Over the course of the next 20 to 30 years there is set to be a radical shift in the way businesses operate in terms of sustainability; it is important to start net zero discussion with SME businesses sooner rather than later. Once an SME has begun its sustainability journey, it becomes more open to the positive benefits of sustainability for its business.
How to reduce emissions & costs
Most small businesses will be focused on energy costs at present as this is affecting cashflow and profits. Buildings account for approximately 40% of overall global CO2 emissions so this is a logical place to start. Energy efficiency has direct and visible impacts on cost reduction, with the impact being almost immediate.
Clients could consider the following measures:
- Installation of smart meters
- Switching to LED
- Migrating onsite servers to the cloud
- Installation of onsite renewables (solar panels on roofs, etc)
- Improvements to building fabric, ventilation etc
The added benefit of bringing energy costs down is that this is likely to result in progress in the longer term on the business reducing emissions.
The UK Energy Bill Relief Scheme (EBRS) is now only running until the end of March 2023.
Financial support for small businesses
There is a range of options available for SMEs to fund energy efficiency in their businesses such as:
Grants
These are usually small in size (eg £1-10k) an can be for feasibility studies or regional (eg SMEES Tees Valley, Low Carbon Workspaces, Business EE West Midlands etc), plug in grants for electric vehicles.
Green loans
For example: HSBC <£25,000, Natwest £25,000 - £10m with incentives eg 1% cashback.
Tax incentives
For example: first year enhanced capital allowances.
One of the challenges facing SMEs is that they may have limited appetite for taking on any more borrowing after, for example, availing covid-related loan schemes. This is where advisers can sit down with their clients and review their capacity for borrowing to support the journey to net zero.
What is net zero?
“Net zero means cutting greenhouse gas emissions to as close to zero as possible with any remaining emissions re-absorbed from the atmosphere, by oceans and forests, for instance.”
UN Net Zero Coalition
“Net zero refers to a state in which the greenhouse gases going into the atmosphere are balanced by removal out of the atmosphere”
Net Zero Climates, University of Oxford
Clients will need to reduce emissions as far as possible and then offset the remainder; this ratio will vary from industry to industry. The UK has committed to be being net zero by 2050.
Supporting your business clients to net zero
Business clients will require significant levels of support to help them dramatically reduce emissions over the course of a number of years, switch away from fossil fuels, from higher emissions technologies and when they reach the very end of residual emissions there is an option to offset.
The net zero effect on access to finance
The British Business Bank will start to tag companies and sectors based on whether they have sustainable businesses and whether their operations are likely to be profitable in the future. Companies with technologies that provide solutions to climate change are expected to prosper throughout the net zero process. Businesses will find it easier to get access to finance if they are in one of the net zero sectors.
If small businesses are unable to report on what their emissions plans are to be trading and profitable in the future, say up to 20 years’ time, we will start to see lenders increasingly deeming that as a risk, whether reputational or financial. This will make it challenging for them to access finance without having a net zero plan in place in addition to implementing reporting requirements that will come into force later down the line.
Smaller companies who form part of a supply chain to larger ones will be increasingly mandated to provide emissions data and reduction plans to retain their contracts. This in turn will affect their ability to obtain finance if their customers impose contractual pre-requisites, they are unable to meet.
Further resources
- ICAEW Sustainability and Climate Change Hub
- Find business energy efficiency grants and schemes - Ofgem
- Advice for businesses and local authorities - Energy Saving Trust
- SME guide to financing energy efficiency projects - Carbon Trust
- SMEs and energy efficiency - Carbon Trust
- Energy efficiency and tax relief for businesses - Carbon Literacy Project
- SME Energy Efficiency Scheme (SMEES) - GOV.UK
- Energy efficiency: what you need to know - GOV.UK