SMEs urged to continue efforts to become net zero despite citing cost as largest obstacle

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The biggest challenge faced by small and medium-sized enterprises (SMEs) on their journey to net zero is the expense, according to a new report from Bank of Scotland owner Lloyds Banking Group.

According to the lender’s Net Zero Monitor, insufficient budget and/or the high costs (cited by 43 per cent of the 1,074 respondents) of transitioning their business was seen as the top hurdle, with such a challenge found to be affecting SMEs at every stage of the net zero journey. In addition, a third cited difficulties in reducing emissions outside of their own operations, such as among their suppliers, and the same proportion mentioned low return on investment.

Challenges created by external factors were also highlighted, with more than seven in ten reporting that both the rising cost of energy and rocketing inflation are having the severest impact on their journey to net zero, closely followed by the rising cost of petrol (70 per cent), with supply chain disruption (59 per cent) and increasing interest rates (57 per cent) also seen as significant factors. Lloyds added that the 7 per cent of SMEs already at net zero reported struggling to balance their path to this milestone against competing issues such as Brexit and regulation.

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Giving more cause for optimism was the lender finding that 87 per cent of responding firms said they understand what the net zero target means for their business, and about half are already measuring their emissions, while a further 15 per cent are researching how to do so. Nevertheless, the Monitor also showed that 29 per cent of those already at net zero have found it “hard to measure their business's environmental impact or performance”, and Lloyds said that with about the same percentage currently at the “measure, mobilise and monitor” stage of their net zero journey, “this challenge isn’t set to disappear any time soon”.

Paul Gordon, MD of SME and mid corporates at Lloyds, said there are “common and significant” challenges all SMEs face in the journey to net zero, which Scotland aims to achieve in 2045, and the UK 2050. However, he stressed that such firms “should not be discouraged” from continuing, and added: “The progress small businesses make is crucial… and tackling the challenges around measuring impact and progress will take collaboration to overcome.”

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