UK SMEs are are paving the way for a greener future

Long ago, the retail industry started shifting toward more ecologically friendly manufacturing techniques. As a result, it is no longer necessary to break the bank in order to launch a new sustainable firm. Corporate responsibility and sustainability have become absolutely essential for small and medium-sized businesses, shaping the very fabric of our entrepreneurial world.

In today's society, every organisation carries an ethical and financial "duty" to promote a healthy environment and foster a robust local and national economy. The growth of businesses and communities depends on creating an atmosphere that embraces sustainability. Consequently, a diverse array of stakeholders, including financiers and consumers, are increasingly evaluating Small and Medium Enterprises (SMEs) based on their commitment to sustainability.

Fortunately for emerging businesses, an extraordinary market awaits those eager to showcase their green credentials. Consumers are no longer merely interested; they are clamouring for sustainable and environmentally conscious options. The recent pandemic has fueled society's desire for a more sustainable future, as highlighted by an Ipsos survey. An astonishing 86 per cent of 21,000 adults across 28 nations expressed their strong desire for a more environmentally friendly and fair world.

While public knowledge of climate change lags behind, global sea levels have begun rising at an alarming rate in the aftermath of the pandemic. This sobering reality has prompted individuals to seek solutions that combat climate change and adapt to inflation and rising energy and fuel prices. The "toolbox" for weathering these challenges now includes a genuine focus on resource efficiency. Consequently, investors are already lining up to support sustainable enterprises, leading to an unprecedented market for eco-friendly goods and services.

Consider this startling statistic for instance: each week, households in the UK discard a staggering 1.85 billion pieces of plastic, according to a report by Greenpeace. Despite tighter budgets due to the nation's economic situation, consumers are increasingly drawn to products made from eco-friendly materials. The fight against single-use plastics has ignited widespread awareness, and customers now seek alternatives that align with their values.

As the UK gears up for a net zero emissions target by 2050, businesses are facing a legal obligation to reduce their carbon footprint. This regulatory shift opens the door for environmentally conscious entrepreneurs to meet the rising demand with innovative B2B solutions. A new generation of forward-thinking individuals is poised to upend sectors, influence consumer tastes and contribute to a future that is more sustainable. Therefore, we will be delving into how UK SMEs are embracing sustainability as well as its importance to the nation.

What is sustainability?

Sustainable development aims to stop the depletion of natural resources and ensure their long-term availability. According to Investopedia, there are three pillars of sustainable development, including environment, economic and social, also known commonly as profits, the environment and people. The purpose of sustainable practice is to have a positive impact on at least one of the areas.

In that breakdown, Investopedia reveals the idea of "economic sustainability" focuses on protecting the natural resources, including both renewable and exhaustible inputs, that offer physical inputs for economic development. The basic idea of sustainability is doing more with less.

What is a sustainable business and why is it important for SMEs and the economy?

In the realm of modern business, sustainability has taken centre stage, placing the common good, profitability and environmental awareness at the forefront of priorities. Harvard Business School identifies two crucial ways to measure sustainable practices: the impact a business has on society and the environment.

The Institute of Accountants and Bookkeepers (IAB) recognises the importance of sustainable development, listing various benefits for small and medium-sized enterprises (SMEs). One such advantage is cost reduction, leading to increased profits. By focusing on leaner operations, SMEs can optimise resource utilisation, cutting expenses in areas like electricity and transportation. Strategies such as conducting online meetings, sharing co-working spaces and outsourcing fulfilment to low-cost companies contribute to this shift. Today, sustainability encompasses more than simply avoiding harm; it involves resource management and data analysis.

According to a McKinsey Sustainability analysis, adopting sustainable practices not only lowers expenses but can also boost earnings by up to 60 per cent. This correlation is evident when examining the highest-earning corporations, which consistently receive high environmental, social and governance (ESG) ratings.

An additional reason why sustainability holds paramount importance for SMEs is the potential for access to extra funding and grants that require no repayment. IAB highlights the benefits offered by organisations like Ofgem, which incentivise energy-saving solutions for businesses and nonprofits. Such grant money often ties into the adoption of energy-efficient machinery, further reducing SME expenses and increasing profitability.

Investors today exhibit a strong interest in supporting businesses that prioritise sustainability. Moreover, a Fast Company survey reveals that nearly 40 per cent of millennials choose their employers based on their commitment to sustainability. This signifies that younger employees are drawn to companies that align with their values.

Consumer behaviour has also undergone a significant shift, with sustainability playing a pivotal role in evaluating vendors across various industries. Finance firm reports indicate that even before the pandemic, one in three customers based their purchasing decisions on a company's sustainability efforts.

