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SME climate focus falls due to pandemic

NatWest’s Sustainable Business Tracker highlights divergence in climate focus between SMEs and large firms.

SME sustainability plans have been negatively impacted by the need to make further progress on recovery from the pandemic. Survey data highlighted that UK SMEs have reduced their focus on sustainability action in comparison to the levels seen prior to the pandemic. This is in despite of green policies boosting recovery and growth, such as lower prices and greater efficiencies.

By contrast, large companies reported a considerable increase in their prioritisation of sustainability action in 2022, which extended the gap between plans among smaller businesses.

Turning to what has the biggest influence on SMEs’ efforts to improve environmental sustainability, customer expectations was the highest ranked influence, followed by government legislation. Overall, motivation to pursue sustainability plans remained much higher at large firms (51% versus 35% for SMEs). Customers are clearly buying from greener businesses and SMEs need to take this on board to safeguard their businesses long-term.

SMEs also faced rapid increases in expenses, which in turn drove an unprecedented rise in selling prices during December. Nevertheless, firms remain highly optimistic about 2022 growth prospects, with confidence holding steady despite sharply rising COVID-19 cases. Furthermore, employment at SMEs increased at a faster rate than that seen for large companies.

On average, around 41% of SMEs stated that sustainability action was a high priority in the next 12 months, down from 44% in February 2020. This compared with 60% of large companies, up from 57% prior to the pandemic.

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

“It’s been a challenging 18 months for UK SMEs, and not surprising therefore that the climate agenda has slipped back on the agenda for some small businesses. But it’s important that SMEs know that sustainability measures can boost their recovery, and even fuel their growth, for example through increasing efficiency, lowering energy bills and by future proofing their operations.

NatWest’s Springboard to Sustainability report, published in October 2021, found that 50% of the UK’s carbon reduction ambition can be delivered by the SME sector. This could also unlock a £160 billion opportunity for them. Sustainability, recovery and growth go hand-in-hand and SMEs need to be supported to know how to make the most of the opportunities that lie ahead.”

Download the NatWest Sustainable Business Tracker.