FSB Net Zero report May 2025 by Federation of Small Businesses

New Growth

How to support small businesses to cut carbon and costs on the road to Net Zero

Published: May 2025

Acknowledgements

This report was written by Gruffudd Jones, Policy Advisor.

With special thanks to all those within FSB’s media, government affairs, and policy teams in Westminster, Scotland, Wales and Northern Ireland who provided insight and support. In particular, thanks to Paul Wilson, Policy Director; Jo Tacon, Media Advisor; Tom Blenkinsop, Senior Government Affairs Advisor; Ian O’Donnell, Net Zero Champion; and to Filippo Pollara and Yupina Ng.

About FSB

The Federation of Small Businesses (FSB) is the UK’s grassroots business organisation. We are a crossparty non-profit body that represents small business and self-employed members in every nation and region. In 2024, FSB celebrated 50 years of being the authoritative voice on issues affecting the UK’s 5.5 million small businesses, microbusinesses and the self-employed.

FSB is the UK’s largest business group and leading business campaigner, focused on achieving change which supports smaller businesses to grow and succeed. We also provide our members with a wide range of vital business services, helping them to start, run, and grow successful businesses through high quality protection and support. This includes 24/7 legal support, financial expertise, training and events, debt recovery and employment/HR advice – alongside

About Zurich UK

Zurich UK provides a suite of general insurance and life insurance products to retail and corporate customers, including Small to Medium Enterprises. We provide a range of SME insurance products, including Commercial Combined, Trades and Professions, Property Owners and Motor Fleets, through broker partners to micro, small and medium-sized businesses within the UK. The Zurich SME proposition has been developed to cater for businesses with a turnover of up to £5m. Our bespoke SME insurance products provide insurance solutions for small businesses, across multiple trade sectors.

Outside of SME, we supply personal, commercial, and local authority insurance through a number of distribution channels, and offer a range of protection,

Thank you also to all the FSB members and other small businesses and the self-employed who took the time to engage with our research which underpins this report. The quantitative research was carried out by Verve – the market research agency responsible for administering the survey. The report was designed by Cactus Design Limited – a small business based in Wales.

Thank you to Zurich UK for sponsoring the report, and providing valuable input.

a powerful voice heard by governments at all levels. Our local, national and international work helps shape policy decisions that have a direct impact on the day-to-day running of smaller businesses. We work for their interests through research and engagement with our members and by effective campaigninginforming those in power through policy analysis, government affairs, international engagement, and media, communications and public relations. Our advocacy work starts with our expert external affairs team in Westminster, which focuses on UK and England policy issues, the UK Government, Parliament and media and communications engagement. Further to this, our teams in Glasgow, Cardiff and Belfast work with governments, elected representatives and media in Scotland, Wales and Northern Ireland.

retirement, and savings policies available online and through financial intermediaries for the retail market and via employee benefit consultants for the corporate market. We have several large office sites regionally and employ around 5,000 people.

We are a part of Zurich Insurance Group, a leading multi-line insurer serving people and businesses in more than 200 countries and territories. Founded 150 years ago, Zurich Insurance Group provides insurance protection and prevention services that promote wellbeing and enhance climate resilience. It has more than 60,000 employees, is headquartered in Zurich, Switzerland and the holding entity Zurich Insurance Group Ltd (ZURN) is listed on the SIX Swiss Exchange.

FSB FOREWORD

Small firms will be the engine that drives the UK to a sustainable economy. With small businesses making up over 99 per cent of the total business population, and accounting for between 43 and 53 per cent of business emissions, their buy-in will be key to making any real progress. Small businesses are, overall, positively inclined towards sustainability: over half of small firms say that sustainability is a high priority for their business, and nearly two thirds believe it should be a high priority for the Government as well.

There are as many ways to net zero as there are small businesses in the UK. The great diversity of the small business community is its strength, but it also presents challenges when it comes to green issues; what works for a llama farm in Lancashire will not be the solution that’s needed for a logistics business in the Highlands. Their separate roads to net zero will look very different, but will – with determination, and the right support – end at the same destination.

Despite the vast diversity of the small business population, there are some common threads which can be identified as offering potential to affect positive change among the largest possible numbers of firms. Every business requires energy to keep the lights on, and transport to move people or goods, while every business that is in a supply chain will need to consider its carbon footprint, and how to measure it. Thinking more widely, installing energy-saving technology is good for the planet – and also good for margins, too. Customers, both individual and corporate, are inclined to see sustainability credentials as a plus point when making purchasing decisions.

The green economy is rapidly expanding, offering transformational opportunities to small businesses, who are, thanks to their size and shorter decisionmaking processes, very often nimbler and more adaptable than their larger counterparts. A small firm is much better placed to spot an opening in the market or come up with a new idea, rapidly acquire the knowledge, tech and skills needed to fill it, and reshape their business model to benefit from new horizons.

Being entrepreneurial, the unsettled global geopolitical moment we find ourselves in does create opportunities for the UK on this agenda. On a national level, the Government is investing in ways to uncouple our energy supplies from transnational pipelines vulnerable to price shocks and political upheaval; small firms can see this echoed in their own experience of the recent energy price crisis, which caused enormous levels of financial pain to millions of businesses. But there are still barriers in place for small firms who want to install their own independent energy generation methods. Those who rent rather than own their premises are at the mercy of the whims of their landlord, while the upfront cost of installing solar panels or a wind turbine, and the long pay-back periods that may follow, put them out of the reach of many businesses whose margins have been eroded away by inflation and economic turbulence.

Looking to electric vehicles, we welcome the Government’s recent clarification of the phase-out dates for sales of petrol and diesel cars and vans. Clarity in this area has been desperately needed; small firms’ purchasing or leasing decisions can now proceed with more certainty than before.

It’s easy to understand why many small business owners feel frustrated by the complexity of net zero –how to measure their carbon footprint, what the best option for their transport needs is, whether one form of packaging is more sustainable than another. Our hope is that this report will help to untangle some of the major sources of confusion, while offering recommendations to governments and regulators across the UK on how best to target help and support to small firms. The future of our planet, and the economy, is too important to get this wrong. And there are huge prizes on offer, on the way to getting it right.

Ian O’Donnell MBE Net Zero Champion, Federation of

ZURICH FOREWORD

As we navigate the critical journey towards a net zero future, the role of small and medium-sized enterprises (SMEs) cannot be overstated. SMEs, which make up the majority of UK businesses, play a crucial role in reducing the country’s greenhouse gas emissions. FSB’s New Growth report sheds light on the challenges and opportunities faced by small businesses in the transition and underscores the importance of sustainability in their business operations.

At Zurich, our ambition is to become net-zero by 2050 across our insurance business and investments, and by 2030 across our operations. With our growing SME customer base and many small businesses within our supply chain, these findings are particularly significant. Small businesses are not only crucial to our economy but also integral to achieving our netzero goals. We are committed to supporting our SME customers and suppliers on their sustainability journey.

The FSB report highlights that only 26 per cent of small firms feel they have the appropriate knowledge to transition to net zero, and just 14 percent believe they have the necessary time. These statistics highlight the need for practical, accessible solutions to help small businesses navigate the complexities of decarbonising.

The Zurich Resilience Solutions Climate Team works with SMEs to identify, assess, and manage climate related risks. The Climate Team uses our interactive Climate Spotlight Tool to provide data-driven insights on climate risk to prioritise locations for climate risk assessments. These help to identify risk reduction activities, enabling small businesses to make informed decisions and develop strategies to manage current and future climate-related risks which are used to support climate risk reporting.

Transportation is another area where small businesses can make significant progress. This report shows that 46 percent of small firms find the cost of electric vehicles a major barrier, and 57 percent support the idea of government grants to encourage the transition to zero emission vehicles. Zurich’s enhanced small fleet coverage now includes electric vehicles, supporting small businesses to adopt greener transportation options and achieve their sustainability goals.

Awareness of available government grants and support schemes is worryingly low among small businesses. For instance, only 16 per cent of small firms know of the Workplace Charging Scheme, and just 14 per cent are aware of the Boiler Upgrade Scheme. This lack of awareness prevents small businesses from taking full advantage of the resources designed to aid their sustainability efforts. Better communication and outreach from the Government are essential to address this.

Lastly, the complexity and frequent changes in regulations pose a challenge for small firms. Many struggle to keep up with evolving regulations and missed support opportunities. With 60 per cent of small businesses in England and 65 per cent in Scotland finding that the UK Government’s messaging around net zero is unclear, simplifying regulations and providing clear, consistent guidance will help small businesses navigate these requirements more effectively and confidently.

We hope this report helps to foster collaborative efforts amongst policymakers, businesses, and other stakeholders towards a greener economy.

David Nichols Head of UK Retail, Zurich UK

NEW GROWTH

How to support small businesses to cut carbon and costs on the road to Net Zero

64% of small businesses believe sustainability should be a high priority for the Government

60%

of small businesses have energy efficient lighting (e g LEDs) and 27% use energy efficient appliances (printers etc )

28%

of small business owners are using personal savings to invest in greener technology for their business

38%

of small businesses said that lack of capital or savings is a barrier to investing in green technologies

15%

of small businesses have measured their carbon footprint

Among businesses asked to measure their carbon footprint, found it easy, while 43% found it difficult

27%

16% of small businesses use a zero emission vehicle

26% of small businesses believe they have the appropriate knowledge to transition their business to net zero

14% of small businesses feel they have the appropriate time to transition their business to net zero

KEY FINDINGS

Chapter 1: Net Zero and Small Businesses

• 64 per cent of small businesses believe sustainability should be a high priority for the Government

• 25 per cent of small firms expect to transition to net zero by 2050

– This rises to 33 per cent of small businesses in the information and communications sector

• 80 per cent of small businesses understand the term ‘net zero’

Chapter 2: Greening Business Operations

• 60 per cent of small businesses have energyefficient lighting installed in their business premises

• 17 per cent of small businesses have installed a solar panel in their place of business

• 7 per cent of small businesses have battery storage installed in their place of business

• 61 per cent of small businesses said lower energy bills would incentivise them to install low carbon improvements

Chapter 3: Barriers to Transition

• 38 per cent said a lack of capital was a barrier to transitioning their business to net zero

• 61 per cent of small businesses said they did not feel they had any of the appropriate attributes (time, finances, knowledge, skills or trained staff) to transition their business to net zero

• Only 13 per cent of small businesses said they had the appropriate finances to transition their business to net zero

• 18 per cent of small businesses are unable to install low carbon solutions due to restrictive tenancy agreements

Chapter 4: Carbon Accounting

• 15 per cent of small businesses have measured their carbon footprint

• 74 per cent of small firms said they did not understand the terms Scope 1, Scope 2 and Scope 3 emissions

– This includes 34 per cent of small businesses who have been asked to measure their carbon footprint

• Of those businesses who have not been asked to measure their carbon footprint, 56 per cent think it would be ‘difficult’ (27%) or ‘very difficult’ (29%).

Chapter 5: Transport

• 73 per cent of small businesses use cars (either petrol, diesel, or battery) regularly as part of their business operations

• 46 per cent of small businesses said the biggest barrier to transitioning to a zero emission vehicle was cost

• 60 per cent of small businesses said that a cheaper upfront cost would incentivise them to transition to a zero emission vehicle

RECOMMENDATIONS

Chapter 1: Net Zero and Small Businesses

• The Department for Energy Security and Net Zero should work with the Department for Business and Trade to add a decarbonisation stream to the Made Smarter programme for SME manufacturers

• The British Business Bank, in its evaluation of its pilot of the green variant of the Growth Guarantee Scheme, should consider if the terms are attractive enough before rolling out the full green variant of the scheme

• The Department for Energy Security and Net Zero should continue to refine and promote the sectoral roadmaps developed under the Net Zero Council, to maximise the relevance for small businesses.

• The Scottish Government should review its delivery plans in relation to the transition to net zero to improve confidence among small businesses

• The Northern Ireland Executive should publish its finalised Circular Economy Strategy, Green Growth Strategy and Climate Action Plans for the first three Carbon Budgets.

• The Welsh Development Bank should be involved in net zero support for Welsh small businesses due to its high brand recognition

Chapter 2: Greening Business Operations

• The UK Government, in collaboration with Local Authorities, should nationally roll out the Business Energy Advice Service currently being piloted in the West Midlands

• Future solar photovoltaics grant support offered by the UK Government should be accessible for commercial properties as well as domestic properties

• The Ministry of Housing, Communities and Local Government should expand Permitted Development Rights to include air source heat pumps in commercial properties

• The UK Government should place the Net Zero Council on a statutory footing to strengthen its authority in coordinating net zero policy and delivering on the Government’s Plan for Change.

• The Northern Ireland Executive should prioritise investment in high quality infrastructure to allow small businesses to benefit from sustainability opportunities

• The Northern Ireland Executive should accelerate the roll-out of smart electricity meters for small businesses in Northern Ireland

Chapter 3: Barriers to Transition

• HM Treasury should extend the current VAT zero rate for the installation of energy-saving materials to include commercial premises.

• The Department for Energy Security and Net Zero and the Ministry of Housing, Communities and Local Government should organise a joint taskforce to tackle the landlord-tenant split incentive

• HMRC should legislate to widen the circumstances in which training costs are taxdeductible to encourage more self-employed people to expand into green industries.

• To support small business landlords, the UK Government must clarify its position on the Minimum Energy Efficiency Standards in nondomestic premises

• The Scottish Government should relaunch its Microgeneration Certification Scheme (MCS) fund to strengthen heat pump supply chains

Chapter 4: Carbon Accounting

• The Cabinet Office should work with the Net Zero Council to promote a standardised carbon accounting framework

• Ofgem should require energy suppliers to provide information on the greenhouse gas emissions connected to business consumers’ use of energy on their billing information

• Large businesses, as part of their Corporate Social Responsibility work, could focus on investing in decarbonisation projects within their own value chain to support SME decarbonisation

• Local Authorities, with support from the Department for Energy Security and Net Zero, should consider replicating the successful Carbon Clinic model currently operated by Oh Yes! Net Zero in Hull

Chapter 5: Transport

• HM Treasury should equalise VAT on electric vehicle charging between public and private settings at 5 per cent

• HM Treasury should introduce a £50,000 threshold in the Expensive Car Supplement for electric vehicles

• The Department for Transport should look to replicate the success of Project Gigabit to support the roll-out of electric vehicle charging infrastructure for areas where it is currently not commercially viable

• Mayoral Combined Authorities should look to replicate the scrappage scheme that was run by the Mayor of London and Transport for London between 2023 and 2024 nationally

• The Department for Transport, in collaboration with Highways England and devolved agencies, must work to provide clearer signage for electric charging infrastructure

CHAPTER 1: NET ZERO AND SMALL BUSINESSES

Micro, small and medium-sized businesses have a fundamental role to play in ensuring the UK transitions to net zero. While small and medium businesses represent 99.8 per cent of businesses in the UK, they account for between 43 and 53 per cent of business emissions.1

The UK Government has a commitment to reach net zero by 2050, as laid out in the Climate Change Act 2008. Devolved governments also have their own commitments, with Scotland having an earlier target date of 2045. To reach net zero requires the UK to reduce its greenhouse gas emissions by 100 per cent from 1990 levels. In turn this requires the transition of the economy towards a greener model. Government policy and support has so far mostly been geared towards decarbonising the domestic sector as well as big businesses.

