Decarbonisation – Why Doing Nothing is Not an Option for SMEs

Randall Edwards Randall.Edwards@aspen-waite.co.uk

I’ve spent the last ten years helping businesses transition to a zero-carbon world. This experience has given me an invaluable insight into the challenges, risks and opportunities that climate change creates for businesses of all sizes across all sectors. In this article I’ve tried to summarise the who, why, what and when of climate change with particular focus on the SME sector.

What is climate change?

Climate change is the greatest environmental challenge facing the world today. Rising global temperatures are bringing changes in weather patterns, rising sea levels and increased frequency and intensity of extreme weather. The effects are being felt in the UK and internationally. Climate change is caused by the release of greenhouse gases into the atmosphere.

What are greenhouse gas emissions?

The key greenhouse gas emissions are carbon dioxide, methane and nitrous oxide hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride. Each gas has a different capacity to cause global warming. Carbon dioxide is expected to be responsible for about two thirds of the anticipated future warming.

What causes greenhouse gas emissions?

Human activities release greenhouse gas emissions into the atmosphere – using electricity generated from fossil fuel power stations, burning gas for heating or driving a car.

Within the UK it is estimated that business activities account for about half of all emissions.

What is being done globally about climate change?

The Paris Agreement is a legally binding international treaty on climate change. It was adopted by 196 Parties, including the UK, US and China, in Paris on 12th December 2015 and entered into force on 4th November 2016. Its goal is to limit global warming to well below 2, preferably to 1.5 degrees Celsius, compared to pre-industrial levels. To achieve this long-term temperature goal, countries aim to reach global peaking of greenhouse gas emissions as soon as possible to achieve a climate neutral world by mid-century.

The Paris Agreement is a landmark in the multilateral climate change process because, for the first time, a binding agreement brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects.

What is the UK doing about climate change?

The Prime Minister recently announced a new ambitious target to reduce the UK’s emissions by at least 68% by 2030, compared to 1990 levels.

Recognising the urgency to go further to tackle climate change, the UK’s new target to reduce greenhouse gas emissions – our Nationally Determined Contribution (NDC) under the Paris Climate Agreement – is among the highest in the world and commits the UK to cutting emissions at the fastest rate of any major economy so far. Over the past decade, the UK has cut carbon emissions by more than any similar developed country and was the first major economy to legislate for net zero emissions by 2050.

What is The Greenhouse Gas Protocol?

The Greenhouse Gas Protocol (GHGP) arose out of the need to help countries and companies account for, report, mitigate emissions and provides accounting and reporting standards, sector guidance, calculation tools and training for businesses and local and national governments. It has created a comprehensive, global, standardised framework for measuring and managing emissions from private and public sector operations, value chains, products, cities and policies to enable greenhouse gas reductions across the board.

The GHGP categorizes emissions into three scopes; scope 1 covers direct emissions from owned or controlled sources: scope 2 covers indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company; scope 3 includes all other indirect emissions that occur in a company’s value chain. Most companies that report greenhouse gas emissions, report in accordance with the GHGP which requires the reporting of scope 1 and scope 2 emissions and encourages the reporting of scope 3 emissions.

What is the framework for reporting greenhouse gas emissions in the UK?

The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 introduced the mandatory reporting of annual greenhouse gas emissions (scope 1 and scope 2 only) by quoted companies and from April 2019 this reporting requirement was extended to large unquoted companies and limited liability partnerships by The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. There is currently no requirement for SMEs to report greenhouse gas emissions in the UK.

What about SMEs?

The SME sector comprises c.60% of the workforce and c.50% of the turnover of UK plc and as such is a major emitter of greenhouse gas yet it is completely “flying under the radar” when it comes to reporting and tackling its carbon footprint.

My experience thus far is that most SMEs have given very little consideration to their carbon footprints. In terms of overall emissions, most have focused their efforts on air quality and waste and water management, areas that tend to be in the sights of environmental health officers or health and safety executives. Broader sustainability concepts, including carbon reduction, are given less priority. It appears that many SME owners are focussed on the day-to-day challenges of running a business and simply lack awareness of what is at stake and how it applies to them. Others may not have the in-house sustainability expertise, time or resources to tackle their carbon footprint. While many carbon-reduction programs can generate cost savings in a relatively short timeframe, upfront investments are required. It’s not surprising that a lack of time and money was the number one barrier for SMEs responding to a survey by the UK’s Carbon Trust. And then, of course, there is the impact of COVID-19 - for many SMEs, the sole focus now more than ever is on winning work and delivering contracts.

Despite these many obstacles for SMEs, the fact is that quite literally, they cannot afford to do nothing about climate change and trying to avoid its impact is like trying to squeeze a balloon in your hand – no matter how hard you try, it’s going to pop out somewhere!

The reasons for this are twofold. Firstly, their position in the supply chain of larger companies that have to set carbon reduction targets and who are in more and more cases starting to report indirect emissions (scope 3) due to increased pressure and scrutiny from their stakeholders, means that their suppliers, SMEs, will need to be able to report their carbon footprint and be seen to be actively managing it down. Secondly, there are already plenty of signs that suggest the global financial markets are starting to shift away from “carbon heavy” businesses and this will quickly filter down to SMEs, making access to funds more difficult and more expensive to those that have no “green credentials” and making them less attractive to investors and potential acquirers when it’s time to exit.

Mark Carney (former Governor of the Bank of England and currently UN Special Envoy for Climate Action and Finance) spoke recently about the need for businesses to transition to a zero-carbon world. He did not pull his punches “There will be industries, sectors and firms that do very well during this process because they will be part of the solution,” he said. “But there will also be ones that lag behind and they will be punished.”. He went on to say that “Companies that don’t adapt will go bankrupt without question.”

“Sustain” is the answer.

Aspen Waite is pleased to announce the launch of “Sustain”. Sustain is effectively an out-sourced multidisciplinary sustainability team for SMEs that has all the technical, commercial, marketing and finance skills needed to help your business successfully and profitably transition to a zero-carbon world.

If you want to know more then please email

sustain@aspen-waite.co.uk