The report is based on quantitative and qualitative analysis, including interviews with SME leaders. The quantitative research found 48 per cent of SMEs are worried about the impact of increased costs and economic conditions on their businesses, rising to 57 per cent among those who want to reduce their climate impacts.

We also found appetite among SMEs to take major carbon-reducing actions dropped between 2021 and 2023, from 27 per cent to 19 per cent. Also, there is low willingness to take out more external finance to fund sustainability improvements. 

In our research we heard an important range of views including:

• One independent garage owner in Wales told us that sustainability is relatively low on his list of priorities while his key business challenges are competing with larger dealer groups and recruiting staff. 
• Existing terminology often sounds like buzzwords and incentives to decarbonise are lacking.
• Other SME leaders want to make their businesses more sustainable but lack time or understanding. 
• One Scottish cleaning business told us they would like to invest in electric vehicles but are finding the cost prohibitive and would welcome information on funding and grants.

We asked businesses what they need from banks, government and others to help them reduce their environmental impact. The messages we got back were: 

• They need help in understanding what needs to be done, with digestible information.
• They need funding help, through a combination of public and private finance.
• They want to see a clear and consistent policy framework to work within.

Our report makes ten recommendations to government, businesses and financial services firms to help overcome the barriers facing SMEs. 

These recommendations include:

• Establishing a government-led taskforce to ensure the right policy support is in place for SMEs. Jointly owned between the government and the private sector, the taskforce should be given a mandate to advise on policies to unlock SME action.
• Issuing “Help to Green” vouchers of £5,000 for SME action. By streamlining support packages for SME sustainable action through a Help to Green scheme, government can incentivise the action needed to decarbonise.
• Relaunching the UK Business Climate Hub with improved content and greater publicity. Clear, unambiguous and accessible information is needed to support SMEs in the transition.
• Using all available funds and schemes from the British Business Bank, including the new Growth Guarantee Scheme and Start Up Loan Scheme to encourage carbon reduction activity. 
• Encouraging larger businesses to provide training, resources and support to help SME suppliers improve their environmental practices.

David Postings, Chief Executive of UK Finance, said:

SMEs are a critical part of the transition to Net Zero. Alongside running their businesses in challenging economic conditions, they told us they often feel unable to prioritise action to decarbonise and are overwhelmed or confused by mounting expectations.

Ultimately SMEs lack the time, capacity and access to the right information and funding to help them transition. That’s why we have laid out a series of practical recommendations for government, businesses and financial services to support SMEs through a just transition to a more sustainable economy.

Dame Teresa Graham DBE, Chair of the UK Finance SME Advisory Group, said:

The transition to Net Zero is one of the greatest challenges we all face. SME business owners are short of time and understandably find it hard to know what needs to be done to decarbonise and how to do it. 

The practical recommendations from UK Finance are focused on the barriers that SMEs say prevent them from taking greater sustainability action. Lots of parties have a role to play, including larger businesses who can support their suppliers in the SME community by providing training and resources. Collectively we can all help SMEs through the transition.