--- description: How are UK SMEs impacted by climate change, are they implementing ESG measures, and do they think the government is doing enough to help them reach net zero? image: https://gdm-localsites-assets-gfprod.imgix.net/images/capterra/og_logo-e5a8c001ed0bd1bb922639230fcea71a.png?auto=format%2Cenhance%2Ccompress title: What ESG challenges do SMEs tackling climate change face? --- # ESG challenges: 48% of UK SMEs interested in tackling climate change lack information on how to take action Canonical: https://www.capterra.co.uk/blog/3480/ESG-challenges-SMEs-tackling-climate-change-face Published on 28/02/2023 | Written by Eduardo Garcia. ![ESG challenges: 48% of UK SMEs interested in tackling climate change lack information on how to take action](https://images.ctfassets.net/63bmaubptoky/3EbmgmCHHB1ziAH6VKFUBF/f4b3b2e10717e53cad94eebdc6627bdc/ESG_challenges_for_UK_SMEs-UK-Capterra-Header.png) > Beyond its global impacts, climate change poses a risk to business continuity for small and midsize enterprises (SMEs). Implementing environmental, social, and governance (ESG) initiatives can help businesses mitigate the effects of climate disruption. We surveyed decision-makers from UK SMEs to determine the steps they take to incorporate ESG practices in their business and what further help they expect from the UK government to support them through this process. ----- ## Article Content Beyond its global impacts, climate change poses a risk to business continuity for small and midsize enterprises (SMEs). Implementing environmental, social, and governance (ESG) initiatives can help businesses mitigate the effects of climate disruption. We surveyed decision-makers from UK SMEs to determine the steps they take to incorporate ESG practices in their business and what further help they expect from the UK government to support them through this process.In this articleHow are environmental issues affecting UK SMEs?Are UK SMEs adopting ESG initiatives?What challenges do SMEs face when implementing environmental measures?Do SMEs think the UK government is doing enough to help them reach net zero?SMEs welcome ESG strategies but need more assistanceIn 2019 the United Nations warned that we only had 11 years left to prevent permanent damage from climate change. Four years later, extreme weather conditions, supply chain shortages, and the risk of increased insurance costs due to climate litigation are just some consequences of climate change that present challenges to corporate finance and continuity.SMEs are particularly vulnerable if they cannot operate in adequate conditions or have limited access to their resources. Yet, they also contribute significantly to climate change and should take responsibility for reducing carbon emissions that cause global warming. One way that some businesses are responding to climate change is by incorporating ESG initiatives to try to curb global warming. But what steps are UK SMEs taking to implement these measures? Do they need help to adopt sustainable practices, and what expectations do they have for the government to support them in this process? We surveyed 269 managers and executives from UK SMEs to find out. The full methodology for conducting this study can be found at the bottom of this article.How are environmental issues affecting UK SMEs?Environmental issues can have diverse effects on businesses and employees. Whether it is water scarcity, weather conditions that affect supply chains, or changes in biodiversity that can alter the food chain, there are many operational facets that are vulnerable to changes in climate. We asked survey-takers working in SMEs that were already implementing tactics to tackle climate change how some of these issues were affecting their business. The following graph shows the most frequently cited consequences.Regulatory uncertaintyOver a third (34%) of respondents whose company is taking measures to mitigate climate change say uncertainty regarding regulations and policies already has an impact on their business. For a further 41%, this uncertainty threatens to affect their business in the future. Software tip: Compliance software can help SMEs keep up with an evolving regulatory landscape as well as monitor and report emissions. These tools can also help address any concerns regarding the modification of business processes to be more compliant with regulations, which was considered a potential threat for 47% of respondents. Supply chain disruption Climate change can also cause disruptions to supply chains. SMEs may rely on global sources of raw materials, and the impact of extreme weather events can disrupt transportation or the availability of goods or materials. 32% of respondents had already witnessed supply chain disruptions, with another 45% saying this was a potential threat. Software tip: Businesses can use supply chain management software to identify and mitigate possible threats in the supply chain. Increase in regulatory and insurance costsAdjusting business processes to cater to climate regulation standards can be costly. For 31% of surveyed SMEs carrying out mitigation plans, these regulatory costs currently affect their businesses. 44% of respondents also said these costs threatened to affect their operations. When it comes to insurance costs, SMEs are also concerned. 