As larger organisations lead the charge and dominate headlines with their carbon reduction programmes, pressure is now trickling down the supply chain, resulting in SMEs increasingly being asked to take action. According to the 2024 UK Net Zero Business Census, around 37% of SMEs have already received requests to disclose their carbon emissions from customers or tender applications, despite not being subject to any regulatory obligations themselves.

This is just one example of how, for SMEs, the road to net zero comes with its own set of challenges (and clearly opportunities). These take the form of tough financial pressures, a lack of expertise, and definite confusion around regulations.

The reality is, of course, SMEs are vital to the UK economy. Consider that they account for 52% of national turnover and 60% of employment. If we’re going to hit the UK’s net zero targets, SMEs need to have their concerns heard and met.

Understanding the Barriers for SMEs

The UK Net Zero Business Census lays out some of the key barriers holding SMEs back. The biggest one? The financial burden of making the necessary changes. Around 59% of SMEs say that high costs are a major barrier. This barrier is further compounded when you consider that many SMEs are stating that they have limited access to financing and feel they have a lack of awareness about funding opportunities. Whilst it is true that government grants and low-interest loans are out there, it must be sobering for all to understand that only 25% of businesses are actually tapping into these resources.

The Opportunity for SMEs

Despite the challenges, moving toward net zero offers a real opportunity for SMEs and not just for the planet, but for business growth too. Achieving net zero can make companies more competitive, a case in point would be around tendering, with many new contracts, both in the UK and EU, already having carbon reduction requirements inserted as companies protect their interests through ensuring their supply chains are "green".

Six Key Recommendations for Policymakers

To help SMEs successfully navigate their transition and overcome the challenges they face, we’ve outlined six key recommendations for policymakers:

Addressing High Costs with Financial Incentives

It’s no secret that money is tight for many SMEs, so making the leap to net zero can seem daunting when upfront costs are high. If policymakers are serious about net zero, it is imperative to make this easier through targeted financial incentives, like, for example, low-interest loans, grants, and tax credits.

Demystifying Regulatory Uncertainty

As the climate crisis deepens, so do the ways that legislation attempts to mitigate, manage and reverse. It can be easy for SMEs to feel overwhelmed. It’s worth remembering that SMEs rarely have an individual whose sole function is dedicated to net zero - let alone an entire team to keep track and on top of the rules. Clearly, more accessible guidance would go a long way in helping SMEs understand exactly what’s required of them.

Facilitating Training and Building Capacity

For SMEs, it’s crucial that everyone on the team understands their role in the net zero transition. Within many SMEs every individual is worth more in resources than their own role. To empower staff, it’s important to close the skills gap, which will require more education and training opportunities for staff. We’d recommend offering workshops, online resources, and certification programmes to ensure that employees at all levels can contribute to making their businesses more sustainable.

Improving Access to Trusted Information

The report found that a common barrier for SMEs is not having trusted information to make informed decisions. This, in my belief, is a challenge best overcome through industry collaborations, like the government-backed UK Business Climate Hub. This Hub should be widely promoted as it offers SMEs practical advice on everything from reducing emissions, tracking progress, to how to access funding.

Increasing Access to Finance

Beyond incentives, SMEs also need better access to finance. Many are simply unaware of the financial products available. And if they do know about them, they are finding the application process cumbersome and complicated. We must both raise awareness of financial products and simplify the application processes.

Recognising SMEs Are Indirectly Affected by Carbon Disclosure Policies

While SMEs aren’t directly subject to carbon disclosure regulations yet, they’re increasingly being asked to release them. Policymakers need to acknowledge that this creates an impact and therefore must work closely with industry to offer the necessary resources to help them comply.

Empowering SMEs to Achieve Net Zero

If the UK is to meet its 2050 net zero target, SMEs must be empowered to play their part. The recommendations outlined above provide a clear (and, I believe, achievable) roadmap for policymakers to create an environment that enables SMEs to reduce their carbon footprints and help the UK towards a more sustainable future.

The journey to net zero may be challenging (no one said it was going to be easy) but with the right support, SMEs can rise to the occasion and become key players in the UK’s net zero future.

Andrew Griffith is Policy and Corporate Development Director at Planet Mark