Andrew Harrison, Head of Business Banking for NatWest Group, said:

‘As all eyes are on Glasgow, it’s great to see that British business is prioritising going green, driven by households’ increasing demands for sustainability. As we see priorities for recycling and sustainable products decrease, we know that SMEs need help to realise their environmental goals. 

‘The opportunity is huge, with the country’s SME sector able to deliver half the UK’s carbon reduction ambition. SMEs need to move from the periphery to the centre of the climate debate and Government and banks need to help. At NatWest we are playing our role, and continue to focus on advice, education, coaching and products that can help them contribute to cutting the UK’s carbon emissions by half.’

Claire Walker, Co-Executive Director of the British Chambers of Commerce, said: 

“Business has a key role to play in tackling climate change by creating greener technologies, producing them and adopting them. It sounds simple but there are many moving parts in shifting an entire economy to a greener future. The BCC’s own research shows there is a real danger that smaller businesses will get left behind on the road to net zero unless politicians, financial institutions and business leaders come together to galvanise action. 

“The steps a High Street hairdresser must take to get to net zero will be very different to those needed for a farmer or those of a component manufacturer. We must find ways to help all businesses, especially smaller firms, which are worried about extra costs, red tape and the longevity of new green technology and practices.”

Fran Nicol, Owner of Fierce Properties in Stirling, Scotland comments: 

“As a relatively young business, it’s difficult to put our ambition to be greener into practice. We could definitely benefit from access to expertise and funding to get us on track to achieving these goals and contributing to the global net zero carbon agenda.

“On the face of it some changes seem simple – like switching to EVs – but the financial support and infrastructure is not always in place or simple to acquire. The challenges to be faced before even considering such transport choice seem to be difficult, confusing, and financially draining for a small business owner.

“We’re very environmentally conscious and have done as much as we can but feel we could do more, we now just need the right support.”

Download the NatWest UK Sustainability Purchasing Managers Index (PMI) (PDF 1.6MB)