32% said that insurance expenses were already affecting their business, and 43% said that this extra cost was threatening to affect their company. Britain is prone to and at risk of suffering from floods. In the UK, flood insurance is not provided by the state but by private insurance companies, and SMEs need to safeguard their business against potential threats. Not only that, the cost of director and officers' liability insurance has also risen due to increasing climate-related litigation costs. Scarcity of resourcesClimate change can lead to a scarcity of diverse resources that are essential for SMEs. Drought can lead to water scarcity, impacting agriculture, manufacturing, and other industries. This issue has already affected 30% of respondents, with a further 49% stating that it is a threat to their business. Are UK SMEs adopting ESG initiatives?An ESG programme or initiative refers to the policies, measures, and activities a business has in place to manage environmental, social, and governance factors pertinent to stakeholders and business success. However, are UK SMEs deploying ESG initiatives to address environmental issues? Have they even heard of the concept? We asked our survey respondents about their approaches to ESG. What are some benefits and examples of ESG initiatives? Environmental, social, and governance (ESG) initiatives can enhance a company’s reputation and brand image, helping to attract customers, employees, and investors. If deployed effectively, ESG can lead to cost savings by reducing waste, energy use, and employee turnover. The following are just a few examples of ESG activities:Environmental initiatives: using waste management processes, recycling, monitoring energy performanceSocial initiatives: hiring for diversity, partnering with a charity, helping local communitiesGovernance initiatives: educating employees about the company's values, ensuring total transparency with regulators, establishing whistleblower programmesThese types of initiatives can attract lenders implementing ESG investment strategies who want to incorporate UN corporate sustainability goals and ESG factors into their decisions. Not only can ESG provide better access to capital, but it can help SMEs avoid potential fines and other legal and reputational liabilities. A third of UK SMEs didn’t know the concept of ESGAccording to our survey, only 30% of respondents fully understood what ESG is, with another 36% knowing the concept but not the name. That left over a third of contestants who had either heard of ESG but didn’t know the concept or who didn’t know the concept or the name.After showing our respondents a definition and examples of ESG, we asked them if they were currently applying any ESG initiatives. 39% of respondents said their company already carried out some of these activities, while over half (52%) hadn’t implemented any ESG programmes but were interested in doing so.Why haven’t some businesses implemented ESG initiatives yet?Seeing that half of our respondents hadn't implemented ESG practices but wanted to do so, we asked why they had delayed starting ESG initiatives. The top reason, with 48% of votes, was that they lacked information on how to act. The results indicate that many SMEs need guidance and resources to help them implement environmental, social, and governance practices.Most banks and final institutions provide ESG guidance for businesses, while the UK government and parliamentary group also provide guides on ESG initiatives such as sustainability reporting, sustainable investing, climate disclosure guidance, and more. Still, despite the ESG challenges they may face, these SMEs are open to applying these changes in the future. 81% of respondents from SMEs interested in these programmes said it was ‘somewhat likely’ their company would implement ESG initiatives, with another 9% saying it was ‘extremely likely’. Why and how are UK SMEs deploying ESG initiatives?There are different reasons behind a business’ decision to adopt ESG measures. For 38% of businesses already adopting these initiatives, conviction towards the cause is the main reason. Two other popular reasons are to attract investments (24%) and to build a better reputation or image with clients and the media (24%). 59% of these SMEs already deploying ESG have a specific department with one or more people working only on this. When we asked respondents at SMEs with ESG programmes which initiatives their company is currently applying, the results indicated that the majority focus on the environment:79% of respondents are applying environmental initiatives 51% of respondents are applying social initiatives29% of respondents are applying governance initiativesOur survey shows that the overwhelming majority of SMEs deploying ESG measures are satisfied with the results. 84% of respondents said that the implementation of these initiatives had helped in meeting their main objective, with the remaining 16% confident they would see the results soon.What challenges do SMEs face when implementing environmental measures?With a higher percentage of ESG initiatives being focused on environmental issues, we wanted to delve further to understand the challenges SMEs may be facing when implementing these measures. In the first part of our Climate Change survey, we saw that UK SMEs needed further financial assistance to combat climate change. Half of businesses already deploying strategies to mitigate the damage of climate change said that a lack of financial resources posed a challenge. Financial issues may pose the biggest obstacle to UK SMEs, but there were more challenges. 48% of respondents said there was a lack of knowledge and skills to implement environmental measures, with another 41% stating that it was hard to engage employees in these practices. How can SMEs train and engage employees to implement environmental measures?Sharing knowledge and skills related to climate change mitigation practices can help reduce a company's carbon footprint. Here are some tips for engaging employees in these efforts:Make sustainability part of the company culture: Integrate and manage sustainable practices and make sustainability a key part of a company’s mission and values. Provide training and resources: Offer learning tools, workshops, and informational materials to help employees understand environmental issues and how they can get involved and make a difference.Encourage participation: Motivate employees to take part in sustainability initiatives and allow them to contribute to the company's efforts. This