Net Zero pathway must be ‘clearer’ for SMEs

SMEs will require a formal framework to help provide a clear journey to their Net Zero 2050 target, according to Jennifer Williamson, partner at Kreston Reeves.

In a recent survey of nearly 1,000 SMEs conducted by the the British Chambers of Commerce (BCC), it was revealed that 90% lack a comprehensive understanding of how the government’s objective to achieve Net Zero in the UK by 2050 specifically pertains to their operations.

Williamson says the government must provide more clarity and structure to SMEs because of all the conflicting information which makes the process difficult for businesses to navigate.

“Do most businesses understand what is expected from them to play their part when it comes to the commitment to Net Zero by 2050 or the 1.5C pathway? It needs to be a clearer, more obvious journey with incentives to encourage firms.

“We are already seeing it filter down through supply chains to smaller firms, but many don’t have the framework or resources to improve awareness or an understanding of the financial costs, timescales, and physical capacity to begin to implement it.

This is echoed by Pam Tuckett, audit partner and head of education at Bishop Fleming, who says the rules relating to these targets are constantly changing.

“If you look at the UK versus worldwide, there’s lots of different rules. What rules should you be complying with? It is very complex.

“All the definitions such as what does carbon neutral mean? What does net zero mean? That’s all confusing for SMEs. And it doesn’t help when you see some of the biggest businesses in the world backtracking on what they’ve committed to. That gives smaller businesses no confidence whatsoever in what they need to commit to.”

Sustainability becoming less of a priority for SMEs?   

A new report by Rimm Sustainability discovered that while businesses appreciate the value of sustainability, 29% cite they do not have the manpower to properly implement what they would like to.

Dan White, partner at Bishop Fleming believes sustainability is losing out to other pressing matters that businesses are currently facing.

“Other things are trumping it on the to do list. I don’t think SMEs are purposely pushing it down the list, but there’s so many new things that they are having to deal with.

“If you looked at an SMEs to do list three years ago, it would have been on there, but the things that come in on top is out of their control, like interest rate rises, tax changes, all of those things are keeping SMEs up at night.”

The 2050 net zero target is so distant and there are numerous current challenges like rising energy prices and inflation that require more energy from firms at present, says Scott Heath, CEO at DJH Mitten Clarke.

“What we tend to find with a lot of our clients is they’ll kick things into the grass. So kind of the same as Making Tax Digital. A lot of them leave it until the deadline is looming. I think the UK needs a better strategy for it, and that needs to be fairer.”

Williamson agrees with this view, saying: “These short-term issues and long-term ESG strategies are not necessarily mutually exclusive issues. Employees may be asking themselves whether they want to work for a company which is unwilling to commit to change.

”Business leaders should consider whether they might get more favourable terms from their banks if they show they are committed to making changes, and there might government incentive schemes they can qualify for.”

Moreover, she believes businesses should commit now to sustainability as it will be mandatory in the future.

“There will be a longer-term impact for starting this journey, but it will be difficult to make decisions if economic pressures get worse for a business because they have delayed it.”

Heath states the running of an SME on your own or as a partnership can be ‘lonely’ so accountants must play their part in helping businesses transition to their own sustainable practices.

“Our role as accountants is sharing the knowledge we learn as well as we haven’t got the answer to everything. But often, you’ll have one client that have a problem with, you solve it, and then three months later, you’re having exactly the same conversation with a different client. It’s almost identical, and that’s the role accountants play in joining up the dots.”