COP26 is over, but the climate change challenges are here to stay. COP26 featured global and national players and the aims of the conference were on a grand scale. But was there a missed opportunity to focus on the SME market and inspire a local, as well as global, shift in thinking?  As a new OECD report highlights, there will be ‘no net zero without SMEs’ – and this is for two main reasons. Firstly, while the majority of SMEs are operating in non-GHG intensive industries, their significant number makes the aggregate carbon footprint of the SME sector important. Although precise data is lacking, recent estimations suggest that UK SMEs may contribute to 50% of all business-driven emissions. Secondly, SMEs and entrepreneurs may not only follow the global trend towards a greener economy, but also drive the change through eco-innovation.

Our knowledge of environmental practices of SMEs is limited as prior literature has mainly focused on large corporations and green start-ups. In our recent paper, we find that despite the many difficulties since the start of 2020 almost three quarters of UK SMEs are already undertaking some steps to minimise their environmental impact. These activities are varied and span technological and organisational domains. For example, around one in three businesses have already switched to more renewable energy and two in five introduced some changes to production or distribution processes to make them more resource efficient.

What drives net zero actions?

Initial findings from our ongoing research suggest that different motivations drive different types of net zero actions. The pro-environmental attitudes of business owner-manager are important in driving a range of organisational changes, such as conducting environmental reports and audits, undertaking market research on low carbon products or services, investing in employees training on environmental matters, or else switching to a renewable source of energy. These actions, which are relatively low cost and easy to implement, are important first steps towards net zero as they allow business to measure and identify areas of improvement.

But personal conviction of a business leader does not appear to be enough to spur more disruptive and often more costly technological changes. These are mostly driven by organisational and commercial considerations, i.e., they should make commercial and financial sense in the first place – by reducing costs, improving image and reputation, or responding to evolving needs of existing customers and attracting new ones.

Other external factors may also play a role. For example, our findings suggest that environmental regulations and taxes are important in driving environmental R&D, while government grants and subsidies are effective in encouraging businesses to make technological changes in production and distribution processes. Therefore, to support different net zero actions, different policy instruments might be needed. Moreover, when looking at the intensity of small businesses’ engagement with net zero measured by number of actions they undertake, we find that whatever are the factors making businesses take the first step towards net zero, the intensity of this engagement is essentially driven by individual and commercial motivations. This may imply that to achieve a higher level of engagement with net zero in SMEs, more attention should be given to the demand side, i.e., to the overall awareness and education around sustainable consumption.

Are growth objective and net zero commitment compatible in practice? This question is far from being resolved, particularly at the firm level.  Our research based on new survey cross sectional data[1] of UK SMEs[2] shows that adoption of environmentally friendly practices is not at odds with business performance. We find a positive association between growth and pro-environment activity indicating the possibility of a win-win scenario where a firm may contribute to the net zero agenda while still experiencing growth. However, the causality of this association is something that should be further explored.

In 2021, a consensus emerges from the ongoing research that there would be ‘no net zero without SMEs’. It is certainly much more controversial to affirm that there would be ‘no growth without net zero’. But ‘should there be growth without net zero?’ – a rhetorical question which we, as individuals, entrepreneurs, researchers, and policy makers, are already facing today. The pragmatic and essential questions become ‘what should be done to make it happen?’ and ‘how it should be done’ – these are the questions facing SMEs and policymakers in a post-COP26 world.

[1] The findings of this research should be taken with a pinch of salt as these are based on cross sectional data.

[2] Enterprise Research Centre Business Futures survey 2020.