Smaller businesses responsible for around half of all UK greenhouse gas emissions from businesses, British Business Bank research reveals

• Smaller businesses account for around half (50%) of UK business-driven emissions, the same proportion as larger businesses
• Awareness of net zero is becoming significant (at nearly 60%), although only around half of smaller businesses say decarbonisation or reducing environmental impacts is a near-term priority
• 35% of smaller businesses state cost as a barrier for reducing carbon emissions
• 11% of UK smaller businesses – equivalent to around 700,000 businesses – have accessed external finance to support net zero actions, and 22% say they are prepared to do so in the next five years

The British Business Bank reveals today that, based on its estimates, smaller businesses ^{Read footnote text 1}  account for almost a third (30%) of all current UK greenhouse gas emissions (including emissions from households, industry and government) and around half (50%) of total emissions from UK businesses. ^{Read footnote text 2}

Its latest research report, Smaller businesses and the transition to net zero, highlights the potential collective influence of UK smaller businesses and the considerable contribution they could make to wider net zero objectives if they all made changes to reduce their carbon footprint. The report, one of the most in-depth so far in this under-explored part of the market, incorporates results from fresh data via a bespoke, nationally representative survey of 1,200 smaller businesses, and analysis of public data sources.

Over three in four businesses (76%) are yet to implement comprehensive decarbonisation strategies, capabilities and actions, according to Bank estimates. One example of this is that just 3% of smaller businesses surveyed say they have measured their carbon footprint in the past five years and subsequently set an emissions reduction target.

The early stages of transition

There is limited proactivity from businesses to improve their own knowledge and capability, for example, with more than half (56%) in the survey saying they have taken no actions to change this.

However, when asked about physical actions, it is encouraging to see that the vast majority (94%) say they have taken at least one action to reduce their emissions, though they tended to be low-effort ones, such as installing a smart meter.

Overall, the most common motive for taking action, mentioned by just over half (51%) of businesses, was that it ‘made financial sense’, speaking to the need to align net zero and financial objectives for businesses in the transition.

The data reveals around half (52%) of smaller UK businesses fall within the ‘Carbon Complacent’ or ‘Carbon Exposed’ personas established by the Bank based on business characteristics, emissions intensity, actions and attitudes. Businesses falling under these personas are reactive or simply disengaged in their attitudes to cutting emissions and have ‘low carbon transition maturity’.

Awareness is mixed and attitudes split

More than half (57%) of smaller businesses have heard a lot, or a fair amount, about the government’s commitment to reach ‘net zero’ emissions by 2050, and the implications of climate change for their businesses (56%), establishing a strong base for further transition.

However, while nearly half (47%) of smaller businesses state reducing carbon emissions or environmental impacts is a high or very high priority over the next two years, 53% indicate they are not yet ready to prioritise decarbonisation. This split in attitudes demonstrates the need to raise awareness, balance the knowledge gap and ultimately help facilitate change.

Barriers are multiple, complex and business specific

The research found that smaller businesses identified more than twenty barriers preventing action on net zero, demonstrating the complexity in addressing the issues on a wide scale and the need for tailored approaches.

Some common themes have emerged, however – more than a third (35%) of smaller businesses cited costs as a barrier for reducing carbon emissions, particularly upfront capital costs (21%), followed by feasibility (32%), such as lack of control due to tenancy agreements or lack of an appropriate technology. Over one in ten (12%) said that lack of information was preventing them from action.

Finance as an enabler to net zero transition

So far, 11% of the smaller business population – equating to around 700,000 businesses in the UK – have accessed external finance, in the form of loans or equity, to support net zero actions. Looking forward, 22% of the UK smaller business population (equivalent to around 1.3 million businesses ^{Read footnote text 3} ) – say they are prepared to access external finance to support net zero actions in the next five years.

Catherine Lewis La Torre, CEO, British Business Bank commented: “Smaller businesses will generally have lower individual carbon footprints than their larger counterparts, but by broadening their vision and committing to action they can collectively produce a significant overall impact.

“Action to mitigate the impacts of climate change is at tipping point, and it is crucial for smaller business owners to feel empowered, informed and supported in making the relevant steps to decarbonising their business if the UK is going to meet its wider net zero objectives by 2050.

“More than half of smaller businesses say they’re not ready to prioritise decarbonisation, so clearly more needs to be done.

“The Bank continues to strive to bridge the knowledge gap and work with its partners to improve smaller businesses’ access to the right finance to help them transition to net zero. We hope this report encourages business owners to review their business model, consider where changes can be made and to make the necessary investments to secure a sustainable future for their businesses.”