The majority (64%) of small businesses believe that sustainability should be a high priority for the Government, and over half (51%) of small businesses say that sustainability is a high priority for their business, highlighting that many small businesses already actively engage with sustainability in their business practices and their impact on the environment.

While 26 per cent of small businesses disagree that sustainability is a high priority for their business as figure 1 shows, the vast majority of small businesses across the nations and regions agree or strongly agree that sustainability should be a high priority for the Government. Close to three quarters of small businesses in the West Midlands (74%) believed Government should have sustainability as a high priority, compared to 51 per cent of those in the East of England. Communication around the importance as well as the benefits of net zero must work to mobilise small businesses across the UK to ensure that no regions or nations are left behind.

Figure 1: The number of small businesses that said that sustainability should be a high priority for the Government by region and nation (excl. NI)

Source: FSB Net Zero Survey 2024

Transitioning to a net zero business, including the use of energy efficiency technology and micro-energy generation, can have a direct benefit for businesses through decreasing direct costs related to energy.

Beyond this, analysis by McKinsey highlights that the growth of the net zero economy in the UK could be worth more than £1 trillion by 2030,2 and that it is growing three times faster than the rest of the UK economy,3 opening new markets for small businesses to develop and expand their business practices through green goods and services directly, or through wider supply chains.

Net zero is an opportunity for innovation and growth, and Government policy must work to support small businesses across the UK to understand and feel the benefits of the transition.

SUSTAINABILITY REQUIRES FORWARD THINKING

Sustainability has been fundamental to the Anglesey Sea Zoo since I bought the business 18 years ago. Our systems have to be running 24/7 to keep our animals alive, so having them run as efficiently and cheaply as possible is vital.

True business sustainability requires forward thinking over a long period You need to make any positive changes – however small – as soon as you can Our sustainability journey has been a combination of gradual improvements in small steps and several bigger projects when time or funding allowed Sometimes that means a financial sacrifice in the here-and-now, but it’s worth it for the future pay-off

For example, over the course of a decade we changed all our lighting over to LEDs, and upgraded to more costly but much more energy efficient models during the servicing and replacement of pumps and systems

Eight years ago I made the decision to invest in a 50kw solar photovoltaic system and we became the first solar-powered aquarium, reducing energy consumption by almost 40 per cent Two electric car charging stations were fitted as well. This required a large loan of over £70,000, but secured its survival when the recent energy crisis hit, so it’s the best decision I ever made, looking back

In 2018 we got rid of single-use plastics across the whole site and spent around £80,000 introducing refillable water bottles and funky branded reusable products including sporks, stainless steel straws and cups When the UK Government single-use plastics ban was introduced in 2023, these costs had already been recouped through reduced waste disposal and buying costs, a boost in sales, and positive UK-wide PR and brand awareness from the products

Each season our beach cleans include a Beachwatch data collection survey Every year, eight out of the top ten items we find littering beaches are plastic, and plastic bags always used to be in the top three After the Welsh Government introduced the 5p bag charge

back in 2011, plastic bags fell out of the top ten entirely The data on the other single-use plastic items showing up on our shores, such as stirrers, straws and polystyrene cups, influenced the Welsh and UK Governments to bring in a ban on the ten most common single-use plastic items

We are currently upgrading our vehicle charging stations and conducting a full energy audit to see where we can do even more to improve our sustainability and efficiency. We have plans to expand our site through an ambitious environmental build, which will be expensive but would potentially enable the whole site to become net zero, while increasing the number of employment opportunities and providing exciting additional offerings to tourists and our community This has unfortunately been hampered by a lack of available funding

Pretty much everything that we have done to increase our sustainability and our conservation work has been done alone, without any meaningful support from the Welsh Government I think it’s a real shame, as we could do a huge amount with a sum of money that would be negligible in terms of the government budget, and this would be a real benefit to Anglesey’s tourism offering and the community here, as well as the natural environment For example, with our current fundraising to build the UK’s first turtle rescue centre here, we would love to get some support from the Welsh Government We will do it ourselves if we have to, but we could achieve so much more with a bit of backing

Frankie Hobro, Anglesey Sea Zoo/Sw Môr Môn, Isle of Anglesey

Understanding net zero

While there is a broad consensus that sustainability is a priority for small businesses and that this should also be the case for the Government, more work needs to be done to make net zero and sustainability accessible for small firms. Across all business sizes, an overwhelming majority of small businesses understood the term “net zero”, with 78 per cent of sole traders understanding the term, 79 per cent of businesses with 1-9 employees, and 84 per cent of businesses with between 10-49 employees.

Small businesses are often time-poor, with only 14 per cent saying that they had the appropriate time to transition their business to net zero. When asked if they had the appropriate knowledge to transition their business net zero, only 26 per cent of small businesses said they do.

Figure 2 shows the varying awareness of UK and devolved government policies around the sustainability and net zero agenda. There was a majority understanding around the phase-out of internal combustion engine (ICE) vehicles (57%),

Source: FSB Net Zero Survey 2024

the cycle to work scheme (56%), and net zero by 2050 (53%). However, policies that impacted, or will directly impact, small businesses and their business operations, either through regulation, government targets, or schemes and funding, were less known.

For example, the Workplace Charging Scheme would benefit many small businesses, by covering up to 75 per cent of the total cost of the purchase and installation of zero emission vehicle charging points (including VAT), and is directly open to businesses who own their own property. While the scheme tackles one of the biggest barriers to zero emission vehicle uptake (41 per cent of small businesses said lack of charging infrastructure was a barrier to adopting zero emission vehicles), only 16 per cent of small businesses were aware of the scheme, rising to 19 per cent among small businesses who owned their business property

Figure 2: The number of small businesses that are aware of Government sustainability-related policies

Certain policies within the net zero space will impact certain sectors more than others, yet data collected highlighted that there is little difference in awareness between sectors. Around one in seven small businesses (15%) were aware of the Deposit Return Scheme, yet only 14 per cent of small businesses within the wholesale and retail sector are aware of this policy, despite the fact that this sector will likely be highly affected by these changes. Similarly, 10 per cent of small businesses were aware of targets to reduce non-domestic water consumption, yet only five per cent of firms in accommodation and food service activities and eight per cent of those in the manufacturing sector showed awareness, where both sectors are water-intensive.

Small businesses often need to do their own independent research when coming to understand specific policy decisions and their impact on their business operations. While different types of small businesses will experience different impacts from net zero and sustainability policies, all businesses are likely to face some form of additional regulation. It is concerning that, while 15 per cent were unaware of any policy mentioned in FSB’s survey, this rose to close to one in five (19%) of those without employees, who account for 74 per cent of the total business population,4 highlighting that large swathes of the small business community are unaware of future policy changes that will impact them.

Communication between Government and small businesses is a necessity to ensure that small businesses do not face disproportionate detriment from regulatory changes, in comparison to larger businesses. However, there is currently reason for concern around the clarity of Government messaging, with 60 per cent of small businesses in England, 65 per cent in Scotland and 64 per cent in Wales disagreeing that the UK Government’s messaging around net zero is clear.

Our research provides indicative data into the situation in Northern Ireland. Small businesses in Northern Ireland also noted that clarity of messaging from both the UK and devolved Government was a concern.

Overall, small businesses in Wales were most likely (24%) to say that they agreed or strongly agreed with the statement that their respective devolved Government’s messaging around net zero is clear, compared to around half that proportion in Scotland (13%).

Support for small businesses in Wales centres around both Business Wales and the Development Bank of Wales. Both have high brand recognition and satisfaction levels among the community. Over four in five Welsh small businesses (83%) are aware of Business Wales, including 75 per cent who have not used any of the services it provides. Similarly, around two thirds (65%) are aware of the Development Bank of Wales, including 60 per cent of those who had not used its services.5 Both provide tailored support for small businesses, and this visibility is a strong comparative advantage as a mechanism for development and steering businesses to transition to net zero.

Communication and information must come from a variety of trusted sources to expand the range, reach and efficiency of messaging, and governments must engage with prominent stakeholders in the small business community. While 27 per cent of small businesses noted that they used the UK Government’s site (GOV.UK), 17 per cent utilise information from their local councils or authorities.

The Federation of Small Businesses was the mostused source among survey respondents, with close to a third (31%) of respondents using FSB and the Sustainability Hub to access information and advice on decarbonisation. One in ten (10%) similarly used private sector business support and other business or membership organisations. Business representative organisations are well-placed to communicate to their membership, and the UK and devolved governments should collaborate more closely with them on the net zero agenda.

Case Study

“The UK Business Climate Hub provides practical guidance that empowers small businesses like ours to take positive steps towards sustainability. I used the hub to read case studies from other industries, benchmark our progress, and look up tools, grants and resources. It has been a great help to our business.”

Ian Agnew, Dark Woods Coffee, Yorkshire

Eight per cent of small businesses utilised the UK Business Climate Hub, a website supported by the UK Government and by industry, directly designed to support small businesses to transition to net zero, offering practical guides, access and links to funding and financing sources by region and nation.6 The UK Business Climate Hub is supported and fact-checked by the Department for Energy Security and Net Zero, meaning that information on the website is current and correct, as well as specifically tailored towards SMEs. The upcoming launch of the Government’s new Business Growth Service will be an opportunity to increase usage of the UK Business Climate Hub, in order to raise awareness of financial incentives and accelerate uptake of decarbonisation measures.

Transitioning to net zero

Governments across the UK have committed to reaching net zero by 2050 (2045 in Scotland). The UK Government, under the statutory target set out under the Climate Change Act (2008), requires the UK to reduce its greenhouse gas emissions by 100 per cent from 1990 levels by 2050. This overall goal must then be converted into policies which will support individuals, organisations and businesses to limit their emissions.

A quarter of small businesses stated that they expect to transition to net zero by 2050. One third (33%) of small businesses within the information and communication sector say they will have transitioned to net zero by 2050, the highest proportion of any sector. This could be due to the fact that, as a

Source: FSB Net Zero Survey 2024

service-based sector, the majority of its greenhouse gas emissions originates from energy usage. This is followed by 29 per cent of small businesses in the professional, scientific, and technical activities sector and 28 per cent of small firms in construction. Small businesses in the wholesale and retail sector were the least likely to have stated they will have transitioned to net zero by 2050, with only 21 per cent expecting to do so.

Not sure/ Don't know Net zero by 2050

Transitioning my business operations to be net zero is not important to me

I expect to close my business before net zero is required (2050)

Figure 3: Small businesses’ estimates of when their business operations will reach net zero

SUSTAINABLE VALUES FROM THE VERY BEGINNING

I run an events venue and farm in Lancashire, hosting weddings, corporate events, and much more. We’re also a B Corp-certified business, and sustainability is at the core of our business principles.

We based the farm on sustainable values from the very beginning, starting with installing our wind turbine around twelve years ago There’s no gas where we are, so we run completely on electricity, most of it supplied by the turbine, and what we don’t use we sell to the grid That really helped soften the blow when energy prices started to spiral a couple of years ago Taking this further, we’re currently considering installing solar panels and batteries, so we can store any extra energy we generate to use in peak periods

Too many people think that becoming more environmentally friendly involves lots of expense and big changes, but that really doesn’t have to be the case When we started on our sustainability journey, we started with some small steps First of

all, we changed from using black bin bags to clear ones, so we knew for example if someone had accidentally thrown food waste in the bin, instead of in the compost It also highlighted how much was being thrown away that could be recycled instead

We found that small step, and talking with our members of staff, really helped put sustainability at the forefront of everyone’s mind Most of the furniture and accessories for our events venue are upcycled or recycled

We have definitely found that being an eco-focused business, with a B Corp certification, has really helped us grow It’s attracted sustainability-conscious customers, and has put me in contact with other businesses with a similar outlook, so we can share tips and tricks on how to decrease our carbon footprint The community and opportunities we’ve found since making sustainability a priority have been incredible Without this focus on being greener, my business wouldn’t have grown this much

Celia Gaze, The Wellbeing Farm, Lancashire

The adoption of energy efficiency technology, including LED lighting and heat pumps, should have a big impact on the emissions of sectors mostly geared towards services, including information and communication, as will the Government’s commitment to decarbonising the National Grid by 2030. However, sectors that make heavy use of raw materials and other physical inputs, including manufacturing and construction, are often emissionsheavy, both in embodied carbon from materials used and in their processes. In order to achieve the UK Government’s commitment to build a strong domestic industrial base through the Industrial Strategy,7 additional support is needed and must reach small businesses to enable them to decarbonise.

With only a quarter (25%) of manufacturing small businesses currently saying that they expect to reach net zero by 2050 or earlier, there is a clear policy challenge to increase confidence and investment among small manufacturers. Policies including the introduction of carbon pricing through the UK Emissions Trading Scheme and the Carbon Border Adjustment Mechanism (CBAM), which looks to limit carbon leakage that could result from moving production abroad, specifically impact manufacturing small businesses.

Current grant schemes such as the Industrial Energy Transformation Fund (IETF), which helps manufacturing and high polluting businesses to decarbonise, are in practice out of reach to small businesses. This is due to the competitive bidding process and a minimum grant threshold of £75,000. Small businesses who have made changes to their manufacturing processes over the past three years said the average cost was £36,495. Only one third (33%) of small businesses said this cost was over £25,000, while only 11 per cent said the cost was over £100,000.8

Beyond this, under the Net Zero Council, sector decarbonisation roadmaps are being developed to support specific sectors to decarbonise, by providing alignment with the Government’s national decarbonisation approach. This will support investment in these sectors, by producing more confidence of trajectory. These sector decarbonisation roadmaps must engage with small businesses within their relevant sectors, providing benchmarks to support small firms in developing short- and medium-term strategies. With only 25 per cent of small businesses currently stating that they expect to reach net zero by 2050, Government must do more to support the rest of the small business community by offering practical guidance and designing future transition roadmaps around smaller firms as well as bigger businesses.

Engagement with the transition to net zero also varies based on nation and region. While Scotland has an earlier date to reach net zero nationally, by 2045, only 27 per cent of small businesses in Scotland believe they will have transitioned their business to net zero by 2050, although this was higher than the other nations.

According to the Climate Change Committee, the Scottish Government has missed 8 out of 12 targets set to decrease its territorial emissions.13 Similarly, given the recently scrapping of the Heat in Buildings Bill, which looked to legislate for changes to how homes in Scotland are heated, this highlights there are credible strains on Scotland’s timeline to reaching net zero. There were concerns with the legislation, including a “one-size-fits-all” approach to implementation, and low SME knowledge of the policy which would have limited its success. However, changes and scrapping Government policy has a negative impact on small business confidence, both in terms of making investments in changes to their business operations and in the wider net zero agenda. In revising the legislation, the Scottish Government should ensure deeper engagement with small businesses in order to chart a credible pathway to net zero that does not unduly strain them, and that, instead, creates opportunities for them along the way.

