by Melissa Hancock - Friday, 26th October 2007 -

In this, our extended insight, Real Business examines why the onus is on SMEs to cut their carbon emissions...

Climate change has emerged as one of the greatest challenges facing modern entrepreneurs.

Since records began, the biggest increase in the earth's temperature happened in the second half of the last century, with the 1990s being the warmest years. If ever there was a time to act, it’s now.

That call to action applies as much to SMEs as to anyone else. Comprising 99 per cent of all UK businesses, SMEs account for nearly half of annual CO2 emissions from business and around 20 per cent of the country’s total carbon emissions.

But according to a new survey from Lloyds TSB Business, a quarter of Britain’s small firms have not taken any steps to become greener despite a growing number recognising they are not environmentally friendly.

The study reveals that the number of small firms who see themselves as environmentally friendly has actually fallen over the past few years â“ perhaps an indication of the growing awareness of environmental concerns.

There are a number of factors that are helping to generate this awareness. Firstly, companies are now finding their employees feel more strongly about their environmental performance.

Given that 38 per cent of UK employers are SMEs, they are among the first businesses that need to start listening to their workforce. The Carbon Trust carried out SME-focused polls earlier this month which revealed that 80 per cent of employees feel that their employers aren’t doing enough to protect the environment.

Government legislation is also piling on the pressure, and increasingly those SMEs who haven’t already acted will be finding themselves being left behind.

The government is about to introduce the Climate Change Bill which has long-term targets including a 60 per cent reduction in the UK’s emissions by 2050. Consequently, the government has set out very strong regulations relating to major ‘new builds’ and refurbishments of existing buildings. And the rules will only tighten further.

Identifying that financial constraints are often an issue for SMEs, the Carbon Trust launched an Energy Efficiency Loans campaign that urges UK businesses to apply for an interest free loan to replace or upgrade existing equipment.

Paying back the loan shouldn’t be a problem, according to the Carbon Trust, which states that the energy-savings will cover the loan re-payments over time. Thereafter, all savings will go directly to the bottom line.

Last year a loan pool of £18 million was used to help over 500 SMEs in realising annual savings of almost £7 million and 50,000 tonnes of carbon dioxide. This year the Carbon Trust has committed nearly £27m to its Energy Efficiency Loans scheme.

These loans are a great way of incentivising SMEs. See the case study on the Oxfordshire-based plastic manufacturers AAC Cyroma who invested £29,000 in replacing their equipment which has enabled them to cut their carbon emissions by more than 21,000 kg and their energy bill by £7,000 per annum.

There is big money to be saved through reducing carbon emissions.
And yet the survey carried out by Lloyds TSB Business also revealed that a third (31 per cent) of SMEs are bracing themselves for slower growth as the pressure to go green mounts, while a quarter (24 per cent) expect staff cuts. This goes to show that SMEs need more information and support to take action.

The good news is that they are getting hungrier for this information. The Carbon Trust’s free advice line took over 200,000 calls in 2006, 80 per cent of those calls being from SMEs and of the 5,000 on-site energy surveys conducted last year, two thirds were for SMEs.

Aside from money saved through greater energy-efficiency, there is also significant money to be made. A recent report by Shell Springboard estimates that the UK market for low-carbon technologies will be worth £30bn over the next ten years.

As the business opportunities around environmental management expand, SMEs are poised to apply the innovation and flexibility that is their hallmark, and make a real dent in carbon emissions.