The increased cost of doing business is preventing the UK’s 5.5m small and medium-sized businesses from going green, new research finds. 

With core inflation rates at 6.8% – the highest in 31 years – protracted high costs could be delaying SME owners’ plans to green their businesses. In an analysis carried out by Europe’s largest small business lender, iwoca, businesses around the country are struggling to prioritise measures to reduce their carbon footprint. 

This comes as research carried out by Oxford Economics finds that SMEs contributed 44% of the UKs non-household carbon emissions, with an estimated 160m tonnes of greenhouse gas emitted.

Cost is the key barrier to going green

More than four in ten (42%) SMEs say that the rising cost of doing business means going green has become less important. Over half (54%) also believe that while green issues are important, this cannot be at the expense of running their business.

The top three reasons small and medium-sized companies aren’t going green all relate to cost, with a third (32%) blaming the unaffordable costs associated with being an environmentally-friendly business. 

A quarter (26%) feel the lack of government support and grants is the biggest barrier, while nearly a fifth (19%) believe it’s because of a lack of tax incentives.

The importance of SMEs reducing their carbon footprint 

While costs are a significant barrier to going green, SME owners do back measures to become more sustainable. Three-fifths (61%) believe small companies should prioritise reducing their carbon emissions, and over half (53%) predict that their own business will become more environmentally friendly in the next five years. 

iwoca becomes carbon neutral 

iwoca, who commissioned the research, has become a carbon-neutral business in 2023 after an independent audit of its operations. 

The company has published its first sustainability strategy, and is funding renewable energy projects around the world to offset its carbon emissions. iwoca is also seeing more businesses apply for loans across Europe specifically to green their company and reduce their environmental impact. 

Alex Sheard, Product Manager at iwoca, and part of the company’s environmental task force, said: “This research couldn’t be clearer - SMEs want to go green, and understand how important it is, but the current economic environment is a hugely inhibiting factor.

“For the UK to meet its net zero targets, we must not forget about our SMEs, who account for 99.9% of the business population, and generate over 40% of the UKs non-household carbon emissions From how they invest, how they heat and insulate office and factory spaces, to how their employees travel – going green seems to be a significant operational challenge for SMEs, and access to capital is a crucial component in turning this around.” 

Brian Mair is the Managing Director of Nudge Education, a Newcastle-based provider of specialist support to children and young people who are at risk of disengaging from school. With over 250 staff, they provide one-to-one support to hundreds of vulnerable children each year and are focusing on making their company greener in the year ahead. 

“As we’ve grown our business with operations across the country, we’ve become really conscious of our environmental impact. The nature of the work we do means our staff drive out to schools and into communities every day to deliver one-to-one sessions with young people, and this all leads to a larger carbon footprint. 

“We’ve put in place an e-bike scheme that our staff can take part in, but some green policies have been hard to get off the ground. When we speak to leasing companies about electric car hire for our staff, or car-sharing options, the costs quoted to us as an SME mean we’re not in a position to do this. Making our business more green is so important, but it can’t be at any cost.”