Small businesses in London are the most likely to believe they will reach net zero by 2050, with 44 per cent saying so, compared to 21 per cent of those in the East Midlands (the lowest regional score). The Heart of the City programme in London offers a Net Zero Accelerator which provides one-to-one tailored support for many of the city’s small businesses to calculate their carbon emissions and produce an actionable net zero action plan.9 This model of support is welcome, since it tackles complex processes like measuring the baseline of small businesses’ carbon footprint and guidance on how to reach net zero, overcoming barriers related to lack of knowledge and lack of time. This tailored support, similar to that offered under the Carbon Clinic in Hull,10 should be replicated.

A proportion of small businesses do not believe their business would still be running by 2050, and thus transitioning to net zero was not important to them. This was highest in ‘other’ sectors (32%), closely followed by 30 per cent of small firms in accommodation and food services and wholesale and retail, and 29 per cent of small construction firms.

A weak national economy, plagued by stagnation and high inflation, means that many small businesses are cautious about their ability to grow and continue to do business in the long term. This deters investment in technology, including green technology. The tight financial situation currently felt by many small businesses can be seen in FSB’s Small Business Index Q4 2024 where capital investment intentions fell to -14%, breaking a 15-quarter streak of positive responses, with the 18 per cent of small firms saying they expected to increase their capital investment over the next three months more than offset by the 32 per cent who said they expected it to fall.11

The British Business Bank is currently piloting a green Growth Guarantee Scheme.12 The current pilot offers a 70 per cent state-backed guarantee to lenders to cover investments. If uptake is low, the green variant pilot should be evaluated to determine if the 70 per cent state-backed guarantee is leading lenders to offer sufficiently attractive terms to drive strong takeup from small businesses.

Recommendations

• The Department for Energy Security and Net Zero, the British Business Bank and other stakeholders should use the launch of the Business Growth Service to raise awareness of the UK Business Climate Hub. With only 26 per cent of small businesses believing they have the appropriate knowledge to transition to net zero, low awareness is a persistent barrier in small businesses’ journey to net zero The UK Business Climate Hub is well placed as a central hub for SME support, tailored guidance and practical tools on decarbonisation The UK Government should devote resources to increasing awareness of the Hub, including more direct signposting to the website from central and devolved Government sources Other stakeholders who support the UK Business Climate Hub’s work, for example financial institutions, should place a link to the Hub on their business support page Similarly, third-party intermediaries and energy suppliers would be well placed to signpost customers to the Hub for advice on becoming energy-efficient. This would be in a similar vein to how suppliers are expected to point consumers to Citizens Advice for information regarding complaints

• The Department for Energy Security and Net Zero should work with the Department for Business and Trade to add a decarbonisation stream to the Made Smarter programme for SME manufacturers. Previous funds for industrial decarbonisation, such as the Industrial Energy Transformation Fund, have often not been accessible for small businesses in practice, leaving small manufacturers to face rising energy costs The Government has committed to funding the UK-wide rollout of the Made Smarter programme, following its successful pilot in four English regions. Made Smarter provides both expertise and funding for small manufacturers to innovate and adopt new digital technologies, targeting the top barriers to small business innovation Introducing a new ‘green’ element to this

scheme could provide targeted support for SME manufacturers to decarbonise

• The British Business Bank, in its evaluation of its pilot of the green variant of the Growth Guarantee Scheme should consider if the terms are attractive enough before rolling out the full green variant of the scheme. The Growth Guarantee Scheme removes risk in relation to borrowing for SMEs, as the British Business Bank provides a 70 per cent government-backed guarantee to lenders. The BBB has piloted a green version of this scheme, to incentivise the financial markets to lend to businesses that want to adopt green technology as well as removing the barriers of high-up front cost of technologies The pilot should be evaluated to determine if the 70 per cent government-backed guarantee is leading lenders to offer sufficiently attractive terms to drive strong take up from small businesses If the take-up of the green variant is weak, BBB should consider increasing the level of the guarantee, to see if this can drive lenders to offer more attractive loan products

• The Department for Energy Security and Net Zero should continue to refine and promote the sectoral roadmaps developed under the Net Zero Council, to maximise the relevance for small businesses. While the Transition Market Finance Review argued for the benefits of a roadmap to support and strengthen the case for inward investment for the UK economy, future iterations must provide a careful focus on small businesses within those sectors, and the support they need. This should include specific guidance and clarity on sectoral benchmarks to support small businesses in planning for their short- and medium-term goals

• Local authorities (in England, Wales, and Northern Ireland) should incorporate small business waste collection services into their domestic collection services, with the costs for these waste collection services included in business rate charges. This would only apply to businesses currently under the Small Business Multiplier, so as not to be used by larger businesses which generate too much waste to be handled by the domestic schedule.

• The UK Government should commit to using existing business networks, such as the Federation of Small Businesses, to share information and examples of best practice on transitioning their business to net zero. FSB data found that only 26 per cent of small businesses had the appropriate knowledge to transition their business to net zero The UK Government, through relevant departments like DESNZ, should support organisations like FSB to engage businesses on the ground to increase the advice and support available, bringing together businesses that have already or are in the process of greening their operations with small businesses which have taken fewer steps to decarbonise

• The Scottish Government should review its delivery plans in relation to the transition to net zero to improve confidence among small businesses. Currently only 22 per cent of small businesses in Scotland believe their business will be net zero by 2045, highlighting the lack of preparedness among Scottish small businesses for the 2045 deadline The Scottish Government has missed eight of its past 12 targets in decreasing emissions, according to the Climate Change Committee 13

• The Northern Ireland Executive should publish its finalised Circular Economy Strategy, Green Growth Strategy and Climate Action Plans for the first three Carbon Budgets. Currently, the Climate Change Act requires the development of five-year Climate Action Plans as a framework for reaching set Carbon Budgets, but there have been delays in the publication of these Action Plans, as well as other key strategies including the Green Growth Strategy and Circular Economy Strategy These delays create uncertainty for small businesses who need to adapt their business operations to comply with new regulations, which will be essential for meeting climate targets

• The Welsh Development Bank should be involved in net zero support for Welsh small businesses due to its high brand recognition. Where suitable, the delivery of support in Wales through the National Wealth Fund should be developed through effective partnership between the British Business Bank and the Development Bank of Wales The Development Bank of Wales benefits from high brand recognition among Welsh small businesses which will provide greater reach for decarbonisation support offered by the UK Government

CHAPTER 2: GREENING BUSINESS OPERATIONS

To reduce their greenhouse gas emissions, most small businesses will need to focus on the emissions associated with their energy consumption. This can be done in two ways: firstly, they can increase the energy efficiency of their technology and business operations, which will decrease their energy usage while providing the same output. Secondly, they can look at the sources of their energy and change to a zero- or low-emission energy source, either by investing in micro-energy generation (photovoltaic solar panels, wind turbines etc.) and producing energy on their own premises, or by moving to a renewable energy tariff through their energy supplier.

As seen in figure 4, there are several technologies small businesses have invested in that will lower their energy consumption, and, by proxy, the greenhouse

gas emissions associated with their business. The most popular option by far was investment in energyefficient lighting, with three in five small businesses (60%) having taken this step.

Smart meters are the second most popular form of green technology, with 39 per cent of small businesses now having a smart meter installed in their premises. Smart meters benefit small businesses in several ways, including providing suppliers with automatic readings of energy use, allowing for more accurate billing. They also allow for monitoring of energy usage, meaning that businesses can take advantage of more flexible tariff options.

4: Adoption of different green technologies by small businesses in their place of business

Source: FSB Net Zero Survey 2024

Insulation (e.g. to meet EPC requirements)

I buy renewable electricity through a green energy tariff

Figure

The current Government target for smart meter coverage in businesses is nearly 69 per cent coverage by the end of 2025. While the Department for Energy Security and Net Zero’s data shows that 61 per cent of meters are operating in smart mode,14 FSB data shows that smart meter coverage in small businesses is currently 39 per cent. This discrepancy between the Government’s department data and data collected by FSB could highlight that small businesses are unaware of what meter they have installed, either because they have no control over their energy tariff (only 55 per cent of small businesses choose their energy supplier), because they operate in a multioccupancy property or because they are unaware of the various modes meters can operate in.

In turn this could cause issues in relation to the Government’s shift to a Market-Wide Half Hourly Settlement which is fundamental to introducing a smart energy market, allowing suppliers to balance the energy needs of consumers across the grid. Previous delays in smart meter rollout have already disrupted the introduction of Market-Wide Half Hourly Settlements.15 Due to this, Smart Energy GB and energy suppliers must continue their collaboration with business representative organisation to increase the awareness of smart meters in the small business community. While energy is devolved in Northern

Ireland, smart meter rollout has yet to take place, limiting Northern Irish small businesses’ ability to take advantage of accurate energy-consumption data.

Options including LED lighting and smart meters are often considered more cost-effective than the more complex energy efficiency technologies available. They often have minimal impact on business operations and have shorter pay-back periods, making them an attractive option for small businesses to invest in. For example, Government guidance highlights that an SME installing occupancy sensors and LED lighting could see a payback period of just three months.16

By comparison, more complex technology, including heat pumps, solar panels and battery storage, often have higher upfront costs, longer payback periods, can be disruptive to business operations and are subject to stricter regulation. These more complex modes have seen limited uptake within the small business community, with under 20 per cent of small firms having each of the above.

Tracking changes – 2021 to 2024

In 2021 FSB released its Accelerating Progress report,17 the first FSB report which looked specifically at questions surrounding small businesses and net zero. Compared with the 2021 report, there has been an increase in the adoption of various low-carbon technologies, demonstrating the progress that has been made in the past three years.

Battery storage saw the biggest increase in uptake among small firms, with seven per cent of small businesses now having some form of battery storage, compared to only four per cent in 2021. Small businesses in the construction sector were most likely (20 per cent) to have some form of battery storage in their business, compared to 14 per cent in 2021. This was followed by 8 per cent of firms in the professional, scientific and technical sector (up from 4 per cent).

Case Study

"The grants available still look for you to stump up a few thousand pounds. You need £4,000-£8,000 to match the funding from the Government to get energy-efficient technology. You don’t know if the latest technologies are all that reliable because you hear all sorts of scare stories."

The deployment of batteries can benefit small businesses in several ways, including directly storing energy from micro-energy generation sources. Beyond this, the introduction of voluntary Demand Flexibility Services means that customers can receive incentives (including money off their energy bill) for decreasing energy consumption during periods of high energy usage across the grid. Batteries can be used to utilise energy stored during peak periods to mitigate high costs.

Heat pumps are central to the UK Government’s plan to decarbonise heating in the UK,18 with a previous ambitious target by the last Government of 600,000 installations per year by 2028.19 Currently 5 per cent of small businesses stated that they had either a ground-source heat pump or an air source heat pump, compared to 4 per cent in 2021. While there

has been an increase in heat pump usage in the small business community, progress seems slow. The Climate Change Committee’s Seventh Carbon Budget found that while a gradual growth in heat pumps is predicted to continue into the mid-2040s, they are still essential to non-residential building decarbonisation.20

The UK Government supports the deployment of heat pumps though its Boiler Upgrade Scheme. The scheme provides a maximum grant of £7,500, which covers about half the cost of a heat pump. Rollout has been delayed, and in the non-domestic sector access to the grant has been almost non-existent, with only 230 units installed since the scheme launched in 2022 (less than 1 per cent of all installations under the scheme).21 While the scheme is open to small businesses in Great Britain, the eligibility criteria exclude many small businesses from accessing the grant, including the obligation to own the premises where the heat pump will be installed, or the need for a valid Energy Performance Certificate (only 23 per cent of small firms have access to their building’s Energy Performance Certificate).

Micro-energy generation also saw an increased usage amongst small businesses across most sectors. Around one in six small businesses (17%) now have access to energy generated from solar photovoltaics, increasing to 27 per cent of construction small businesses and 25 per cent of small businesses in the information and communication sector, up from 24 per cent and 12 per cent in 2021 respectively. This trend shows that there is an increasing awareness of energy independence.

The Climate Change Committee highlighted that in order for the Government to reach its clean energy 2030 mission, “solar installations must increase by five times.”22 Currently, solar photovoltaics farms are overwhelmingly using “ground-mounted panels which are sited on land rather than rooftop”.23 Given the vast potential of non-domestic roof space, including on warehouses, any future Government funding to support access to solar photovoltaics must ensure that small businesses are eligible to access lowcost loans and grant support. This would free up brownfield sites (previously earmarked for solar farms) and green-field sites to support other Government priorities, including its growth mission, housebuilding, or bio-diversity goals.

Sat Pillai, CircledUp, London

Funding sources

Many small businesses are already taking on the task of decarbonisation without external support. Small businesses who have taken steps to address their energy consumption, and their greenhouse gas emissions, are overwhelmingly investing into their decarbonisation independent of external support. Close to half (45%) of small businesses who have installed one or more forms of green technology used the business’s cash reserves to make investments, while 28 per cent used their personal savings.

This self-funding approach is particularly common among firms in high-emission sectors including manufacturing, who were most likely to use business cash reserves (64%) followed by 56 per cent in wholesale and retail.

There was also a clear regional divide in how small businesses are financing their decarbonisation, with firms in rural areas much more likely to use personal savings than their urban counterparts (36% versus 22%). This suggests that businesses in rural locations face greater barriers in accessing external financial support.

A minority of small businesses have used external funding sources. Small businesses are more likely to access financial support from a bank (6%) than they are to fund their decarbonisation through UK Government schemes (4%), local authority schemes (2%) or devolved Government schemes (2%). The low engagement with Government-backed support and schemes raises concerns about the awareness of the support available, particularly given the fact that a range of schemes are available to both homes and commercial properties. The UK Government, as well as local authorities and devolved Governments, must clearly signpost that businesses are also eligible to access these schemes.

Accommodation and food service activities were the most likely to have used a government scheme to fund energy efficiency improvements (13%). In contrast, less than 1 per cent of small manufacturers used a government scheme, which seems counter-intuitive as manufacturing is a more energy-intensive sector.

One in 20 small businesses (5%) in Yorkshire and the Humber and the North East had used a local authority scheme to fund their decarbonisation measures, compared to 2 per cent of small businesses in the North West, South East, and South West. In Scotland, 8 per cent of small businesses reported receiving support from a devolved Government scheme, while there was little uptake in Wales. The Northern Ireland Executive does not currently provide any renewable energy support schemes for small businesses to help invest in decarbonisation.

Incentives

Currently small firms are overwhelmingly investing in the net zero transition themselves, with limited external support from the Government, private finance or other sources of funding. However, current Government incentives overwhelmingly favour domestic consumers and large corporations to decarbonise, leaving small businesses with limited support. If the Government is to achieve its ambitious net zero targets, policy makers must recognise the central role small firms will continue to play in reducing emissions, and ensure Government support and incentives reflect this.

