Should small businesses prioritise sustainability at a time when – quite frankly- most owners and managers are grappling with a range of challenges that include rising labor costs, high inflation and a continuing degree of economic uncertainty?
Well, according to the U.K. government-backed Willow Review, small-and-medium-sized businesses stand to gain financially if they adopt sustainability policies that are aligned with the net-zero agenda. There is, however, a problem. Most SMB feel constrained by a lack of resources. Yes, they would like to cut waste and reduce emissions, but they are deterred by the prospect of high upfront costs and the need to rethink their operational practices.
The Willow Review was launched in November 2024 by Small Business Minister Gareth Thomas with a brief to explore how sustainability practices could deliver financial benefits to SMBs. Co-chaired by Thomas, Nick Stace of Barclays Bank and Small Business Britain CEO Michelle Ovens CBE, the initiative drew on the experience of around 400 businesses through surveys and focus groups. Last week, the review published its findings, along with recommendations aimed at helping businesses to trade more sustainably.
There was, of course, a very clear agenda. The remit for the review took it as read that green policies could and should deliver financial benefits rather than being seen as a burden. The challenge was to identify the potential gains and present them in a way that would make sense to business owners.
“We aim to show that sustainability is not just a moral obligation, but a real chance for growth and resilience,” says Michelle Ovens, CEO of Small Business Britain. “We wanted to shift the narrative and have sustainability be seen as the profit-driving opportunity it is.”
Reduced Costs
According to the researchers, those businesses that have taken steps to reduce their environmental impact are reporting improvements to the bottom line, with more than two-thirds saying they have reduced operational costs. In addition, the green halo effect does appear to have an impact on marketing and sales success. More than half of the businesses surveyed said they had attracted new customers as a direct result of green initiatives, and around a third reported improved customer loyalty.
According to Ovens, this points to a strong business case. “The business case is clear: sustainability can help the UK’s small businesses to cut costs, reach new markets, and build stronger relationships with customers and employees,” she says.
Barriers To Net Zero
So why isn’t everyone going green? You could argue that when you look at the big picture, the mood has changed. COVID, the subsequent energy price crisis and high across-the-board inflation created a much less favorable trading environment for many businesses, forcing them to focus on survival rather than pursuing net-zero policies. Meanwhile, politics has become more polarised on the issue.
Against this backdrop, SMBs – even those that in principle see the benefits of doing business sustainably – are wary. The report cites factors such as upfront costs, a lack of financial support from banks and other institutions and a lack of knowledge as major barriers. Or to put it another way, businesses don’t always know what to do and even if they did, they may struggle to access the necessary finance to change their operational practices.
Setting Priorities
So, what can SMBs actually do? The report sets out a number of steps, including using renewable energy, waste reduction, logistics efficiency, green supply chains, and the adoption of sustainable materials.
Is this practical? Marco Donzelli is CEO of HLB, a consultancy that has worked with SMBs to help them improve their sustainability practices. As he sees it, SMBs should avoid over-ambition in their planning.
“The risk is that you start writing all these policies but you don’t really do much. You might have a million options and you don’t know where to start,” he says. “If I had to give advice, I’d say, start small. Pick up the two or three main things that are easy to do and have an impact.”
And as he points out, small businesses can reap tangible benefits from relatively small changes. “It shouldn’t be hard to do an energy audit. Replace light bulbs, install solar panels. Have conversations with suppliers,” he adds.
Michelle Ovens has a similar perspective, saying that business owners can “track progress by setting clear, measurable goals and using simple systems to monitor outcomes, like carbon emissions or waste reduction.”
Of course, solar panels do involve upfront costs, but finding an energy supplier that sources renewable power from wind, solar farms and possibly nuclear is more straightforward, certainly within the U.K.’s competitive energy supply market.
Some changes may be trickier. For instance, while large companies can use their market power to require smaller suppliers to adopt green policies, SMBs rarely have the economic muscle to require their own suppliers to do the same.
What small companies can do, however, is talk to suppliers and identify those who can demonstrate their green credentials or who can deliver an environmentally friendly brief. “You can optimize your vendor agreements to support your sustainability policies,” says Donzelli.
This won’t necessarily save money but establishing a green supply chain has other benefits, not least in terms of attracting customers. In the B2B market, major companies are greening their own supply chains and want to see commitment from SMBs. Over in the B2C space, environmental policies can be a sales driver.
Overall, Donzelli says the key to progress is a plan well. “You need to have objectives and the rest will come. There are frameworks to adopt and partnerships you can work with. There might also be best practice groups,” he says.
For its part, the Willow Review recommends actio to provide more mentoring, advice and access to finance.
Does this matter? Much of the focus around net-zero has been on large polluters. Individually, few SMBs have a major impact on the environment. Collectively, however, they are responsible for 50% of U.K. emissions. They are an important part of the picture.
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