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Insider UK
Insider UK
Business
Peter A Walker

SMEs struggle to balance net zero goals with tackling rising costs

In the wake of Glasgow hosting last year's crucial climate conference, it seemed like the Scottish Government's ambitious net zero emission goals were being increasingly met by practical plans from businesses, from global corporates to small and medium-sized enterprises (SMEs).

However, earlier this year Russia invaded Ukraine, exacerbating existing economic instability and significantly increasing the cost of energy - and with it many other products and overheads.

While the benefits of increasing sustainability for companies appear to be getting ever-more obvious - and Scottish business leaders are increasingly declining to work with clients without such credentials - recent research suggested this is happening here at a much lower level than across the rest of the UK.

With firms in some sectors struggling for survival, it's easy to see carbon reduction initiatives as a 'nice to have', rather than something crucial the tackling the climate crisis.

To help solve these dilemmas, Insider spoke to Fraser Sime, regional director for SME banking at the Bank of Scotland, to find out his perspective:

As COP26 becomes an ever-more distant memory, how can the momentum be maintained for company journeys towards net zero?

COP26 was a huge event for Scotland, providing an opportunity to showcase this country as a global leader in sustainable and inclusive economic development. It also helped to focus our economy on net zero, with businesses looking at how they could help support Scotland’s push for decarbonisation.

As someone who champions sustainability in the Scottish business community, this was fantastic to see. But, as we move forward, it’s imperative that green ambitions don’t fall by the wayside.

We need to ensure that sustainability remains at the forefront of Scotland’s business agenda. The First Minister recently issued a call to arms to the Scottish business community to support new ways of working and to help propel the push towards net zero. It’s clear that the impetus is on firms to take action now.

To make it straight forward for businesses to make green changes, we need to ensure they know what steps they can take and what support is available to help them decarbonise.

We also need to champion the stories of Scottish firms that have already moved forward in their decarbonisation journey. For example, last year we supported Stirling-based Asher’s Ice Cream to acquire a new fleet of sustainable ice cream vans to drive down the business’ emissions and kick-start its new sustainability strategy.

Promoting stories like this can inspire other firms across the country to follow suit and help to showcase the range of innovative strategies firms are employing to decarbonise.

How should smaller firms balance their goals with the more short term stresses of rising energy costs/inflation/skills shortages/supply chain difficulties?

The headwinds Scottish firms are currently facing are hugely challenging.

In a climate like this, we know that firms may be tempted to put their sustainable ambitions on the back burner. But it is important that we emphasise how sustainable changes can help a business become more resilient against future disruption.

Companies transitioning to low-carbon and sustainable business models often consume less energy and can see costs decrease significantly as a result. For example, by improving the energy efficiency of buildings and transitioning to electric vehicles (EVs), businesses can continue to make further progress towards their net zero ambitions while making key savings across the board.

Meanwhile, current supply chain disruption should act as a prompt for firms to conduct a sustainability audit of their supply chains. Through auditing a supply chain, firms can recognise and acknowledge those suppliers that are already meeting or exceeding sustainability criteria and those that are lagging. This helps businesses to identify areas where improvements could be made and enhance the resilience of their supply chains.

What can banks do to help with some of those issues, so that businesses can survive long enough to reach their targets?

We know that making any significant changes to your business just now may seem like a daunting prospect. But there is a host of support available to help firms take the next step and realise their green ambitions

At Bank of Scotland, we offer funding through our Clean Growth Financing Initiative. This offers discounted lending for businesses that invest in sustainable measures. This could be for improvements such as installing an EV charging point, right through to large-scale renewable energy infrastructure, such as implementing wind turbines to power a manufacturing facility.

We know that the built environment accounts for a significant proportion of Scotland’s carbon emissions so for firms in this sector, being aware of your carbon output can be a great starting point. We created a Green Buildings Tool to help businesses identify, evaluate and understand the estimated outcomes of potential investments to make their property more sustainable and energy efficient.

We all also have a big role to play in enabling the transition to EVs. Making the switch to electric removes diesel and petrol costs, but purchase costs are often higher, which puts many businesses off making the change. Despite this, there is support available to help firms transition to electric vehicles and doing so now can help firms, particularly those with larger fleets, to continue their drive to net zero.

Would it be right to assume you're promoting the idea that businesses which don't integrate ESG factors may soon be at a competitive disadvantage anyway?

We’re seeing the importance of Environmental, Social and Governance (ESG) credentials continue to grow at the moment. There is increasing evidence to suggest firms that integrate ESG are more attractive to investors and to top talent.

Our Lloyds Bank ESG Report, for example, found that a growing number of employees would look for a new role if they thought their organisation was not doing enough on ESG.

Firms that take steps now to enhance their ESG proposition will foster a stronger public profile and be in a better place to secure new talent and investment going forward.

Furthermore, it can also help businesses to generate higher value creation and act as a springboard for further growth. Consumers are becoming more demanding and are increasingly choosing to limit their spend on firms that lack a comprehensive ESG offering.

If all other things are broadly equal, a company with a more progressive net zero strategy may well win incremental business.

The largest clients in the UK are also currently looking at their supply chains and gauging how their suppliers are contributing to their net zero ambitions. Firms that are taking action now to drive down their carbon footprint are likely to standout and be in a better position to win further business over the coming months and years.

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