UK Businesses are Prioritising Sustainability: NatWest tracker shows strongest sustainability intentions by SMEs since February 2020

In the latest edition of its quarterly tracker, NatWest finds encouraging signs that UK SMEs are actively cutting emissions and reducing their carbon footprints
Published
August 4, 2022

Source: NatWest

Latest data shows strongest sustainability intentions by SMEs since February 2020

New research from UK bank NatWest provides positive reading with regards to emissions reductions by businesses. Data shows that sustainability is being given increasing priority at smaller firms, despite the economic challenges currently being faced. The quarterly study utilises data from IHS Markit’s Purchasing Managers Index survey with this iteration conducted in June, well into the current cost of living crisis.

The latest edition of NatWest’s research found that 3 of the 5 sustainability priorities of the Sustainable Business Tracker have increased since March 2022, with low carbon energy consumption seeing the biggest rise in prioritisation. Those reporting green energy as a high priority for the year ahead, increased from 42% in March to 51% this quarter- the highest proportion since the study began. In addition, firms shared their plans to boost low carbon energy consumption by installing solar panels on site, as well as investments in battery storage and electric vehicle charging infrastructure[i].

In terms of priority areas, the top two (both of which have increased since Q1 2022) were increasing recycling (60%) and having cleaner business processes (54%).

UK SME Sustainability PMI Actions: Percentage Reporting ‘High Priority’

The encouraging findings from NatWest follow other recent research from Aldermore Bank (discussed in our blog here) which also highlighted a positive outlook for SMEs in terms of adjusting to a green pathway. In this study over half (53%) of UK SMEs said that they have invested in sustainability over the past 12 months. Other key findings from Aldermore’s research included:

  • Of the 53% of UK SMEs that have invested in sustainability – spending was an average of £61,250 on being green
  • The average SME business plans to spend a further £78,392 on sustainability in the coming year – an increase of 27%
  • One in five (21% - 1.1 million) SMEs are considering changing to an eco-friendly product or service.

Supply chain pressures drive a switch to domestic sourcing

One interesting takeaway from NatWest’s Q2 2022 research were the findings that UK businesses are increasingly now seeking to reduce the carbon footprint of their supply chains. In fact, almost half (46%) said that they have already switched to a domestic supplier due to sustainability concerns. According to the study, an additional fifth of SMEs (20%) are looking to re-shore at least part of their supply chain to boost sustainability during the year ahead. As such, approximately two-thirds of SMEs (66%) will have switched at least some of their external vendors to domestic suppliers by the summer of next year. Over a 5-year period, this figure rises to three-quarters of SMEs.

Further, just over a quarter of respondents (28%) said that they had readjusted their global supply chains by switching to suppliers that have environmental credentials. An additional 20% of SMEs are planning to switch to suppliers with better environmental credentials over the next year.

Key data highlights:

  • 1 in 2 SMEs have switched to suppliers in the UK as part of their efforts to reduce carbon footprint.
  • 3 in 4 SMEs plan to re-shore some of their supply chain within next five years.
  • Prioritisation of low carbon energy consumption sees the biggest gain.[ii]

Andrew Harrison, Head of Business Banking at NatWest Group, said:

“Global supply chain pressures have focused SME’s priorities on switching to UK suppliers. This ensures they have the consistency they need while matching up to their increased sustainability priorities. It’s good news that it’s been pared with a higher prioritisation of low carbon energy consumption as well as ambitions to increase recycling.”[iii]

He added that “NatWest’s Springboard to Sustainability report, published in October 2021, 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.”[iv]

Consumer behaviour critical

NatWest’s latest findings are a turnaround from the Q4 2021 study, which suggested that UK SMEs still reeling from the negative impacts of the pandemic were prioritising economic recovery at the expense of green policies as discussed in our earlier blog. Yet even though we see sustainability at the forefront of SME priorities now, there does seem to be some constraint caused by the economic uncertainty. The Sustainable Business Tracker does also note “a considerable slowdown in business activity growth at small and medium-sized enterprises across the UK, with the speed of recovery the weakest since February 2021. Weak customer demand in response to the passing of sharply rising input prices on to them, as well as the uncertain economic outlook, was cited by survey respondents.” It added however that the increasingly challenging global economic backdrop did not prevent an increase in the prioritisation of sustainability action among SMEs with 43% saying it was a priority in June, up from 40% in March, this was the highest since the start of the pandemic (44% in February 2020)[v].

References

[i]GB_Sustainable_Business_Tracker_Q3_2022_FINAL.pdf

[ii] Ibid

[iii] SMEs switching to UK suppliers to combat climate change | NatWest Group

[iv] Ibid

[v] Ibid

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Lauren Foye
Head of Reports

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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