When asked to rank the five incentives most likely to encourage them to install low carbon improvements, the most popular choice among small firms was a lower cost to their energy bill, with 61 per cent selecting this option. Nearly two thirds of small businesses in Wales and Scotland (64%) selected this as their top option, compared to 60 per cent of small businesses in England. Small firms in Northern Ireland were similarly encouraged by a lower cost of energy. While work is underway to increase sustainable energy generation in Great Britain, Northern Ireland operates on a different energy market. In 2022, around 9.4 per cent of wind power generated in Northern Ireland was considered ‘wasted’ as it could not be utilised due to grid constraints.24 Northern Ireland’s infrastructure must be updated to support climate and sustainability targets.

FSB asked a similar question about incentives for our Accelerating Progress report in 2021, where a decrease to the cost of their energy bill was ranked as the 3rd highest incentive. The comparative jump between 2021 and 2024 highlights the role the energy price crisis, which started in late 2021, played in focusing minds on the necessity to reduce energy bills. Currently, 78 per cent of small businesses in accommodation and food services said decreasing their energy bill would encourage them to invest in energy efficiency technology. Three quarters (76%) of small manufacturing firms and 71 per cent in wholesale and retail also noted this as the biggest incentive.

During the energy price crisis, 13 per cent of small businesses said they could be forced to either close, downsize or radically restructure their business.25 While the UK has left the energy price crisis, research from Cornwall Insight estimated that energy bills for businesses are now 70 per cent higher than before the crisis.26

While the Labour Government has already committed to decreasing bills on average by £300 through investment in decarbonising the National Grid27 and its clean energy 2030 mission, the cost of energy in the UK remains high compared to our European counterparts.

Case Study

"The Italian Government made efforts to control energy pricing during the energy price crisis, particularly petrol, resulting in a more stable curve that has now disappeared. In contrast, the UK did not take similar steps, leading to a sharp rise in costs that have not reversed.

"In Italy, there were no tax incentives or grants for businesses, but with a stable energy market and a new nine-year lease, investing company money in energy efficiency made sense. The savings were immediate, and costs would be recouped within the lease period. The expenditure was offset through capital allowances, and the Italian Government benefits from increased Corporation Tax over time.

"In the UK, a short lease, sustained high energy prices, rising business rates (including a 21-month backdated increase), and unexpected taxes – such as a new 3% plastic tax – make investment in energy-saving equipment unjustifiable. Wage and National Insurance increases add further strain, making it more likely we will terminate our lease in March 2026 and shift the remaining manufacturing to Italy – unfortunately, most employees would not relocate."

Phil Platts, ACP Solutions, Gloucestershire

Three in five small firms (60%) said grants would be an effective incentive to encourage them to install energy efficiency technologies. One of the key recommendations of the Accelerating Progress report was FSB’s Help to Green policy, which called for the UK Government to issue £5,000 vouchers for businesses to spend on qualifying environmental products and services.28 This was supported in the Skidmore review, under a ‘Help to Grow Green’ initiative,29 before the previous Government developed the Business Energy Advice Service which is currently being piloted in the West Midlands.30

The Business Energy Advice Service offers small businesses an energy audit, and for some small businesses a grant to implement changes highlighted in the audit. The scheme tackles two major barriers facing small businesses; the energy audit overcomes the issue of knowledge and time while the grant overcomes the high upfront costs of green technology, and the lack of capital savings among small businesses.

The majority of small businesses also selected tax reductions as one of the top five incentives. Manufacturing small businesses were most likely to support a reduction in tax, with 64 per cent of them selecting this option. This was followed by 61 per cent of wholesale and retail and 59 per cent of construction

small businesses.

Other options elected included 37 per cent selecting a discount on business rates, 33 per cent selecting low/interest-free loans and 20 per cent selecting appealing to environmentally conscious customers. This included 24 per cent of wholesale and retail small businesses, 22 per cent of construction and 21 per cent of information and communication small businesses, highlighting the impact that consumer choice can have on small businesses.

The net zero transition opens new opportunities and new markets in which small businesses can establish themselves, grow, and innovate. Small businesses need a healthy business environment to be able to take advantage of these changes, through access to skilled staff or re-training opportunities for their existing workforce, access to grants to invest in expanding their business, and through procurement opportunities.

Small businesses act as an engine for the UK economy, employing 16.6 million people (60% of the total private sector employment);31 their role will be pivotal in driving innovation, creating and expanding green jobs and skills, and supporting the wider transition to a low-carbon, circular economy.

SUSTAINABILITY IS FUNDAMENTAL

At Mejuicer, we make fresh cold-pressed ginger shots, which we package in glass bottles and deliver to a mix of corporate and individual clients in and around the London area. The empty bottles are then collected, cleaned, and reused – it’s a milkman model, and we even use electric vehicles to deliver and collect. We have an 85 per cent return rate on our bottles, with close to 100 per cent return rates from the corporate clients that we directly supply to, meaning we’re getting close to a closed-loop system.

The pulp from the juice-making process is collected by a company called ReFood, and is turned into biofuel ReFood gives us a report to show how much fuel our byproduct has produced, and that’s really inspiring

We see sustainability as a shared responsibility for everyone, especially between a business and its customers For us, sustainability is fundamental to our business, and it’s a unique selling point for our customers. Is it more expensive to operate like we do? Overall, yes it is – but how we operate is part of what makes our business work, and helps us attract and retain customers It’s also been great to see how our relationship with our customers has deepened, and how it’s made many of them more open to improving their sustainability in other areas, too

We’re currently buying our glass from Ukraine, but we would love to buy from a glass-maker in the UK to decrease the emissions in our supply chains It seems so odd that it’s cheaper for us to buy from Ukraine than from a supplier here in the UK We buy UK-grown ingredients wherever possible, but a lot of the fruits we use, like pineapples, just can’t be grown in this country

Another problem is that there’s so much conflicting information out there about what is better for the environment. For example, while it’s infinitely

recyclable, glass is heavier so takes more fuel to transport than plastic – but we still think it’s better overall, especially given the impact of waste and recycling

You have to be realistic in business We are doing the best we can to be sustainable, but we still have to be profitable in order to keep going. It’s important not to feel defeated that you can’t be perfect – we’re aiming to inspire, and always to improve, but it’s a long-term project and we’re not doing it for pats on the back

People love to know that their actions are having an impact, and there have to be more ways that we can ‘gamify’ sustainability to give people that sense of satisfaction Data is powerful, and can be a real motivator – imagine the effect of telling customers that, through taking certain actions, they’ve saved this much carbon It’s like going to the gym – you put in this much effort to get a certain result, and it is so rewarding

Joe Roberts-Walker, Mejuicer, London

CAPTURING CARBON EMISSIONS

I’m CEO and co-founder of CCU International, which specialises in next generation carbon capture technology solutions for industry emitters. Carbon capture, utilisation and storage (CCUS) will have to be part of our national goal to reach net zero, as renewables alone will not make up the reduction needed, but the current solutions in this space are not yet at a stage where they will make the difference we need – which is where we come in.

CCU International is a spin-off created two years ago to bring to market a technology first developed at the University of Sheffield, and our short life-span has been highly eventful, to say the least

We have been working on a highly ambitious project – Flue2Chem – in partnership with multinational companies like Unilever, BASF, and Reckitt, two universities, and other organisations

Flue2Chem is aimed at taking something that would otherwise be a waste product, i e carbon emitted by industrial processes, and turning it into an input that can be used in producing chemicals instead of carbon derived from virgin fossil fuels Carbon is used in a truly vast array of everyday products, from clothes to cleaning products and food and drink But it’s currently treated as a hindrance, despite how widely it is used Our project achieved what we think is a UK first by capturing carbon emissions, liquefying the carbon, then transporting it to begin the chemical conversion process

At the start, everyone said it couldn’t be done I had experts of all kinds saying that we couldn’t reuse carbon that had been captured and use it in other products But, along with our partners, we have been able to develop a technology that’s innovating and disrupting the carbon capture space, in a way that is far more efficient than existing solutions on the market

We’re proof that the net zero transition is an opportunity for small businesses to punch above their weight Being a small business in this field was vital to developing the technology at speed – we were able to make decisions more swiftly and pivot much more nimbly than bigger players in the field. We have been operating to a very compressed timescale

– in just the last six months, we have learned so much Yes, we have made mistakes along the way, but we have turned them into learning opportunities, which has been invaluable

Last year we won the Innovation Award and overall Best Small Business prize at the UK finals of the FSB Celebrating Small Business Awards, and since then we’ve continued to grow

Having co-founders has been key, so you can lift each other’s spirits on days when things aren’t going as planned. You need people around to remind you of everything you have achieved

I’m motivated by people telling me I can’t do something, that people like me – women from an ethnic background – aren’t the ones who lead businesses in this space. It puts a fire in my belly to prove them wrong I want to inspire more diverse people into this area, too, by showing them that someone who looks like them can lead in this space. If I back down at the first hurdle, what kind of example am I setting?

Small businesses know that efficiencies are what drive cost savings, and sustainability is all about efficiency. That means that it will always create cost savings – eventually, even if not always immediately Beena Sharma, CCU International, Scotland

Recommendations

• The UK Government, in collaboration with Local Authorities, should nationally roll out the Business Energy Advice Service currently being piloted in the West Midlands. SME decarbonisation is often overlooked in favour of projects which focus either on households, or on larger businesses The Business Energy Advice Service is a rare example of a policy which is focused directly on helping the UK’s 5 5m small businesses to reduce their energy and carbon use With its focus on energy efficiency, this scheme contributes to the Government’s growth mission, by reducing energy bills and improving the competitiveness of participating small businesses It also contributes to delivery of carbon budgets, and improves the UK’s energy security

• Future solar photovoltaics grant support offered by the UK Government must be accessible for commercial properties as well as domestic properties. The Climate Change Committee highlighted that in order for Government to reach its clean energy 2030 mission, “solar installations must increase by five times”.32 Currently, solar photovoltaics farms are overwhelmingly using “ground-mounted panels which are sited on land rather than rooftop”.33 Given the vast potential of non-domestic roof space, including on warehouses, any future Government funding to support access to solar photovoltaics must ensure that small businesses are eligible to access low-cost loans and grant support This would free up brownfield sites (previously earmarked for solar farms) and greenfield sites to support other Government priorities, including its growth mission, housebuilding, or bio-diversity goals

• The Ministry of Housing, Communities and Local Government should expand Permitted Development Rights to include air source heat pumps in commercial properties. Air source heat pumps are subject to planning restrictions when installed on non-domestic properties, while ground and water source heat pumps

do not In 2012, the Government consulted on permitted development rights for a host of small-scale renewable and low carbon energy technologies including for commercial properties This consultation excluded extending permitted development for air source heat pumps in commercial properties due to issues related to noise pollution, saying they would reconsider at a later date 34 The latest review, conducted in 2023, did not look at non-domestic properties With advances in heat pump technology, and the need to decarbonise commercial premises, the Ministry of Housing, Communities and Local Government should review its decision and expand permitted development

• Business representative groups, including the Federation of Small Businesses, should continue working with Smart Energy GB to help close to knowledge gap around smart meter uptake among small businesses. Data collected by FSB indicated that only 39 per cent of small businesses reported having a smart meter, compared to internal data from the Department for Energy Security and Net Zero which suggests smart metering levels within small businesses are closer to 61 per cent This discrepancy highlights a knowledge gap within the small business community on what smart meters are and if they are in place in their business premises In turn this prevents small businesses from taking advantage of flexible tariffs which can have a cost benefit for energy usage during certain periods, such as charging appliances overnight when demand is low Greater collaboration between Smart Energy GB and business representative organisations would expand the reach of messaging and disseminate clear and targeted information more effectively

• The UK Government should place the Net Zero Council on a statutory footing to strengthen its authority in coordinating net zero policy and delivering on the Government’s Plan for Change. The Council’s SME Workstream would play a leading role in ensuring small businesses are effectively supported throughout the transition Previous Government policy on decarbonisation has focused on domestic and big business decarbonisation, leaving small businesses without similar levels of support on a national level. By empowering the Council, the SME Workstream can collaborate more effectively with key initiatives – including the Willow Review – and provide recommendations across Whitehall to ensure policies and support are effectively targeted at small business decarbonisation

• The Northern Ireland Executive should prioritise investment in high quality infrastructure to allow small businesses to benefit from sustainability opportunities. For example, progress should be accelerated on the North-South Interconnector to achieve an efficient “all island” Irish electricity market to support the implementation of renewable energy and reduce energy prices for Northern Irish SME consumers

• The Northern Ireland Executive should accelerate the roll-out of smart electricity meters for small businesses in Northern Ireland. This will allow small businesses in Northern Ireland to gain a more detailed insight into their energy usage, enabling them to make better decisions to reduce their consumption, and to utilise renewable energy supplies, to curtail their carbon emissions as well as reducing their costs

CHAPTER 3: BARRIERS TO TRANSITION

While many small businesses are currently using personal savings to invest in decarbonisation, lack of capital and/or savings was cited as a major barrier across the UK. The phenomenon is most prevalent in Scotland (47%), followed by the West Midlands (44%), then the South West and the East of England (39%). The proportion stood at 30 per cent in Yorkshire and the Humber and the North East, and the same figure in Wales. While there were differences across the nations and regions, the fact that nearly two fifths of small businesses struggle due to a lack of capital will remain a major barrier for the UK’s target of reaching net zero by 2050.

One third (33%) of small businesses are also concerned about the return on investment being too long or uncertain in relation to investing in decarbonising their businesses, while 14 per cent highlighted that they could not access affordable finance. This varied by sector, being cited by 22 per cent of small firms in the construction sector and 19 per cent of small businesses in accommodation and food service activities.

The financial pressures facing small firms are exacerbated in the current economic climate,

characterised by low economic growth, high inflation, and persistently high energy costs. These factors create an increasingly challenging environment for small businesses looking to invest in sustainability measures. Further, the economic and geopolitical uncertainty small firms are operating in, along with cost pressures and lower margins, makes it more difficult for them to allocate capital toward long-term business improvements, including sustainability and decarbonisation efforts.

Figure 5 underscores the widespread issue of inadequate financial resources as a key barrier to decarbonisation across all sectors, nations, and regions. Notably, only 5 per cent of small businesses in Wales reported having sufficient financial resources to transition to net zero, compared to 11 per cent in Scotland and 13 per cent in England. While the lack of sufficient finance is an issue across the UK, the disparity shown in the Welsh SME population highlights the urgent need for tailored financial support in Wales. Institutions including the Development Bank of Wales have an important role to play to enhance small businesses’ access to funding for green investment.

Source: FSB Net Zero Survey 2024

Figure 5: Barriers to transitioning businesses to net zero

Knowledge and skills gaps

Source: FSB Net Zero Survey 2024

Trained staff

Figure 6 shows that three fifths of small businesses say that they lack the necessary ingredients to help them transition to net zero.