Small Business Minister Paul Scully said: “Small businesses need to be front and centre in our national effort to reduce emissions, which is why we’re working closely with the government’s British Business Bank to bake our top priority of reducing carbon emissions into the business finance pie.

“We launched our ground-breaking Net Zero Strategy this week and in the run-up to COP26 in Glasgow next month, we are pulling every lever we can to get every part of the UK’s business community on board with the vital need to reduce emissions and build back greener.”

Revised Business Bank mission

The UK has a target to bring all greenhouse gas emissions to net zero by 2050. Supporting this, the Bank has a revised mission to drive sustainable growth and prosperity across the UK, and to enable the transition to a net zero economy, by improving access to finance for smaller businesses.

Tackling climate change is the great challenge of our age and the British Business Bank will step up to play its part. We will use the findings of the report we have published today to help shape our plans to support smaller businesses transition to net zero, and we will set out our next steps shortly.

Supporting smaller businesses on their transition to net zero

Smaller businesses are well placed to respond to the opportunities, as well as the challenges of the transition to a net zero economy. The British Business Bank is already supporting smaller businesses in finding the right finance for their transition to net zero, as well as providing funding to businesses that are tackling environmental issues more directly.

Simon Hombersley, CEO, Xampla said: “Reaching carbon neutrality is going to involve disrupting some very big businesses, and the best people to disrupt big businesses are small businesses. Large companies don’t innovate in the way that a start-up can, so that’s how small businesses are going to change the world.”

Shalom Lloyd, Founder and Managing Director, Naturally Tribal, said: “Small businesses are nimble, they’re agile. They can make change very, very quickly, so the support we give small businesses to help reach the net zero target is very critical”

Brendan O’Toole, CEO, Dynamo Motor Company, said; “We are extremely passionate about creating a product that is environmentally friendly and meets the needs of both the drivers and passengers.”

Jake Crute, Founding Director, PlantKind, said: “Small businesses really can make a big difference, and they should focus on the changes they can make now that will produce a longer-term impact. PlantKind products use no plastic, the greenhouse for growing my plants is built entirely from reclaimed materials and they are watered using an underground water tank that collects rainwater. I also donate 1.5% of revenue to offset carbon and am working to achieve B Corp status.”

Sarah Ellerby, Chief Executive, Nova Pangaea, said: “The UK has an opportunity to lead the drive to net zero, specifically for sustainable aviation fuel (SAF). In order to deliver on this net zero target, we will need to lean on smaller scale companies with disruptive technologies to accelerate innovation. This will require significant investment and alignment of finance and stakeholders to deliver this aspirational target.”

James Cleave, CFO at Everflow Group, said: “At Everflow we’re piloting innovative ways of reducing water use and helping businesses to understand how water efficiency plays a part in achieving net zero, with 6% of UK carbon emissions being linked to water use – this includes both treatment and transportation of water and wastewater, as well as heating water. Per capita consumption has doubled since the 1960s. We try a lot of things out on ourselves and ultimately aim to reduce our environmental footprint to neutral or better.”

Methodology

The research was mainly based on a bespoke, nationally representative survey comprising 1,200 interviews conducted between 3 August and 3 September 2021, using computer-assisted telephone interviewing (CATI) and based on a sample purchased from a commercial business database. The interviews had an average length of 27 minutes per business. The survey fieldwork was carried out by Ipsos MORI on behalf of the British Business Bank.

The survey targeted small and medium-sized businesses, defined as businesses having 0 to 249 employees, based in the UK. Quotas were set by employment size, sector and region to secure a representative pool of responses.

The representativeness of the results was further ensured by weighting the data to reflect the 2020 SME business profile (in terms of size, sector and region) from the Business Population Estimates 2020, published by the department for Business, Energy and Industrial Strategy.

The survey data is complemented in the research by an analysis of emissions and business data from public sources including the Office for National Statistics and the Department for Business, Energy and Industrial Strategy, These sources were used to estimate the share of UK greenhouse gas emissions accounted for by smaller businesses.

Survey results are reported directly in the research, and, where relevant, used in combination with analytical frameworks developed by the British Business Bank with specialist input from external research partners.

The Smaller businesses and the transition to net zero report is available to download on the Smaller businesses and the transition to net zero report page.

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  All references of smaller businesses refer to small and medium-sized businesses, defined as businesses having 0 to 249 employees, based in the UK.

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  Estimates based on Bank analysis of emissions and business data from public sources including the Office for National Statistics and the Department for Business, Energy and Industrial Strategy,

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  Central estimates shown. Estimates are, respectively, within a range between 600,000 and 800,000, and 1.1 million and 1.5 million. Extrapolated from the Business Population Estimates 2020, published by the Department for Business, Energy and Industrial Strategy.