Small and medium sized enterprises (SMEs) account for 99% of UK businesses, three fifths of employment and half of the total turnover of the UK’s private sector – so it follows that SMEs must play a vital role in sustainability[1]. Glenn Bemment as the Head of Sustainability for SMEs and Mid Corporate businesses at Lloyds Bank talks about how they can help clients on their journey to net zero.
The research
Lloyds Bank recently surveyed more than 1,000 SME businesses, to deepen their understanding of how best to support clients on their journey to net zero. This research has provided a comprehensive picture of where SMEs are today, and the key hurdles businesses face when putting sustainability initiatives into action.
It’s important to Lloyds Bank to help their customers on this agenda given the significance and the urgency. All the research says we need to act now if we are to avoid the worst impacts of climate change. With 1 in 5 SMEs having their primary banking relationship with the bank, it’s clear that Lloyds Bank has an important role to play in supporting the transition[2].
That said, the journey to net zero is a long one. Stretching years or decades into the future, the transition of our economy to a sustainable footing will be the most momentous change in business and industry of our generation. But this is not a journey we need to make alone. All businesses are on the same road – no business can achieve net zero by themselves, and no business can afford to be left behind.
The findings
The research has provided an enormous amount of learning – about the enthusiasm of many businesses for net zero and the opportunities they see, and about the uncertainty they feel and the barriers they face.
Using the research and insight as the foundation, Lloyds Bank has produced ‘From Now to Net Zero: A Practical Guide for SMEs’ to outline the key opportunities and challenges for businesses and includes a simple five-step guide to help SMEs understand where they are now and what their pathway to net zero looks like, with practical support for each step of the journey.
One finding from the survey is that 42% of SMEs believe that committing to net zero will see them reduce both cost and waste in their business, which is surprisingly high given that many small businesses see sustainability as a ‘big business’ concern that SMEs can’t participate in. However, since the UK hosted COP26 at the end of 2021, there’s been a real increase in awareness and education around this topic, which is prompting some different results.
Conversely, the survey also found that 40% of SMEs don’t yet know what net zero means for their business, and only half say that reducing their carbon is a near-term priority. That can seem quite shocking, but it is quite a challenging landscape for many SMEs right now as they’ve got so much on their plate. Be that in terms of capacity, rising input prices, Brexit – simply getting around to considering sustainability is a real challenge for many SMEs.
While the risks, challenges and headwinds of moving to net zero often grab the headlines, equally where there’s risk, there’s also opportunity. There are all kinds of new businesses emerging to tackle some of the sustainability issues that are as yet not addressed.
From a financial perspective, whilst some SMEs say that they don’t have the money to invest in this space, there are some basic actions businesses can take to reduce their impact on the environment that also reduce costs. Things like reducing their use of water, electricity, gas and consumables (e.g. paper). All of these cost savings can then be reinvested back into the business. This point is further emphasised in the research whereby more sustainable businesses are also more efficient, because they tend to waste fewer resources.
For those that do get on the net zero journey, it has a positive impact on both attracting and retaining talent. Increasingly, employees or potential employees are looking at employers and asking: ‘What are your credentials around sustainability and broader ESG – is this an employer I want to work for?’[3] The same can also be said for attracting customers and buyers further up the supply chain.
So it is really important for businesses to consider their sustainability strategy so that they can attract the type of talent they need in the business, the customers and buyers they want – which is important for all aspects of the business.
The importance of action
Lloyds Bank would like to be seen as the go-to bank for green businesses and businesses that want to become greener. The same can be said of many of its clients. As detailed already, there are clear opportunities for new products and new markets if SMEs get this right.
Those businesses who have dedicated some time to focus on sustainability and prioritise investment have seen some real returns. Lloyds Bank has a number of case studies on its website showcasing existing clients who have won new clients, been awarded new contracts and entered into new markets through focusing on sustainability.
Therefore, at some point, there’ll be clients that are disadvantaged by being slower to take the opportunity or address the risks.
A good example of this is what is taking place across supply chains at the moment. There may be an SME with a great business, producing a great product, offering a great service, a great price, a great degree of track record and integrity.
But if that client doesn’t have a robust sustainability strategy, in terms of who they’re supplying , especially some of the larger corporates, they could very quickly get squeezed out of the supply chain. Larger businesses are starting to expect minimum standards from their suppliers around this issue – be that because of the impact on their own ESG credentials via scope 3 emissions or because they are concerned about reputational risk. Having your contract taken away is a very real risk and could happen very quickly without a lot of notice. Doing nothing is simply not an option for much longer.
Your five-step guide
The key thing to take away from this is that businesses need to understand the importance of sustainability. Ultimately, it will be the client’s decision on how they go about activating that, but SMEs need to begin to understand their current emissions, their current baseline, and then build a plan from that.
Utilising the research carried out with expert insights from industry and academia and, most importantly, the discussions with SMEs themselves, Lloyds Bank has drawn up a five‑step guide to help businesses get started:
- Getting started. This is easier said than done, but it is important to start with the data. Without the knowledge of where they start from today, it is really difficult for businesses to build a plan on what they need to do first. Lloyds Bank offers a number of tools to help businesses do this such as their Clean Growth Audit Guide, and their Practical guide for businesses.
- Short-term wins and employee engagement. This can be simple, from recycling, reducing energy consumption, reducing water consumption to installing LEDs. Coupled with short-term wins is employee engagement. The research shows that when all employees are engaged, you get a ‘snowball momentum’. You get ideas from everyone, because they see their job in a slightly different way.
- Measure, mobilise and monitor the carbon footprint. Get mobilised and begin to monitor it. Lloyds Bank’s Green Buildings Tool enables SMEs to identify, evaluate and understand their buildings to make them more sustainable and energy efficient. From a single property through to larger portfolios, the tool helps clients to identify, evaluate and understand the estimated outcomes of potential investments to make their property more sustainable and energy efficient. Lloyds Bank is also building a carbon calculator for clients to access, to help uncover the carbon impact of the choices businesses are making.
- Navigating the road ahead. This is not plain sailing for anyone. There will be new research, new insights and also new opportunities. It is important to stay up to date and to keep navigating for what’s coming down the track – the ITT Hub is an excellent way to stay updated on these changes.
- Heroes of Net Zero – listen to others. Lloyds Bank has recently released season two of its ‘sustainability voices’ series. These are real-life case studies of businesses talking about their own experiences, what’s gone well, and where the challenges are. Collaboration is key in achieving net zero – this is not a zero-sum game, we either all succeed together or lose together.
- Access the research and read it for yourself: From Now to Net Zero: A Practical Guide for SMEs, Lloyds Bank
- Hear Glenn Bemment in conversation with Leon Daniels OBE in ITT Hub News’ ‘Lunch with Leon’ podcast, as he talks through the challenges along with outcomes from COP26. https://itthub.net/podcasts/lunch-with-leon-episode-58-glenn-bemment/
[1] Business Population Estimates for the UK and Regions in 2021. [Available here: https://www.fsb.org.uk/uk-small-business-statistics.html]
[2] As detailed here: Annual report and accounts 2021 (lloydsbankinggroup.com)
[3] As detailed here: https://www.ga-institute.com/news/newsletter/press-release/article/millennials-really-do-want-to-work-for-environmentally-sustainable-companies-according-to-a-new-su.html