The knowledge needed to transition to net zero is the attribute that small firms are likeliest to say they have within their business, but even so, only a quarter (26%) of small firms say this is the case. There is a general trend showing that the bigger the business, the more likely it is to have the appropriate knowledge, probably due to the increased likelihood of having a dedicated resource to support the business in complying with regulation and decarbonising their business.

Lack of knowledge can often be the first barrier that small businesses face when engaging with the net zero agenda. What type of technologies are suitable for their business operations? What do they need to access the grid? Where and how can they find the finance to invest? These are all questions small businesses ask themselves - and the answer will be different for every business.

None of these Knowledge

For example, small businesses in the wholesale and retail sector (only 21 per cent of whom felt they had the appropriate knowledge) will face regulation around waste management and the circular economy which may not impact small businesses in the information and communication sector to the same degree, yet all sectors need to be supported in engaging with regulation to ensure it is not overly burdensome. This support should come from a centralised source, namely the UK Business Climate Hub, which is already providing tailored support for small businesses and is currently undertaking work on sector-specific guidance and step-by-step guides.

Figure 6: How well-equipped are small businesses to transition to net zero?

Case Study

“I think it would be great to get a central hub for greenhouse gas information for small businesses. Currently there is a lack of clarity on how to commence your net zero journey and which GHG tool (as an example) to use. If information could be centralised and provided in a user-friendly manner, which FSB, Government, etc. all refer to, I am sure that the take-up of the net zero agenda within small businesses would improve. The next step would be to provide help in the form of tailored support or guidance which is specific to your sector and type of business.”

Anjuli Parker, Sustainable Business Ventures, Surrey

Only ten per cent of small businesses said they had appropriately trained staff to support their decarbonisation plans. Among sectors, only eight per cent of those in wholesale and retail and 10 per cent of those in manufacturing said they had appropriately skilled staff in this area. Overall, 18 per cent of small business owners felt they had the right skills to decarbonise. The skills gap is highlighted as a persistent problem facing not just small businesses, but the whole national economy on its road to net zero.35 For small businesses, green skills include waste management and the circular economy, the need to provide data in relation to carbon emissions, and skills around decreasing energy consumption.

Only one in seven small firms (14%) say that they have sufficient time to devote to transitioning their business to net zero, including 25 per cent of those in accommodation and food service activities and 16 per cent of those in the information and communication sector.

When the Government and stakeholders engage with small businesses, either as part of their supply chain, or when providing support through government grants, the issue of time constraints must be considered. For example, when designing government grants frameworks to support business decarbonisation, including a competitive application process as part of the eligibility criteria limits the scope of the support and is likely to see small businesses struggling to access the grant at all. The Government must design any application process to be simple and easily accessible, if it wants time-poor small businesses to be able to benefit.

Small businesses overwhelmingly feel they lack sufficient finances to transition to net zero, with only 13 per cent of small businesses saying they have enough funds to decarbonise. This places small businesses in a precarious position where the Government’s commitment to net zero has the potential to be regressive: their lack of finances means that small firms are unlikely to be able to invest in decarbonising technologies (which typically have a high upfront cost and long payback periods) which could subject them to high costs related to the regulatory burden. For example, a small ceramics manufacturer might not have the funds to invest in an electric or hydrogen-powered arc furnace, and due to this inability to invest it will be hit by the high cost of energy and the Emissions Trading Scheme, which financially penalises businesses which emit high levels of carbon.

The majority (61%) of small businesses across all sectors did not feel they have any of the appropriate attributes to transition their business to net zero.

Property and leasing limitations

Whether or not a small business owns its own premises has a large impact on what they can and cannot do in relation to decarbonising. When asked to select what was one of the biggest barriers to transitioning their business to net zero, 18 per cent of small firms said that their tenancy agreement does not allow for the installation of energy efficiency technology. With 45 per cent of small businesses stating that they operate in a property that they rent in some form or another, this is a barrier which cannot be overlooked.

This issue is exacerbated for small businesses on shorter leases. With 10 per cent of small businesses renting their premises on a month-to-month basis and 2 per cent renting their premise on a lease lasting less than a year, it becomes difficult for them to invest directly in decarbonising their base of operations, including through insulation, heat pumps or microenergy generation. This exacerbates the issue of the long payback periods often seen with many kinds of energy efficiency and green technologies.

Figure 6 shows that small businesses who rent are less likely to have installed green technologies, with the largest discrepancies between those who own solar panels and those with a smart meter (a 15 percentage point difference between owners and renters), those who are on a green energy tariff (9 percentage point difference) and those who own batteries (7 percentage point difference).

Commercial tenancy agreements are often complex and will vary significantly, yet small businesses who rent often have very little power to make structural changes to their premises. Of those who rent their premises, 59 per cent can make internal improvements to their premises, including installing technologies such as LED lighting, yet only 18 per cent can make external improvements, which is needed for technologies including heat pumps and solar panels. Oftentimes, the power to decarbonise a property lies with the landlord.

Figure 7: Proportion of small businesses with types of green technologies by their property lease.

Source: FSB Net Zero Survey 2024

Roughly 80 per cent of the UK’s buildings that will be in use by 2050 have already been constructed.36 Retrofitting these existing buildings is crucial for improving energy efficiency and in turn reducing emissions. The landlord-tenant split incentive presents a significant barrier to decarbonisation efforts in the non-domestic buildings sector. Due to the high upfront cost of energy efficiency technology, both landlords and tenants are hesitant to invest.

Case Study

"We do 99% of our work remotely. Occasionally, we do have to travel to onsite clients. Both in the UK and internationally, we work from a co-working space at North Greenwich and they take most of their heating energy from excess energy from the London Underground, which is quite innovative."

Bryan Altimas, Riverside Court Consulting, London

Landlords are hesitant due to the lack of direct financial incentives; the high upfront cost; and tenants receiving the benefits from installation through their energy bills. Tenants, in turn, are hesitant due to the high upfront cost; the lack of authority to make structural changes to their rented property; complexity and diversity within commercial tenancies; the lack of resources to implement change; and the fact they likely will not see the full benefit of their investment if their tenancy terminates prior to the end of the lengthy payback period. Because energy efficiency is

often outside their control, many tenants are overly reliant on their landlords to take steps to reduce their building’s energy usage.

Government support and grants to incentivise decarbonisation often become inaccessible for small firms who rent their premises. Eligibility to access the Boiler Upgrade Scheme and the Workplace Charging Scheme for example requires those who apply to own the premises, meaning that close to half of small businesses cannot gain access to Government support. This requires a strong interpersonal relationship between the tenant and their landlord to facilitate access to the grant funding.

For small businesses to support the Government’s goal of reaching net zero, work must be done to align the incentives for landlords and tenants. The UK Government could organise a task and finish group to tackle the landlord-tenant split incentive which would look at providing guidance for small businesses on engaging with their landlords as well as looking at changes to commercial tenancy law to prevent commercial leases from blocking low-carbon improvements. The Net Zero Council, a collaboration between Government and industry, could facilitate this.

Beyond this, to support small business landlords, the UK Government must clarify its position on the minimum energy efficiency standards in non-domestic premises, including updating the proposed interim milestones for Energy Performance Certificates. This would ensure that small business landlords are not caught off-guard by changes in regulation.

This issue is also complicated by the need for accurate data about SME greenhouse gas emissions (i.e. Scope 1 and 2) to support the Government’s decarbonisation agenda. Small businesses in rented premises are much less likely to be able to provide data on their electricity usage versus those who own their business premises outright (44% versus 91%), their gas usage (30% versus 50%) and their water usage (44% versus 69%). Similarly, just over half of small businesses operating in rented premises choose their energy supplier and have access to their utilities bill (55%), only 30 per cent have access to the energy consumption data on their building, and 23 per cent have access to their building’s Energy Performance Certificate. This makes accurate data hard for tenant small businesses to provide, which has the potential to exclude them from Government and large business procurement opportunities and supply chains. To limit the impact that operating in a rented premises has on small firms, Ofgem should work with energy suppliers to provide information on the greenhouse gas emissions connected to consumers’ use of energy on their billing information. This will allow small businesses to access information related to their Scope 2 emissions without the need for manual calculation. This will ease the administrative burden of accessing the data through a supplier’s customer services or through the property owner, alleviating some of the difficulties connected to carrying out carbon accounting while operating in a rented premises.

Case Study

"The biggest problem is that many small businesses don’t own the building. Therefore, they’re not in a position to take any action, and the landlord is responsible for the building’s energy choices and efficiency. The SME has to accept whatever is already installed. They can tinker around the edges, but they can’t change the fundamentals.

"And the ones that do have leases are constantly asking me, ‘Shall we sell the building? Should we sublet it? Should we do something else with it?’ I don’t think they’re thinking in 20-year cycles, which is the sort of payback period for a solar panel installation or something similar."

Colin Crooks MBE, Intentionality, London

SUSTAINABILITY IS AT THE CORE OF EVERYTHING WE DO

Our salon is committed to ethical practices, using only organic, eco-friendly products that are never tested on animals All our product bottles are made from post-consumer recycled plastic and are fully recyclable, helping reduce virgin plastic production and keep materials in use for longer We also work with a B Corp-certified supplier, ensuring our supply chain upholds the highest standards of environmental and social responsibility

Wherever possible, we choose reusable alternatives –from silicone cutting collars to colour bowls made from wheat-based bioplastic – minimising single-use waste without compromising on quality

The hair and beauty industry is notoriously wasteful; take foils and colour tubes, for example – an estimated 98 per cent still end up in landfill. We’re proud to work with the Green Salon Collective, a pioneering organisation that helps us to recycle materials like used foils, bottles, and even hair The recycled hair is transformed into hair booms, which are then used to clean up oil spills and polluted waterways across the world

By turning waste into a resource, we’re not just reducing our environmental impact – we’re helping to build a truly circular economy and championing innovation within the salon industry. My goal is to lead by example and show that beauty and sustainability can – and should – go hand in hand.

Shimayne Smith, Head Shed, Hampshire

Photo: George Maund/FSB

Recommendations

• HM Treasury should extend the current VAT zero rate for the installation of energy-saving materials to include commercial premises. At present, the relief applies only to residential accommodation and certain charity buildings, covering energy efficiency technology, microenergy generation and battery storage Removing the 20 per cent VAT rate on installing energysaving materials to commercial properties would encourage small businesses, or their landlords, to invest in energy efficiency improvements for their commercial properties This would in turn likely stimulate demand for energy-saving materials, enabling small firms to capitalise on this emerging and growing market, promoting growth

• The Department for Energy Security and Net Zero and the Ministry of Housing, Communities and Local Government should organise a joint taskforce to tackle the landlord-tenant split incentive. This task and finish group should engage with alternative models of finance that have the potential to overcome the split incentive This work should also provide guidance for small businesses on engaging with their landlords as well as looking at changes to commercial tenancy law to prevent commercial leases from blocking low-carbon improvements The Government’s Net Zero Council could be used to convene this group

• HMRC should legislate to widen the circumstances in which training costs are taxdeductible to encourage more self-employed people to expand into green industries. HMRC’s distinction between capital and revenue has historically deterred small business owners from developing new skills as there was a risk that the training costs would not be tax-deductible. In 2024 HMRC helpfully clarified its guidance to give greater confidence within the existing law, but now a proper legislative change is needed to encourage more business owners to develop green skills and play their part in delivering the net zero transition

• To support small business landlords, the UK Government must clarify its position on the Minimum Energy Efficiency Standards in nondomestic premises. This would ensure that small business landlords are not caught off-guard by changes in regulation

• The UK Government should publish a skills action plan for Net Zero, to set out priority skills gaps and plans on how to address them to guarantee there is the workforce required to meet net zero targets. FSB data shows that just 10 per cent of small businesses say they have the appropriate workforce for transitioning their business to net zero In the Climate Change Committee’s Seventh Carbon Budget, it recommended that Government should adopt a skills action plan for net zero It sets out that this “should consider industrial priorities, delivery priorities… and place-based solutions for areas where businesses may decline”.15 It is important for this action plan to work across Government departments, and it should take into account the policy levers needed to boost green skills This could be jointly led by the Department for Energy Security and Net Zero, the Department for Education, and Skills England The initial focus of the skills action plan could be applied to England, with ambitions for it to have a practical rollout across the UK, collaborating with the Welsh Government, the Scottish Government, and the Northern Ireland Executive to implement this.

• The Scottish Government should relaunch its Microgeneration Certification Scheme (MCS) fund to strengthen heat pump supply chains. The MCS Certification Fund, which was formerly run by the Scottish Government and which closed in 2023, covered 75 per cent (up to a maximum of £1,000) of the fees for heat pump installers to become MCS-certified. By helping tradespeople to overcome the financial barrier of certification, schemes like this can strengthen heat pump supply chains, overcome the steep cost of accreditation, and reduce the persistent skills gaps in the installation sector which are delaying the rollout of heat pumps

CHAPTER 4: CARBON ACCOUNTING

Looking to track their own progress on decarbonisation, national governments, big businesses and financial institutions are increasingly measuring their greenhouse gas emissions. In turn, small and medium-sized businesses, through procurement opportunities and their roles within supply chains, as well as of their own volition, are increasingly having to do likewise.

Carbon accounting and emissions disclosures provide a clear reference to where, and if, emissions are decreasing within a business’s operations. This increases transparency and allows for independent verification. Organisations measure their baseline emissions, to use as a benchmark to gauge the impact of future actions taken to reduce emissions.

Under carbon accounting, emissions are split into three categories, Scope 1, 2 and 3, which reflect the different sources of emissions related to activities of a

business. However, 74 per cent of all small businesses said that they did not understand the term Scope 1, Scope 2 and Scope 3 emissions, including 34 per cent of those who had been asked to measure their carbon footprint of their business operations.

While it is currently voluntary for small businesses in the UK to report their own emissions, it is often mandatory for large organisations. Over one in seven small businesses (15%) have measured the carbon footprint of their business operation, up from 9 per cent in 2021.13 The burden of emissions reporting is not equally felt across all sectors, however. Close to one fifth (19%) of small businesses in the manufacturing and professional, scientific and technical activities sectors have measured their emissions data, compared to 8 per cent of wholesale and retail firms.

Scope 1, 2 and 3 emissions are ways of categorising greenhouse gas emissions:

Scope 1 covers emissions from sources that the organisation owns or controls directly, for example the fuel used in the vehicle fleet.

Scope 2 covers emissions that the organisation causes indirectly from the energy it purchases and uses; usually this will be from the grid

Scope 3 covers all other indirect emissions that occur within an organisation’s value chain Scope 3 emissions are divided into 15 categories, including but not limited to waste generated in operations, emissions related to investments, and the carbon generated by employees’ commutes

Sources of requests

Small businesses often face multiple, slightly different requests for emissions data, with organisations requesting data with different content or in a different format.

A third (34%) of small businesses who have been asked to provide emissions-related data were asked to do so by the UK Government. The UK Government, under Procurement Policy Note 06/21, set out an obligation for those applying for Government contracts over £5 million to submit a Carbon Reduction Plan which includes measuring greenhouse gas emissions.

