A strong recovery in business activity at UK small and medium-sized enterprises has been achieved so far in 2022, new research shows. However, input price inflation hit a record high in March and subsequent worries about absorbing increasing costs were cited as a key constraint on sustainability action.
According to NatWest’s latest Sustainable Business Tracker, despite this, adopting low carbon energy saw an overall rise in prioritisation. This has been reflected in planned investments in onsite green energy generation, electric vehicle infrastructure and hiring and training staff in sustainability.
Only 7% of SMEs have already reported investing in onsite green energy generation, but this number could more than double by 2023 as a further 10% of SMEs reported plans to begin within the next 12 months. This suggests that around 1 in 6 SMEs (17%) intend to generate onsite green energy by 2023. SMEs mainly anticipate solar panel installations and battery storage investments to protect their business against ongoing energy price rises.
Around 15% of SMEs report that they have already invested in electric vehicle infrastructure, such as electric car fleets or charging points. Similarly, this number could more than double by 2023 as another 20% plan to do so in the next year. This suggests that around 1 in 3 SMEs (35%) will have invested in electric vehicles or charging points by next year.
Meanwhile, just 13% of SMEs report that they have secured a renewable energy supplier, but another 10% plan to do so in the year ahead.
- 1 in 6 SMEs intend to generate onsite green energy by 2023
- 1 in 3 SMEs plan to invest in electric vehicles or charging points by next year
- 21% of SMEs are set to train or hire staff in sustainability in the next year
- Low carbon energy demand was the only component of the NatWest Sustainability PMI to rise since last autumn, with 41% of businesses citing this as a high priority
- Strong SME recovery in March, led by service sector growth
Training or hiring staff in sustainability was the most commonly cited investment in the year ahead for SMEs (21%), whereas for larger firms it is 44%. By sector, efforts to boost training and hiring were most prevalent among SME service providers (22% vs. 16% of SME manufacturers).
There were some bright spots for sustainability action in the SME manufacturing sector. The proportion reporting investments in sustainable product launches rose slightly to 32%, up from 31% in the previous survey in September 2021. Those monitoring supply chain sustainability jumped to 40%, up from 35%, and above the pre-pandemic benchmark (37%).
Looking at business performance, SME service providers saw the fastest growth of all three monitored sectors in March (60.7), as fewer pandemic restrictions helped to boost demand.
SME construction output also expanded at a sharp pace (58.8), but the manufacturing recovery remained relatively subdued (52.7) as widespread supply chain issues and escalating costs hit the sector. The overall rate of input price inflation at UK SMEs was the steepest since this index began in January 1998, which was driven by escalating energy, fuel and wage bills.
Andrew Harrison, Head of Business Banking at NatWest Group, said:
“It’s great news that SMEs have recognised that sustainability measures can boost their recovery, fuel their growth and future proof their business. Energy prices and global supply chain pressure are leading companies to look for ways to increase efficiency, lower energy bills and invest in employees with green knowledge.
“NatWest’s Springboard to Sustainability report, published in October 2021, found that 50% of the UK’s carbon reduction ambition can be delivered by the SME sector. This could also unlock a £160 billion opportunity for them. Sustainability, recovery and growth go hand-in-hand and SMEs need to be supported to know how to make the most of the opportunities that lie ahead.”
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