Net-zero transition presents 'huge opportunity' for small UK businesses

Britain's transition to net zero presents huge opportunities for small businesses in the country, despite many firms grappling with pandemic-induced challenges such as higher energy prices, says Andrew Griffith, the UK climate action business champion.

Shifting to a low-carbon economy is the “transition of our generation”, Mr Griffith told a seminar hosted by British think tank Policy Exchange. He added that he was “very conscious” of all of the headwinds small businesses have faced in recent months — from the Omicron variant of coronavirus to the supply chain crisis.

“Net zero will be disruptive for small businesses, but that makes a great opportunity, because small businesses tend to be some of the most dynamic, and the businesses that can move first when things change,” Mr Griffith said.

“Some of the small businesses today that operate in this low-carbon space or are providing solutions are going to be very large businesses in the future and that’s incredibly important as we try to build a dynamic, science-based, superpower economy that seeks to make the most advantages of the green industrial revolution.”

Mr Griffith said one of the biggest challenges small business owners face is the fact they are “time limited” with a high opportunity cost on the time of founders.

“I would urge small businesses to engage in this. There are an increasing number of places that they can go to get support as the big challenge with small businesses is often finding out what's there,” he added.

“It's easy if you're a big business: you've got a sustainability department, you've got procurement departments, you can you can crunch through this. But it’s much harder for small businesses to know where to start.”

Britain has put itself front and centre of the shift to net zero, with Prime Minister Boris Johnson unveiling a 10-point plan for a greener economy in November 2020 with a pledge to invest £12 billion in the transition away from fossil fuels.

In October last year, weeks before the UK hosted the Cop26 environmental summit in Glasgow, Britain’s Chancellor of the Exchequer Rishi Sunak set out a vision of Britain's future as a global science and tech superpower in his autumn budget, with pledges to boost research and development, incentivise green investments and attract overseas talent.

The UK’s commitment to net-zero emissions is also considered the economy’s best chance of levelling up the country, with Mr Johnson saying in November that government and business working in partnership on the challenge will tackle the “woeful imbalance in productivity across the country".

Mr Griffith said while the government’s job is to sketch out the country’s long-term green goals, there comes a point where they must look to the “ferocious problem-solving of business … to bring forward solutions and do the heavy lifting from here to there”, in turn unleashing entrepreneurs into the economy.

However, Martin McTague, national vice chairman of policy and advocacy at the Federation of Small Businesses, said the priority for many small businesses right now is “survival” because of the tough conditions faced during the Covid-19 crisis.

While small businesses in sectors such as non-essential retail, hospitality and entertainment were forced to close their doors during the series of lockdowns Britain has faced, the challenges have not gone away since reopening.

Fresh hurdles include labour shortages, with job vacancies surging to a record 1.25 million in the fourth quarter of last year, as well as supply chain disruption caused by global challenges, such as the lack of semiconductors and the UK’s dependence on international trade.

The country's reliance on natural gas imports for heating and electricity generation, for example, has seen domestic gas prices skyrocket, with higher energy prices pushing inflation up to 5.4 per cent in December — the highest level since 1992.

Energy bills could increase again in October after a predicted 50 per cent jump for millions of households in the spring when the energy regulator Ofgem raises the price cap, Emma Pinchbeck, chief executive of Energy UK, the trade body for suppliers, said in a separate seminar.

Ms Pinchbeck said bills were expected to rise not only in April but again in October “if nothing changes”, as the spike in wholesale gas prices fed through to domestic bills.

“We haven’t seen anything like this, not in my career or in any of the people who sit on my board,” she said.

Although wholesale prices were expected to drop, “they are still three times higher than we expect to see at this time of the year” and described the situation as “enduring”.

Mr McTague said the situation was “a major concern” for the climate change drive “because some businesses have come through the pandemic in a pretty weak state and are now facing a big hike in energy prices".

“That then pushes down any attempts to lower their carbon footprint down the agenda,” he added.

However, Mr McTague said there is major enthusiasm among small business owners about the transition, with plenty of goodwill and a desire “to do their bit”.

“The problem is that most of them just say, well, I need more information. I'm not really sure what I do next,” he added.

The lack of information and clarity is creating missed opportunities for the government, Mr McTague said, pointing to the government’s push to get households to adopt heat pumps to replace gas boilers.

The plan, first unveiled in October, included the government offering grants of £5,000 to British households to replace their gas boilers with low-carbon heat pumps in an effort to cut emissions from homes and comply with a UK goal for all new heating systems to be low carbon by 2035.

“If you look at something like heat pumps, it's pretty clear that although the ambitions are very big, 600,000 heat pumps a year, there is a bit of a market failure going on at the moment,” said Mr McTague.

“Unless you lower the risk for entry for a lot of SMEs, that market is going to stall at its current level.”

Small business owners that want to invest in electric vehicles are also struggling with the implications of doing so and how it might affect their tax position if they replenish staff who use EVs for their business needs.

Instead, Mr McTague said companies need clarity on how to transition their businesses.

“A lot of people are looking to the government to say, 'Can you clear this thicket of problems out the way so that my decisions are a lot simpler?' Then when it comes to the big hikes in energy prices, that just makes one more obstacle on the way.”