Some public bodies have gone beyond this, including NHS England, which planned to extend the need for a Carbon Reduction Plan to all contacts regardless of value.37 With the UK Government’s recent announcement on the abolition of NHS England,

clarity is needed on whether this requirement will remain. Medium-sized businesses are more likely to have been asked to provide their carbon footprint to access Government or public bodies’ procurement opportunities (36%), compared to only 9 per cent of small businesses.

The majority (56%) of small businesses who were asked for emissions data were asked by businesses they supply to. Under the Streamlined Energy and Carbon Reporting regulation, large enterprises, publicly-listed companies, and Limited Liability Partnerships (LLPs) must report their greenhouse gas emissions on an annual basis.38 However, larger businesses who are looking to access public procurement contracts will similarly be asked to provide their Scope 3 emissions which will place burdens on small businesses in their supply chains.

Figure 8: Sources of requests to small businesses to provide data on their business-related emissions

Source: FSB Net Zero Survey 2024

Financial institutions are also increasingly accounting for their greenhouse gas emissions, due to a combination of regulation and voluntary commitments usually tied to an Environmental, Social and Governance (ESG) framework. Initiatives for large financial firms, such as the Task Force on Climate-Related Financial Disclosures (TCFD), have been in place since 2022. Similarly, several voluntary schemes, such as the Glasgow Financial Alliance for Net Zero (GFANZ), are increasingly popular to mitigate investment risk.

These developments mean that for small businesses seeking finance, lenders are increasingly scrutinising the carbon footprint of prospective borrowers. Research by Grant Thornton found that 57 per cent of lenders had developed an ESG-based lending strategy for mid-market companies.39 While this does not currently impact many small businesses, this could a mixed blessing in the future.

A lower carbon footprint could provide favourable financing options for small businesses, but the potential for expansion could also directly undermine SME decarbonisation. A situation could develop where a high-emitting SME is forced into a high-interest loan due to a bad credit rating linked to its large carbon footprint, which limits the small business’s ability to invest in decarbonising its business, producing a negative feedback loop.40

While reporting the greenhouse gas emissions of business operations is not mandatory for small and medium businesses, there is an increasing number of small businesses who are being asked to provide emissions-related data from various sources.

This produces complexity for small businesses, adding an extra burden where some will have to provide multiple versions of the same data in different formats, or require re-counting their scoped emissions for different customers on request. This will disproportionately impact small businesses, who often do not have the time to manually calculate a host of different emission data points, and who often lack the finance to seek external support. This heightens the risk that small firms will be squeezed out of supply chains in favour of larger businesses.

Case Study

“You have to submit different carbon reporting plans, depending on the scale of contracts in the public sector for instance. So there is a requirement to have compliant carbon plans depending on the size of your business. Different supply chains, different customers, different sectors require different levels of information as well.

"So, if you’re supplying to the MoD, or if you’re supplying into the NHS, or if you’re supplying to the supermarkets, there may be different requirements. It’s typical that you need to provide information at the point of bidding, and then regular updates. So, you may have a small business with four different clients in different areas requiring a slightly different level of reporting, all of which comes at a cost and time burden. It is important that businesses develop their in-house understanding and reporting capabilities.”

FSB Member, Professional Services, South East

Ability to provide emissions data

Source: FSB Net Zero Survey 2024

Of those who had not measured their carbon footprint, 56 per cent thought it would be difficult or very difficult to measure, compared to 6 per cent who thought it would be easy or very easy. However, of those who have measured their carbon footprint, only 43 per cent said they found it difficult or very difficult, compared to 27 per cent who found it easy or very easy.

The data highlights that there is a perception gap between small businesses that have and have not measured their greenhouse gas emissions. This would suggest that providing tailored support for small firms, using examples, step-by-step guidance and case studies from other small businesses would be valuable.

Data, especially high-quality, accurate data, is not easily accessible for many small businesses. Currently, of those who were asked to provide their emissions-

related data, only 35 per cent were able to provide all the data requested. The different scopes require different methods of data collection, which can be time- and resource-intensive.

In comparison to many bigger businesses, who will likely have staff members or even whole teams dedicated to data collection, small firms are more likely to lack resources and expertise, as well as being more likely to struggle with the cost associated with external verification and carbon accountants. For example, the IFRS (an international body which sets standards for emissions reporting which are endorsed by the UK Government) states that “smaller companies … will face greater challenges in applying IFRS S1 and IFRS S2 and are expected to need more guidance than other companies.”41

I have not measured my carbon footprint

I have measured my carbon footprint

Figure 9: Ease of measuring carbon footprint

Oh Yes! Net Zero – Carbon Clinic Scheme

Operating in Hull and the wider Humberside region, Oh Yes! Net Zero is a collaborative cross-sector initiative, bringing together over 170 organisations to collaborate through peerto-peer knowledge sharing to support small businesses in reducing their greenhouse gas emissions

Oh Yes! Net Zero provides a Carbon Clinic workshop which provides direct guidance and tailored support to help small businesses to understand carbon emission calculation and to develop a Carbon Reduction Plan The workshop, which is free for small businesses, helps embed sustainability knowledge in small businesses Additionally, the initiative facilitates knowledge-sharing between businesses of all sizes, supporting larger business in tackling their own Scope 3 emissions

Tony Prescott, Managing Director at GTS Logistics UK, a small business, said: “The Carbon Clinic workshop was done in a respectful, no-pressure environment. It wasn’t a one-size-fits-all approach – it was about our business and what we can realistically do to reduce our carbon footprint.

“It helped us put in place stepping stones, keeping things real, and helped us understand the little things we can do each day that will make a difference. It’s about continuous improvement.

“The workshop was very practical and delivered exactly what we needed. If you don’t take sustainability seriously, you are not going to be a viable business in the future. It really is as simple as that.”

Scope 3 emissions (i.e. those associated with the value chain) are notably difficult to collect, especially for smaller businesses. Scope 3 emissions originate from sources outside the direct control of small firms, particularly within the supply chain, and the areas of product usage, waste disposal and logistics. Engaging with suppliers to gather accurate information which can then be used efficiently by SME is difficult, with supply chains often expanding across international borders, spanning multiple companies and sectors.

Case Study

"We’re an industrial chemical distributor, so we supply speciality chemicals, mostly to large manufacturers. They are constantly asking us for information on the carbon footprint, which is mostly not available. You know, you have to get the carbon footprint from shipping companies and from the manufacturer of the containers. It is a very difficult problem to solve.

"We use shipping companies and container manufacturers, and all these emissions need to be added up and there is no simple way of getting all this information together. The problem is that it requires probably two or three full-time people to gather this information, and we can’t afford that - it’s out of the question."

Jeffrey Gould, Bowden Chemicals, Manchester

For example, Category 4 of Scope 3 emission relates to the transport and distribution of goods produced.42 Yet 39 per cent of small businesses use third-party delivery services (such as the Royal Mail) as part of their business operations. This creates a complexity in accurately collecting emissions data related to delivery, since small firms are unlikely to know how their goods were delivered, the model of vehicle used in the delivery, and the length of the journey taken. Additionally, small businesses have limited influence over larger suppliers, making it difficult to collect the information or enforce sustainable practices down their supply chains. Due to this burden, small businesses should be exempt from collecting and providing Scope 3 emissions as part of their carbon accounting process, and doing so should be optional.

Scope 2 emissions can also be difficult for small businesses to collate in comparison to other businesses. For example, just over half (55%) of small firms have access to their utility bill and are able to choose their energy supplier. Since Scope 2 emissions directly relate to energy purchased and used in business operations, a large percentage of the small business population will struggle to access data and impact their emissions directly. Small firms in rural areas are particularly vulnerable to this, with only 43 per cent of them saying they are able to choose their energy supplier and access their utilities bill.

To make it easier for small businesses to provide their Scope 2 emissions, Ofgem should call on energy providers to include the greenhouse gas emissions equivalent to the energy used by that business on their billing information. This would remove the need for manual calculations.

Given that many large corporates will themselves supply to the public sector, the UK Government is well-placed to limit divergent data requests on small businesses by promoting public and private sector adoption of a standardised carbon accounting framework.

However, only 19 per cent of small businesses who were asked to provide data by a large business they supplied to found it easy or very easy, compared to 60 per cent of small businesses who found it difficult or very difficult. It is clear that large businesses can provide more guidance and assistance when engaging with small businesses within their supply chain to measure their carbon footprint.

There are examples of best practice where large businesses, instead of spending money to offset their emissions through the purchase of carbon credits or other initiatives, can commit to a process of insetting, or supporting their supply chain to decarbonise either through financial support or knowledge and resource sharing. By supporting small businesses to decarbonise in their own value and supply chain, large corporates can have a positive impact on their own Scope 3 emissions, aligning with their own carbon reduction plans.

Success of measuring

While emissions-related data requests are currently only impacting a minority (15%) of small businesses, it is likely that their impacts will be felt by more and more as we get closer to 2050. As the UK Government looks to onshore supply chains in the UK,43 and expand procurement opportunities for small businesses,44 the need for accurate data in relation to SME emissions will increase.

Small firms’ ability to provide data requested as part of a disclosure process varies widely. Of those who were asked to provide measurements of their carbon footprint, 35 per cent of small businesses were able to provide all of the data requested, 40 per cent were able to provide some of the data requested, and 21 per cent could not provide any of the data requested.

The (in)ability to provide data had varying impacts on small businesses’ ability to continue working with that organisation, either as part of the supply chain or through a procurement process. Of those who were asked to provide emissions-related data, 33 per cent of small businesses were able to provide some of the data requested and were able to continue working with the organisation that made the request, compared to 7 per cent who were unable to continue working for the organisation as a result of only being able to provide some of the data requested.

Flexibility with the ability for small businesses to continue working for the organisation which requested the data is welcome; however, it produces an uneven landscape where small firms find themselves under varying levels of pressure to implement data collection dependent on their customer base.

Case Study

In 2024, Zurich supplier DelphianLogic – an award-winning provider of custom learning solutions – used Zurich tools and resources to measure its carbon dioxide emissions for the first time and set emissions reduction targets. Zurich provides climate training materials and teamed up with carbon accounting firm Normative to offer free access to the Business Carbon Calculator so that suppliers can calculate their carbon footprint.

This engagement reflects Zurich’s ambition to become a net-zero emissions business and to cascade climate action across the supply chain.

“The first step to reducing emissions is calculating them,” said DelphianLogic CEO and co-founder, Saurabh Ganguli. “By providing access to the Business Carbon Calculator, Zurich has not only empowered us to advance sustainable business practices but has also reinforced our resolve to make a meaningful impact on the environment.”

Recommendations

• The Cabinet Office should work with the Net Zero Council to promote a standardised carbon accounting framework Small businesses are currently facing diverging requests from Government, large businesses, and financial institutions in terms of the data requested, the format of the data, and the time period covered. This leads to undue complexity for small businesses, meaning they have to dedicate resources to meeting divergent data requests rather than to innovating or growing their business Through adapting its procurement policy, Government can set realistic carbon reporting standards and promote these throughout supply chains, so small businesses are not unduly burdened or excluded from supply chains After a small business has measured its carbon footprint once in respect of a given year, that information must be re-usable, without needing to be recalculated for future bidding opportunities

• Ofgem should require energy suppliers to provide information on the greenhouse gas emissions connected to business consumers’ use of energy on their billing information. This will allow small businesses easy access to information related to their Scope 2 emissions without the need for manual calculation This information will also provide more clarity for small businesses on the impact of their energy consumption on greenhouse gas emissions, increasing the transparency of energy markets and the impact of their tariff types. For example, those on green tariffs will directly see the consequence of their consumer choice in their billing information

• Large businesses, as part of their Corporate Social Responsibility work, could focus on investing in decarbonisation projects within their own value chain to support SME decarbonisation. By supporting small businesses within their own supply chain, large businesses can have a positive impact on their own emissions

This would have a dual benefit for both the large business and the SME, where the large business can directly decrease its Scope 3 emissions and small businesses can overcome barriers related to high upfront costs of green technologies and/ or lack of information related to decarbonisation

Large businesses, for example, could share their carbon accounting resources and support to allow small firms to understand their own emissions.

• Mayoral Combined Authorities should look to replicate the scrappage scheme that was run by the Mayor of London and Transport for London between 2023 and 2024 nationally. A national scrappage scheme should build off the success of the London Scrappage Scheme, which received close to 54,000 applications, enabling nearly 18,000 small businesses to shift from internal combustion engine vehicles to greener modes of transport at the cost of £186 million 6 A national scheme could also allow small businesses being able to scrap or retrofit more than one vehicle at a time.

• Local Authorities, with support from the Department for Energy Security and Net Zero, should consider replicating the successful Carbon Clinic model currently operated by Oh Yes! Net Zero in Hull. This initiative highlights the value of public-private partnerships, with initial funding from Reckitt, and support from Hull City Council and the University of Hull The programme, which is free for small businesses, offers tailored, step-by-step guidance to help embed knowledge in small businesses to understand and calculate their carbon emissions Additionally, it facilitates knowledge-sharing between bigger businesses and smaller businesses, supporting big business suppliers in decreasing their own Scope 3 emissions while assisting small businesses in developing their own carbon reduction plan

CHAPTER 5: TRANSPORT

Delivering greener transportation is one of the main challenges for the UK Government’s net zero mission. Today, surface transport, including cars, vans, buses, and trains is the highest-emitting sector in the UK economy, accounting for 24 per cent of UK emissions in 2023, with cars making up 59 per cent of those emissions.15 From logistics and delivery to getting employees and customers to businesses, transport remains crucial for running a small business.

The road ahead

Figure 10: The types of transportation regularly used by small businesses as part of their business operations

Source: FSB Net Zero Survey 2024

Cars (either petrol, diesel or battery) are currently the most popular form of transportation used by small businesses, with 73 per cent using them regularly. Over three in five (63%) use internal combustion engine cars. There is a higher use of petrol and diesel cars within businesses based in rural areas, at two thirds (67%), compared to small businesses operating in urban areas (59%). Public transport is lacking in many rural parts of the UK, leaving cars as the main form of transportation in these locations.

For example, small businesses in London were the least likely (53%) to use a car regularly in their business operations, likely due to the abundance and integrated nature of London’s public transport options. In comparison, other regions and nations are more likely to depend on cars, including 77 per cent of small businesses in Wales, 76 per cent of small businesses in the East Midlands, and 74 per cent of small businesses in Yorkshire and the Humber and the North East.

Dependency on internal combustion engine cars varies across sectors, according to our research, although it always hits at least 50 per cent. Small businesses in the information and communication sector are the least likely to use petrol or diesel cars regularly (50%). In comparison, small businesses in the accommodation and food service activities sector were the most likely to use a petrol or diesel car regularly, at 68 per cent.

