Natwest’s latest edition of its sustainability tracker provides grim reading for both the economic outlook and the sustainability ambitions of SMEs. The latest data shows a third consecutive monthly fall in business activity during September, alongside lower overall prioritisation for sustainability action. This follows last quarter’s results which showed the strongest sustainability intentions since February 2020.
The headline figure from the All-Sector Business Activity Index signalled the fastest overall reduction in output volumes since January 2021, falling to 47.9, compared with 48.2 in August[i]. Data on individual sectors showed this decline driven by the services sector, where panel members blamed weaker market conditions and intense inflationary pressure on dampening activity and customer demand. Adding to concern were the findings that the rate of job creation in service sector SMEs was the slowest seen since the current period of employment growth began in March 2021 and continued to lag behind that seen for large companies.
When looking specifically at planned sustainability action, on average, 39% of UK SMEs indicated that sustainability actions were a high priority over the next 12 months, down four percentage points from 43% in June and the lowest figure since the survey began in February 2020[ii]. This fall was even larger amongst firms in the services sector, falling from 45% in June to just 36% this quarter. Yet, in a small sign of positivity, sustainability intentions in the manufacturing sector actually increased slightly from 40% in Q2 to 42% in Q3.
When looking specifically at SME plans for staff training, the tracker covered four key categories:
The top category for sustainability skills was energy efficiency training. Data for Q3 found that more than half of SMEs (53%) had either begun training their staff in energy efficiency or were planning to do so in the next 12 months. When looking at specific sectors, manufacturers (66%) were more likely to report training staff in energy efficiency than service providers (50%).
In terms of actions to improve environmental sustainability, increased recycling saw the largest proportion of respondents saying it was a priority, with 51% of SMEs responding in the affirmative. This was, however, markedly down from 60% last quarter. The second highest priority was cleaner business processes at 46%, again showing a fall from 54% in Q2. Investment in sustainable product launches was the only category which saw quarter-on-quarter growth, up six percentage points to 25%.
Figure one: UK SME sustainability PMI: actions per cent reporting ‘high priority’
Q: Which of the following actions, if any, is your company prioritising to improve environmental sustainability in the next 12 months?
Source: NatWest
Andrew Harrison, Head of Business Banking at NatWest Group, said: “Energy costs are a huge issue for businesses, as well as households, and it’s clear that SMEs are prioritising skills that will help them establish more energy efficient practices and help futureproof their business across energy price volatility in the longer term. It’s great news for companies, employees and the environment that businesses are becoming more committed to boosting green skills.”[iii]
He added: “NatWest’s Springboard to Sustainability report found that 50% of the UK’s carbon reduction ambition can be delivered by the SME sector. This could also unlock a £160 billion opportunity for them. Sustainability, recovery and growth go hand-in-hand and SMEs need to be supported to know how to make the most of the opportunities that lie ahead. At NatWest we are doing our best to support them.”
On a bigger scale, climate action is viewed by small businesses as a pressing issue. A survey by the SME Climate Hub this year found that 80% of SMBs (Small and Medium Businesses) considered reducing their emissions ‘a high priority.’ And whilst data shows this is driven by a desire to do the right thing (as well as gain a competitive advantage), SMBs are “often constrained by finances, knowledge and time and, therefore, struggle to translate their climate ambitions into meaningful action.”[iv] More specifically, in the EU, a recent study by Eurobarometer found that whilst 89% of SMEs reported that they had taken some action to be more resource efficient, only 20% have a strategy in place to reduce their carbon footprint and become climate neutral[v]. Thus with the biting cost of living crisis, already squeezed businesses are likely to continue to see climate ambitions constrained by financial pressures.
[i] SMEs plan to ramp up staff training in energy efficiency | NatWest Group
[ii] Ibid
[iii] Ibid
[iv] Unlocking-the-Potential-of-SMBs-in-Climate-Action.pdf (fb.com)
[v] SMEs, resource efficiency and green markets - March 2022 - - Eurobarometer survey (europa.eu)
Lauren has extensive experience as an analyst and market researcher in the digital technology and travel sectors. She has a background in researching and forecasting emerging technologies, with a particular passion for the Videogames and eSports industries. She joined the Critical Information Group as Head of Reports and Market Research at GRC World Forums, and leads the content and data research team at the Zero Carbon Academy. “What drew me to the academy is the opportunity to add content and commentary around sustainability across a wealth of industries and sectors.”
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