How accountants can guide SMEs towards sustainable funding

The urgency to address climate change is increasing, and with it, the importance of ESG factors in business operations. Small to medium-sized entities (SMEs) are feeling the pressure to align their business models with ESG principles.

However, many are unsure how to navigate this transition and are looking to their trusted advisors, their accounting firms, for guidance. In 2021, the British Business Bank surveyed SME businesses in the UK about their views and activities around the transition to net zero.

While 76% said that they hadn’t implemented a decarbonisation strategy, that does not mean they aren’t taking action; 94% had taken at least one action to reduce their emissions.

As Stephen Heathcote, a former executive director at ACCA, has noted in the past, “ESG is not a tick box exercise. It involves helping a business clarify its goals and its business model. It requires support with capturing data, reporting, and auditing – core skills of an accounting firm.”

Accountants are well positioned to guide SMEs through the ESG transition. They can help businesses understand their carbon footprint, evaluate the risks of not reducing emissions, measure emissions, develop a plan to reduce emissions, and implement that plan.

What support is available?

Access to finance for net-zero transition is one critical area for this; 11% of SMEs had already accessed external finance to support net-zero actions, and 22% were prepared to seek funding in the next five years.

The British Business Bank has a remit to improve access to finance for SMEs, working with commercial banks to offer more products to stimulate growth and investment. When it comes to sustainability funding, Tony Greenham, ESG Director at the British Business Bank, breaks it down between start-up, scale-up and ‘stay ahead’ funding.

The latter can explore the Start Up Loan scheme, a vital resource for nascent businesses seeking financial footholds without a substantial history. Managed by the Startup Loans company, this initiative champions financing green, sustainable ventures, recognizing eco-friendly objectives as an asset.

Additionally, the £1.6bn Nations and Regions funds are being distributed across various UK regions, offering debt and equity options for small businesses, with a particular focus on those with a sustainable investment narrative.

Moreover, the British Business Bank’s recovery loan scheme offers essential backing, providing guarantees to loans hindered by issues like inadequate collateral, ensuring viable businesses secure necessary funding.”

“Clients should be made aware of the emerging trend regarding obtaining investment and future credit. Reporting will become crucial, with SMEs having to show valid up-to-date and verifiable information so people can make informed choices,” says Adam Williamson, AAT’s Head of Responsible Business.

Variety of lending increases

There is also a set of programmes that support finance providers to expand their lending to SMEs. All of these products can now be used for green and transition finance or for net-zero finance.

The trend towards equity investments with a focus on clean technology and decarbonisation is soaring. Existing equity programs, such as the Regional Angels Programme and the Enterprise Capital Fund, are increasingly directed towards green and transitional finance.

British Patient Capital, under the British Business Bank, integrates ESG factors and sustainability into investment decisions, leading the way in conscious capital allocation. SMEs seeking direction in this greener economic landscape can look to OFGEM for guidance on energy efficiency grants and schemes.

The UK Business Climate Hub, a collaborative effort of various organizations, also acts as a source of net-zero action information for businesses. Additionally, the British Business Bank is actively working to enhance SMEs’ access to green finance, emphasising the accountant’s role as a trusted advisor in guiding these sustainable transitions.