While a shift away from cars can go some way to delivering the net zero transition, it does not seem credible to think that cars will not be needed in the future, especially in rural areas. As an example, the Government’s commitment to produce AI growth zones under its AI Opportunities Action Plan in January 2025 will require a continued focus on data centres. Research from PwC notes that sites selected for data centres are shifting to prioritise cost and availability of power, over previous criteria such as infrastructure and demand.45 These are likely to be in more rural locations, which reflects research by the University of Gloucester showing that data centres are increasingly being located outside of London.46

Currently, 16 per cent of SMEs use zero emission vehicles (excluding bikes) regularly as a part of their business operations. The Department for Transport’s Zero Emission Vehicle (ZEV) Mandate has caused some confusion within the small business community. The mandate, which came into force in January 2024, aimed to increase the sales of new zero emission vehicles until 2035, while the sale of new internal combustion engine cars is to end by 2030.

Following the United States of America’s introduction of 25 per cent tariffs on car imports, the UK Government announced further changes to the ZEV Mandate. Sales of all new internal combustion engine cars will come to an end by 2030, with new cars being sold from that date needing to be hybrid or zero emission vehicles. From 2035, all new cars and vans will need to be zero emission. Micro and small vehicle manufacturers, including heritage brands such as Aston Martin, will be exempt from these deadlines until 2035.47

The use of third-party delivery services is high among small businesses, with 39 per cent using such services regularly. Reliance on third-party delivery services is highest in the manufacturing sector (62%) followed by 53 per cent of those in the wholesale and retail sector. The use of third-party delivery services alleviates many of the logistical barriers related to transport and goods and services, but this adds complexity in relation to accounting for Scope 3 emissions since small businesses will be unaware of vehicles used in the process.

Over one third (36%) of small businesses use petrol and diesel light and heavy goods vehicles (LGVs/ HGVs), rising to 66 per cent of construction and 61 per cent of manufacturing firms. The reliance on emission-intensive forms of transport presents a challenge for the net zero agenda.

Through the Zero Emission Vehicle Mandate, the UK Government has set a target that sales of new internal combustion vans will end 2035.48 Despite these targets, sales of electric vans have been slowing rather than accelerating. Currently, only 4 per cent of small businesses use electric LGVs and HGVs regularly, increasing slightly to 6 per cent in manufacturing and 5 per cent in construction. The Department for Transport must do more to support small businesses in transitioning their internal combustion engine vans to electric vans, by extending the deadline of the Plug-in Vans grant beyond 2026, alongside other ways to reduce transport carbon, such as improving the attractiveness of public transport by decreasing the cost of usage and improving services.

Currently, just a fifth (21%) of small firms use rail (passenger or freight) regularly as a part of their business operations. The divide in rail usage between rural and urban small businesses was also relatively noticeable, with 22 per cent of small businesses in urban areas using rail regularly compared to 18 per cent of those in rural areas. Rural rail is noted to be lacking, with services often being infrequent, and requiring significant travel (usually via car) to reach the station, with a complex ticketing system and expensive tickets adding to its drawbacks.

Rail connectivity is noted to have economic benefits, with the National Infrastructure Commission arguing that mass transit investment can unlock regional economic growth.49 In 2024 the UK Government cancelled the planned £500 million Restoring Your Railway fund which looked at reopening lines and stations which has previously been closed. This decision limits future rail expansion which could have benefited small businesses in rural areas through better passenger and freight connections.

PROUD OF OUR COMMUNITY

Our business, M&H Carriers, is a delivery and logistics company in the north of Scotland, operating from multiple locations in the Highlands and a hub in Inverness. We’re proud of our community, and when I found out that Academy Street in Inverness was one of the worst in Scotland for nitrogen dioxide pollution, I knew I wanted to do something. Vans and heavy goods vehicles are some of the worst at producing nitrogen dioxide pollution, and with our company very reliant on them for transporting and delivering goods, looking to transition some of the fleet to electric vehicles seemed like a good step forward. I did a lot of research, contacted manufacturers and did quite a few trials on different models to see what would work for our business We got some very valuable support from a large logistics company we supply to, which allowed us to benefit from their buying power to get a big discount on the models we ended up purchasing – it wouldn’t have been economical for us otherwise

As a business that operates in a very rural area, charging infrastructure has been an issue Before we bought any of the vehicles we had to install some chargers in our depot, and we got a small grant of £5,000 from the Scottish Government to cover about ten per cent of the total cost That was in 2021, and since then the public charging networks have expanded quite a bit, but the only

thing we have found that works for us is charging overnight at the depot As a logistics company, the public charging network doesn’t really work for us It’s more expensive than charging at the depot, and we can’t afford to turn up to charge and end up stuck in a queue, as that would impact our customers and our workload

We’d love to transition more of our fleet to electric, but there are a few problems Cost is a big barrier we need to overcome While electric vehicles are cheaper to run, the upfront cost is quite a barrier. We currently don’t have any electric trucks, but they cost three times more than petrol and diesel ones I can’t bankrupt myself to do it. Range is another issue – a manufacturer might say a model has a range of 175 miles, but once you add in a payload that can reduce by nearly half. Next year, we’re told that new models of van with better range are on the way, and if they live up to the promise that could allow us to grow the percentage of our fleet that is electric-powered. We need to get four to five years out of each vehicle, so need to get our purchasing decisions right I’m really looking forward to growing the percentage of EVs we own as the technology and the infrastructure improves

When we were first thinking about buying some electric vehicles, there were many naysayers who warned that EVs were a doomed technology like BetaMax, but four years in we have really proved them wrong One of the best things about being an entrepreneur is that you can just make a decision then get on with it Sure, we’ve made some mistakes along the way, but we have learned so much as well

Beyond that, we’ve seen huge benefits from transitioning some of the fleet to electric vans. It’s more cost-effective than a petrol or diesel vehicle, both in the way that it’s less expensive to run and also due to the fact it needs less maintenance A lot of the team really enjoy driving the electric vans as well Our customers take it in their stride but it’s definitely appreciated by the big companies we supply to It’s a source of great pride for me and the team When people say, I can’t believe you’ve done this, I always reply that I can’t believe others haven’t Fraser MacLean, M&H Carriers, Scotland

Barriers to zero emission vehicles

The cost of electric vehicles remains a concern and barrier for SME uptake. Nearly half (46%) of small businesses noted that the main barrier to transitioning to a zero emission vehicle was cost, this having remained the same since FSB’s Accelerating Progress report in 2021, highlighting how little progress has been made in bringing down the upfront cost of electric vehicles (EVs).

The second-highest concern is the lack of public infrastructure in relation to charging an EV. Small businesses are also concerned about the practicalities of charging, including the inability to book a charging space, the lack of rapid charge points, and the large variety of apps needed to access charge points.

Case Study

"To be honest, I’m not prepared to invest in zero emission vehicles. I’m waiting for hydrogen to come in, because JCB are now in production with hydrogen engines, BMW are looking at it, Toyota are looking at it, I think Honda are looking at it. It’s going to be the way to go. I think that electric cars are going to end up being like BetaMax. Yeah, they’re good, but the VHS took over. And I think that hydrogen will take over from electric."

There is a cost element to public charging which is likely to specifically impact small businesses. In contrast to bigger businesses which will likely have a private depot to charge their electric vehicles, the VAT cost associated with public charging is much higher, sitting at 20 per cent, compared to 5 per cent VAT on private charging. While this can benefit those parking vehicles on private drives after work hours, many small businesses are likely to have to charge their vehicles on an ad hoc basis and from public charging points, such as when out delivering goods or providing a service.

While the previous Government ruled out supporting the House of Lords Environment and Climate Change Committee’s recommendation to equalise VAT between public and private charging,50 the new Government should reassess this decision to ensure the cost of charging is evenly priced.

Over a fifth (22%) of small businesses noted that one of the biggest barriers to transitioning to a zero emission vehicle is the lack of electric/hydrogen LGV/ HGV options currently on the market. This rises to 28 per cent among businesses with 10-49 employees. Small construction firms were most likely (39%) to note that this was a barrier, followed by 28 per cent of small manufacturers.

While many in the logistics sector are waiting for hydrogen vehicles to become more prevalent in the market, the technology is still in its early stages in the UK. The International Energy Agency notes that while interest is growing globally in fuel cell hydrogen trucks, China dominates the market, with around 95 per cent of the global hydrogen HGV stock.51 In comparison, there are currently approximately fewer than 300 registered hydrogen vehicles in the UK.52

Case Study

"When I’m considering electric vehicles, the battery life and distance is a concern. Then beyond that, the infrastructure to recharge once you get outside of London isn’t that good. And where we live, we can’t have a home charger since we live in an apartment block, so we’d need to charge on the street."

Bryan Altimas, Riverside Court Consulting, London

Andy Nichols, Blacksmith & More, Chelmsford

Incentives

Figure 11: Incentives that would encourage small businesses to transition to a zero emission vehicle.

Source: FSB Net Zero Survey 2024

Figure 11 shows that, when asked to select the top five measures which would encourage them to transition to a ZEV, most respondents picked answers relating to cost issues: 60 per cent supported a decreased upfront cost; 57 per cent supported Government grants; 50 per cent supported reduced taxation; and 40 per cent supported a scrappage scheme.

The UK Government has introduced several schemes that look to reduce the high upfront cost of electric vehicles. Under the benefit in kind system, employees driving a company-provided zero emission vehicle will pay significantly less tax (2 per cent) in comparison to an internal combustion engine vehicle (often over 20 per cent).

The Plug-in Grant has been the main form of support offered by Government to decrease the cost of electric vehicles. However, the Plug-in Car Grant closed in 2022, and the Plug-In Van and Truck Grant comes to an end in 2026.53 While zero emission vehicles sales are increasing, the Society of Motor Manufacturers and Traders predicts that sales of new EVs will account for 23.7 per cent of market share in 2025,54

missing the 28 per cent new sales target under the ZEV Mandate.

From April 2025, additional financial pressures on transitioning to an electric fleet emerged for small businesses. Electric vehicles are now subject to Vehicle Excise Duty, and the Expensive Car Supplement can also be applied to EVs costing over £40,000 (below the average cost of an electric vehicle).55 Research by NimbleFins56 shows that the average cost of a new electric vehicle is £46,000, and the Expensive Car Supplement on electric vehicles should reflect that. Treating electric vehicles as a luxury item, instead of a necessity to limit territorial emissions, sends the wrong message. Introducing a higher threshold of £50,000 for electric vehicles under the Expensive Car Supplement and committing to freezing the Vehicle Excise Duty first year rate for EVs for the next five years would alleviate a significant cost burden on transitioning to an EV, provide positive signals to small businesses who are looking to make the switch, and align taxation policy with emission reduction goals.

Half (51%) of small businesses said that more public charging infrastructure would encourage them to transition to an electric vehicle. This was highest in the East of England and the West Midlands, where 56 per cent of respondents selected this, compared to London, which was the lowest (44%).

This reflects the fact that London currently has the most public charging infrastructure in the UK by a wide margin, with 250 charging devices per 100,000 EVs, with the West Midlands a distant runner-up with 108 devices per 100,000. While there has been a 37 per cent increase in public charging devices since January 2024,57 and the National Audit Office argued that the Government’s target of installing 300,000 charge points by 2030 is achievable,58 there is a growing regional disparity in the charging infrastructure.

At present, only 16 per cent of small businesses are aware of the Workplace Charging Scheme, which covers up to 75 per cent of the cost of the purchase and installation of charge points. Clearer signposting of the scheme through the UK Business Climate Hub and by Local Authorities could potentially increase uptake. Additionally, clearer, more universal signage for charging infrastructure would be more helpful for EV drivers, and would also improve visibility for those not using ZEVs at the moment.59

Close to a quarter (23%) of small businesses noted that the lack of a second-hand market for EVs is a barrier to switching, including 25 per cent of microbusinesses with under 10 employees, and 26 per cent of small businesses with 10-49 employees. It is clear that the second-hand EV market is underdeveloped, creating barriers for adoption. Increasing regulation around battery quality would work to build confidence in the market, with 30 per cent of small businesses saying more information around batteries would encourage them to transition to an EV. The UK Government should implement the standardised battery health certification scheme it called for in its Plan for the Automotive Sector60 to ensure that the second-hand market accurately reflects the needs of small businesses.

EXCELLENT CHARGING NETWORK

As a business owner I drive a lot to visit clients and projects around Ireland. Initially I moved to a hybrid which initiated me installing a charger at my house, so when I decided to change again, it seemed sensible to make full use of the charger, and I went for a full EV in June 2023.

The car was much more expensive to buy, and I had a concern about residual value However, I was able to finance it through the dealership, and they gave me a guaranteed residual on it that alleviated my concerns The running costs are a fraction of the price of petrol (or diesel) and servicing is required less often The company car tax was nil on electric vehicles when I purchased mine, although it is now starting to creep up, and will be a concern for me in the future, and for future buyers

While the Republic of Ireland has an excellent charging network, there are very few high-speed chargers in Northern Ireland which initially concerned me, and you need to think and plan more about your long journeys But I’m seeing that the network is improving weekly now, which is great news

As a business owner you can also reclaim the full amount of payments in your tax return to offset Corporation Tax, which is a great benefit to owners, and offsets much of the initial upfront costs On top of that, they’re very quick and responsive, and it has restored some of the joy of driving I had lost over 30plus years of driving I’d highly recommend them for other small business owners

Alan Lowry, Environmental Street Furniture, Northern Ireland

Recommendations

• HM Treasury should equalise the VAT on EV charging between public and private settings at 5 per cent. The VAT rate on public charging and charging at non-domestic premises is 20 per cent, compared to 5 per cent for charging at a private residence, which increases the costs of operating EVs for many small businesses, and disincentives EV adoption. Equalising the VAT at 5 per cent between the different forms of charging will incentivise small businesses to transition to electric vehicles

• HM Treasury should include a £50,000 threshold in the Expensive Car Supplement for electric vehicles. As of April 2025, zero emission vehicles which cost more than £40,000 when purchased will pay an Expensive Car Supplement fee of £410 for five years. Currently, due to higher production costs, the average cost of a zero emission vehicle is £46,000,43 and this should be reflected in the Expensive Car Supplement Treating zero emission vehicles as luxury items, and not as a necessary part of the transition to net zero sends the wrong message and disincentivises switching from an internal combustion engine vehicle to a zero emission vehicle

• The Department for Transport should look to replicate the approach of Project Gigabit to support the roll-out of electric vehicle charging infrastructure for areas where it is currently not commercially viable. This could be done by expanding public-private financing initiatives which are backed by UK Government guarantees, and by working with groups of local authorities to enhance coordination of supply, as pioneered by Project Gigabit, which aims to ensure everywhere in the UK has access to gigabitcapable broadband by 2030 The Department for Transport estimates that at least 300,000 public charge points will be needed across the UK by 2030, when the ZEV Mandate comes into force To ensure that all parts of England have

effective charging infrastructure, DfT should look to replicate the Project Gigabit process to support private sector investment and grow the charging network in areas where there is little commercial investment This model would include competitive tendering from private companies to supply the infrastructure, with long-term contract commitments by the UK Government, and a streamlined approval process for charge point planning applications 61

• Mayoral Combined Authorities should look to replicate the scrappage scheme that was run by the Mayor of London and Transport for London between 2023 and 2024 nationally. A national scrappage scheme should build off the success of the London Scrappage Scheme, which received close to 54,000 applications, enabling nearly 18,000 small businesses to shift from internal combustion engine vehicles to greener modes of transport at the cost of £186 million 62 A national scheme could also allow small businesses to scrap or retrofit more than one vehicle at a time.