Research conducted by Deloitte suggests that inflation and local supply challenges have prompted consumers to rethink their approach to sustainable living. This includes purchasing "pre-loved" items, embracing reuse and repair practices more frequently and exploring innovative solutions.

Considering that SMEs make up over 90 per cent of businesses in the UK, they form the backbone of the British economy. Effectively addressing environmental and social concerns necessitates full engagement from the small business sector. The role of SMEs in sustainability is of utmost importance, as they contribute significantly to realising a sustainable agenda.

Adopting sustainability principles is crucial for SMEs in today's complicated, competitive and dynamic business climate. It is crucial to address the issue in order to help future-proof small firms given the growing number of business and regulatory requirements connected to sustainable practices and reporting in SME sectors, such as legislation, investors, supply chain, clients, talent, etc.

Reports also emphasise the substantial impact SMEs can have on building a greener future. By reducing carbon emissions, creating green jobs and supporting the transition, these businesses become vital contributors to a sustainable future.

Sustainability is now a requirement rather than just an option in today's expanding business sector. For SMEs to succeed in the current business environment, they must accept the challenge and embrace sustainability. They will not only ensure their own futures by doing this, but they will also significantly advance the larger global objective of creating a sustainable and prosperous world.

How UK SMEs are adopting sustainable practices

In a bold statement of commitment, a study by Aldermore in 2022 revealed that UK SMEs have shown their dedication to sustainability by spending an average of £61,250 on environmental efforts over the past year. This significant investment reflects a growing trend towards environmentally friendly practices that are set to continue. In fact, the study reveals that SMEs are planning to increase their spending on sustainability by 27 per cent in the upcoming year, with an average projected expenditure of £78,392 per business.

It's remarkable to think that in 2021, sustainability ranked as a high priority for only 12 per cent of SMEs, as highlighted in Aldermore's earlier study. The rapid advancement of environmental awareness within such a short span of time is truly astonishing. Numerous factors have contributed to this transformation, but perhaps the most influential driver is changing consumer behaviour.

Consumers are being urged by organisations and experts to make significant changes in their purchasing habits, and many are listening. The concerns surrounding climate change have directly impacted both individual and corporate lifestyles. People are becoming more conscious of the environmental consequences of their choices and are seeking sustainable alternatives.

However, despite the growing recognition of sustainability, there still exists a knowledge gap among businesses regarding ESG (Environmental, Social and Governance) practices. A survey conducted by Capterra revealed that only 30 per cent of respondents claimed to have a complete understanding of ESG, with an additional 36 per cent familiar with the concept but not the terminology. This leaves more than a third of participants either unaware or lacking a clear understanding of ESG.

To gauge the level of ESG implementation among companies, participants were asked if they actively engaged in any ESG activities after being provided with a definition and examples. Surprisingly, 52 per cent of respondents admitted that their organisations had not yet implemented any ESG programs but expressed interest in doing so. On the other hand, 39 per cent indicated that their companies were already involved in various sustainability initiatives.

These statistics demonstrate that even while many SMEs understand how important sustainability is, there is still work to be done in turning awareness into action. There is a clear willingness to adopt ESG principles, and with continuing efforts to inform the public and promote adoption, we may anticipate even more development in the years to come.

Business is changing, and sustainability has solidified itself as a crucial element of success. SMEs all throughout the UK are stepping up and devoting significant resources to environmental initiatives, demonstrating a strong commitment to creating a greener future. Although the path to sustainability is not without obstacles, the potential rewards are enormous. SMEs may improve their own resilience and competitive edge while simultaneously promoting a healthier planet by integrating environmental ideals into business processes. We can look forward to a time when companies of all sizes embrace their responsibility as environmental stewards, building a sustainable society for future generations as the movement for sustainability gains pace.

What the government is doing to help SMEs

The British government has launched a Net Zero Council to help UK SMEs reduce carbon emissions, implement greener practices and set them on the path to net zero. The Net Zero Council's main goals are to identify the biggest obstacles that SMEs across the nation face in reducing their carbon footprints and provide them with new information and advice.

Similarly, the UK government has launched the Industrial Energy Transformation Fund (IETF), providing funding to support energy-intensive firms in their efforts to increase energy efficiency and cut carbon emissions.

Sustainable businesses are necessary right now. There has never been a greater demand for eco-friendly goods and services, and there are countless chances for inventive minds. Businesses have the capacity to take the lead and reimagine the future of commerce as we set out on our path toward a greener and more socially responsible world. Together, we can create a flourishing economy that supports the environment and ensures a better future.