• The Department for Transport, in collaboration with Highways England and devolved agencies, must work to provide clearer signage for electric charging infrastructure. This would provide confidence for ZEV drivers, and would improve the visibility of existing charging infrastructure for those not currently using zero emission vehicles This could include real-time data on availability of charge-points to support small businesses in forward planning their logistical needs

METHODOLOGY

This report is based on FSB members' views on net zero, sustainability and transport across the UK. FSB undertook a mixed method research approach, consisting of a quantitative online survey, two focus groups and eight interviews with individual FSB members.

The survey was nationwide in its reach and members were invited to participate in the survey via email and social media channels. The survey was administered by the research agency Verve and was in the field from 5-11 November 2024. The survey questionnaire was completed by a total of 953 small businesses. The survey findings are all weighted according to FSB membership weighting (to reflect the regional balance of small businesses throughout the UK).

All percentages derived from the survey are rounded to the nearest whole number, which is why some percentages presented in the figures do not sum to 100 per cent. The focus groups and individual interviews took place via Zoom, Microsoft Teams and in person with members based in England and Scotland and purposefully drawn from a variety of regions. These interviews were used to construct the detailed case studies that are included throughout the report. In a couple of cases, the in-depth interviews allowed for detailed accounts that address multiple sections of the report. These case studies were specifically selected for their breadth of coverage.

ENDNOTES

1 British Business Bank, Smaller businesses and the transition to net zero, 2021: https://www.britishbusiness-bank.co.uk/sites/g/files/sovrnj166/ files/2023-03/J0026_Net_Zero_Report_AW.pdf

2 McKinsey, Opportunities for UK businesses in the net-zero transition, 2021: https://www.mckinsey. com/capabilities/sustainability/our-insights/ opportunities-for-uk-businesses-in-the-net-zerotransition

3 Energy and Climate Intelligence Unit & CBI, The future is green: the economic opportunities brought by the UK’s net zero economy, 2025: https://ca1-eci.edcdn.com/250224-ECIUCBIE-2024-Net-Zero-Economy-FINAL. pdf?v=1740388273

4 Department of Business and Trade, Business population estimates for the UK and regions 2024: statistical release, 2024: https://www.gov. uk/government/statistics/business-populationestimates-2024/business-population-estimatesfor-the-uk-and-regions-2024-statisticalrelease#:~:text=Sole%20proprietorships%20 are%20the%20most,356%2C000%20ordinary%20partnerships%20(6%25)

5 Federation of Small Businesses Wales, Cultivating Small Businesses to Grow: The Future of Business Support in Wales, 2025 (Upcoming)

6 UK Government, One-stop-shop to help businesses save money and go green, 2023: https://www.gov.uk/government/news/one-stopshop-to-help-businesses-save-money-and-gogreen

7 UK Government, Invest 2035: The UK’s Modern Industrial Strategy, 2024: https://assets.publishing.service.gov.uk/ media/6711176c386bf0964853d747/industrialstrategy-green-paper.pdf

8 Federation of Small Business, The Tech Tonic: Shifting the ground on tech adoption and innovation in small businesses, 2023: https:// www.fsb.org.uk/resource-report/the-tech-tonic. html

9 Heart of the City: https://theheartofthecity.com/

10 Oh Yes! Net Zero: https://www.ohyesnetzero. co.uk

11 Federation of Small Businesses, Small Business Index, Quarter 4, 2024, 2025: https://www. fsb.org.uk/resources/reports/small-businessindex/small-business-index-quarter-4-2024MCTRCGWM37J5HBNA2ZCTS3TJUPNM

12 Novuna, Novuna Business Finance announced as partner for pilot green asset finance variant of the British Business Bank’s Growth Guarantee Scheme, 2025: https://www.novuna.co.uk/ news-and-insights/business-finance/novunabusiness-finance-announced-as-partner-forpilot-green-asset-finance-variant-of-the-britishbusiness-bank-s-growth-guarantee-scheme/

13 Climate Change Committee, Scotland’s 2030 climate goals are no longer credible, 2024: https://www.theccc.org.uk/2024/03/20/ scotlands-2030-climate-goals-are-no-longercredible/#:~:text=Scotland%20missed%20 its%20annual%20target,were%20electricity%20 supply%20and%20industry

14 Department for Energy Security and Net Zero, Smart Meter Statistics in Great Britain: Quarterly Report to end December 2024, 2025: https://assets.publishing.service.gov.uk/ media/67d95f7c4ba412c67701ed58/Q4_2024_ Smart_Meters_Statistics_Report.pdf

15 Ofgem, Market-wide Half Hourly Settlement Change Request CR055 ‘Amendments to M10 and corresponding milestones’ – decision, 2024: https://www.ofgem.gov.uk/decision/marketwide-half-hourly-settlement-change-requestcr055-amendments-m10-and-correspondingmilestones-decision#:~:text=Ofgem%20has%20 decided%20to%20approve,regulatory%20 measures%20early%20in%202025

16 Department of Energy and Climate Change, SME Guide to Energy Efficiency, 2015: https://assets.publishing.service.gov.uk/ media/5a80e7a340f0b62305b8dce7/DECC_ advice_guide.pdf

17 Federation of Small Businesses, Accelerating Progress: Empowering small businesses on the journey to net zero, 2021: https://www.fsb.org.uk/ resource-report/accelerating-progress.html

18 National Audit Office, Decarbonising home heating, 2024: https://www.nao.org.uk/wpcontent/uploads/2024/03/Decarbonising-homeheating-HC-581-SUMMARY.pdf

19 The Department for Energy Security and Net Zero, Energy Security Bill factsheet: Low-carbon heat scheme, 2023: https://www.gov.uk/government/ publications/energy-security-bill-factsheets/ energy-security-bill-factsheet-low-carbon-heatscheme

20 Climate Change Committee, The Seventh Carbon Budget, 2025: https://www.theccc.org.uk/wpcontent/uploads/2025/02/The-Seventh-CarbonBudget.pdf

21 Department for Energy Security and Net Zero, Boiler Upgrade Scheme statistics: February 2025, 2025: https://www.gov.uk/government/statistics/ boiler-upgrade-scheme-statistics-february-2025

22 Climate Change Committee, Progress in reducing emissions 2024 Report to Parliament, 2024: https://www.theccc.org.uk/publication/ progress-in-reducing-emissions-2024-report-toparliament/

23 House of Commons Library, Planning for Solar Farms, 2024: https://researchbriefings.files. parliament.uk/documents/CBP-7434/CBP-7434. pdf

24 EirGrid & SONI, Annual Renewable Energy Constraint and Curtailment Report 2022, 2023: https://cms.eirgrid.ie/sites/default/files/ publications/Annual-Renewable-Constraint-andCurtailment-Report-2022-V1.0.pdf

25 Federation of Small Businesses, Urgent call to energy suppliers: Renegotiate fixed contracts for small businesses on market-peak tariffs, 2023: https://www.fsb.org.uk/resources-page/urgentcall-to-energy-suppliers-renegotiate-fixedcontracts-for-small-businesses-on-market-peaktariffs.html

26 Cornwall Insight, Business energy bills forecast to stay 70% above pre-crisis rates, 2024: https:// www.cornwall-insight.com/press-and-media/ press-release/business-energy-bills-forecast-tostay-70-above-pre-crisis-rates/

27 UK Labour Party, Labour’s first steps for change, 2024: https://labour.org.uk/updates/stories/ labours-first-steps-for-change/

28 Federation of Small Businesses, Accelerating Progress, 2021: https://www.fsb.org.uk/resourcereport/accelerating-progress.html

29 Rt Hon Chris Skidmore, MP: Mission Zero: Independent Review of Net Zero, 2023: https://assets.publishing.service.gov.uk/ media/63c0299ee90e0771c128965b/missionzero-independent-review.pdf

30 Business Energy Advice Service: https://www. businessgrowthwestmidlands.org.uk/supportprogrammes/business-energy-advice-servicebeas/

31 Department for Business and Trade, Business population estimates for the UK and regions 2024: statistical release, 2024: https://www.gov. uk/government/statistics/business-populationestimates-2024/business-population-estimatesfor-the-uk-and-regions-2024-statisticalrelease#:~:text=total%20employment%20in%20 SMEs%20was,%C2%A30.9%20trillion%20(18%25)

32 Climate Change Committee, Progress in reducing emissions 2024 Report to Parliament, 2024: https://www.theccc.org.uk/publication/ progress-in-reducing-emissions-2024-report-toparliament/

33 House of Commons Library, Planning for Solar Farms, 2024: https://researchbriefings.files. parliament.uk/documents/CBP-7434/CBP-7434. pdf

34 Department for Energy Security and Net Zero, Review of Air Source Heat Pump Noise Emissions, Permitted Development Guidance and Regulations, 2023: https://assets.publishing.service.gov.uk/ media/659bc3f2614fa2000df3a992/ashpplanning-regulations-review-main-report.pdf

35 UK Parliament POST, Green skills in education and employment, 2024: https://researchbriefings. files.parliament.uk/documents/POST-PN-0711/ POST-PN-0711.pdf

36 Government Property Function, Net Zero Estate Playbook, 2021: https://assets.publishing.service. gov.uk/media/619cfd62e90e070441bcf731/ Net_Zero_Estate_Playbook__1_.pdf

37 NHS England, Carbon reduction plan and net zero commitment requirements for the procurement of NHS goods, services and works, 2025: https://www.england.nhs.uk/long-read/ carbon-reduction-plan-requirements-for-theprocurement-of-nhs-goods-services-and-works/

38 Department for Energy Security and Net Zero and Department for Environment, Food and Rural Affairs, Environmental reporting guidelines: including Streamlined Energy and Carbon Reporting requirements, 2019: https://www. gov.uk/government/publications/environmentalreporting-guidelines-including-mandatorygreenhouse-gas-emissions-reporting-guidance

39 Grant Thornton, Sustainable finance: a priority for the mid-market in 2023, 2023: https://www. grantthornton.co.uk/insights/sustainable-financea-priority-for-the-mid-market-in-2023/

40 ICAEW, ESG for SMEs: sustainable practices can boost funding access, 2023: https://www.icaew. com/insights/viewpoints-on-the-news/2023/aug2023/esg-for-smes-sustainable-practices-canboost-funding-access

41 IFRS Sustainability, Sustainability Disclosure Standards, Effects Analysis, June 2023: https:// www.ifrs.org/content/dam/ifrs/project/generalsustainability-related-disclosures/effects-analysis. pdf

42 GHG Protocol, Category 4: Upstream Transportation and Distribution, 2022: https:// ghgprotocol.org/sites/default/files/2022-12/ Chapter4.pdf

43 Department for Business and Trade, Critical imports and supply chains strategy, 2024: https:// www.gov.uk/government/publications/uk-criticalimports-and-supply-chains-strategy/criticalimports-and-supply-chains-strategy-html-version

44 GOV.UK, National Procurement Policy Statement, 2025: https://www.gov.uk/government/ publications/national-procurement-policystatement

45 PwC, Data centers at the crossroads of technology and resilience, 2025: https://www. pwc.com/us/en/industries/tmt/library/hyperscaledata-center.html

46 University of Gloucestershire, The changing geography of data centres in the UK, 2025: https://eprints.glos.ac.uk/688/

47 Department for Transport, Backing British business: Prime Minister unveils plan to support carmakers, 2025: https://www.gov.uk/ government/news/backing-british-businessprime-minister-unveils-plan-to-supportcarmakers

48 The Department for Transport, Consultation outcome, Phasing out sales of new petrol and diesel cars from 2030 and supporting the ZEV transition: summary of responses and joint government response, 2025: https://www.gov. uk/government/consultations/phasing-out-salesof-new-petrol-and-diesel-cars-from-2030and-supporting-the-zev-transition/outcome/ phasing-out-sales-of-new-petrol-and-dieselcars-from-2030-and-supporting-the-zevtransition-summary-of-responses-and-jointgovernment-response

49 National Infrastructure Commission, Second National Infrastructure Assessment, 2023: https:// nic.org.uk/studies-reports/national-infrastructureassessment/second-nia/

50 House of Lords Environment and Climate Change Committee, The UK’s electric vehicle strategy needs a rapid recharge says Lords Committee, 2024: https://committees.parliament. uk/committee/515/environment-and-climatechange-committee/news/199773/the-ukselectric-vehicle-strategy-needs-a-rapid-rechargesays-lords-committee/

51 International Energy Agency, Global Hydrogen Review 2024: https://iea.blob.core.windows. net/assets/89c1e382-dc59-46ca-aa479f7d41531ab5/GlobalHydrogenReview2024.pdf

52 Department for Energy Security and Net Zero, Hydrogen Strategy Update to the Market: December 2024, 2024: https://assets.publishing.service.gov.uk/ media/6761915126a2d1ff18253493/hydrogenstrategy-update-to-the-market-december-2024. pdf

53 GOV.UK, Plug-in Van and Truck Grant: https:// www.find-government-grants.service.gov.uk/ grants/plug-in-van-and-truck-grant-1

54 Society of Motor Manufacturers and Traders, December 2024 New Car Registrations, 2025: https://media.smmt.co.uk/december-2024-newcar-registrations-2/

55 Society of Motor Manufacturers and Traders, EV share rises despite contracting market but tax hikes threaten targets, 2025: https://www.smmt. co.uk/ev-share-rises-despite-contracting-marketbut-tax-hikes-threaten-targets/

56 NimbleFins, Average Cost of an Electric Car UK 2025, 2025: https://www.nimblefins.co.uk/ average-cost-electric-car-uk

57 Department for Transport, Electric vehicle public charging infrastructure statistics: January 2025, 2025: https://www.gov.uk/government/statistics/ electric-vehicle-public-charging-infrastructurestatistics-january-2025/electric-vehicle-publiccharging-infrastructure-statistics-january2025#regional-distribution-of-charging-devices

58 National Audit Office, Public chargepoints for electric vehicles, 2024: https://www.nao.org. uk/reports/public-chargepoints-for-electricvehicles/?nab=1

59 AA, Drivers call for green signs and totem poles to highlight public EV charging, 2025: https://www. theaa.com/about-us/newsroom/drivers-wantbetter-signs-for-ev-charging

60 UK Labour, Labour’s Plan for the Automotive Sector, 2023: https://labour.org.uk/wp-content/ uploads/2023/10/WR-797_23-Automotivestrategy-v8.pdf

61 Building Digital UK, Project Gigabit: Guidance, 2022/2024: https://www.gov.uk/guidance/ project-gigabit-uk-gigabit-programme

62 Transport for London, TfL calls for final scrappage scheme applications as scheme planned to wind down, 2024: https://tfl.gov.uk/info-for/media/ press-releases/2024/august/tfl-calls-for-finalscrappage-scheme-applications-as-schemeplanned-to-wind-down

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