could include organising recycling programs, energy conservation initiatives, or community volunteering opportunities.Incentivise sustainable practices: Managers can provide incentives to encourage employees to adopt sustainable practices, such as offering rewards for reducing energy usage or waste.Do SMEs think the UK government is doing enough to help them reach net zero?In 2019, the UK committed to reaching net zero greenhouse gas emissions by 2050. It then delivered a nationally determined contribution (NDC) to reduce CO2 emissions to 68% below 1990 levels by 2030. This is a target 62% of our surveyed respondents who were implementing changes to mitigate climate-related damage found feasible. However, what is the UK government doing about climate change to support SMEs? While most SMEs may want to be more sustainable, many need help to achieve this objective. The government already provides the SME Climate Hub to help SMEs access tools, resources, and guides to measure and reduce their emissions. However, are businesses receiving further support to help minimise the impact of climate change? What support are SMEs receiving?According to our survey, 39% of companies carrying out measures to mitigate climate change are receiving support from the government to reach these goals, and the majority of this group (69%) said this help was enough to allow them to make a significant change. Another 24% say they have requested support but have yet to receive it, and 14% say the support exists, but they have not requested it yet. The remaining respondents either said that support was either not available (13%) or they were not sure if it existed (9%).When we asked the respondents who are either receiving support or have the option to request it about the type of government aid available to their companies, they most frequently cited financial support to:Migrate to less CO2-emitting electrical systems and equipment (61%)Promote the use of green methods of transport (59%)Switch to renewable sources (49%)Educate employees; for example, on how to reduce waste (35%)However, do SMEs think this support is sufficient to meet environmental goals?SMEs want more communication, financial support, and regulations from the governmentThe UK government has made numerous tools and resources available to help SMEs deploy strategies to reduce their carbon footprint. However, most SMEs taking action against climate change feel the government can do more. According to our survey:Nearly two-thirds (65%) of these respondents believe the government should provide more financial support to businesses to reduce climate change51% said the government should be clearer in its communication with businessesHalf of this group of respondents wanted the government to put more restrictions on companies to avoid pollutionHow can companies self-regulate to reduce their climate impact?SMEs can add internal environmental policies and regulations themselves. Environmental software can help organisations track, report, and enforce internal policies as well as comply with government regulations. Similarly, sustainability software can help businesses manage their environmental impacts, while companies can use emissions management software to help forecast, calculate, and manage their CO2 emissions. SMEs welcome ESG strategies but need more assistanceThere are varying opinions among SMEs about the priority of fighting climate change. While 30% of respondents feel that even though climate change is a problem, fighting it shouldn’t be a priority, the majority (58%) of respondents recognise the need for immediate action to limits its impact. Despite facing financial limitations, many SMEs are implementing or open to implementing ESG initiatives. These activities can increase customer and stakeholder satisfaction, profitability, and employee morale. Without action to mitigate climate change, businesses risk increased exposure to regulatory uncertainty, supply chain disruptions, and escalating insurance costs.Still, while many SMEs believe in the feasibility of the UK government’s net-zero greenhouse gas emission target, many respondents require more government support achieve it. However, even without requesting government aid, here are some steps SMEs can take to kickstart their climate-related ESG strategies and contribute to a more sustainable future: Assess and review current practices: Conduct audits to identify areas for improvement, such as energy use, waste management, and water conservationSet new targets and align processes: Set new measurable goals, incorporate them into financial objectives, and adjust processes to align with business objectives and stakeholder expectationsEngage employees and stakeholders: Gather ideas from employee surveys and stakeholder insights, and communicate action plans and next steps, providing staff with opportunities to get involvedAppoint a team to monitor progress: Start with small initiatives and appoint someone to be responsible for communicating strategies to stakeholders, gathering data, monitoring progress against goals, and reporting the resultsLooking for ESG software? Check out our catalogue. ## Disclaimer > Methodology:To collect the data for this report, Capterra conducted an online survey in December 2022 of 269 UK business owners and managers from a variety of industries. The respondents were selected according to the following criteria:Resident in the United KingdomOver 18 years oldOwner, executive manager, or senior manager at an SME (company with 2-250 employees)Works in a company where a significant portion of the employees regularly attend a physical workspace/officeMust be able to identify the main business model of their company (B2B, B2C, or B2G)Works in a company that sells either products, services, or bothWorks in a company that was founded more than one year ago ## About the author ### Eduardo Garcia Eduardo is a Content Analyst for the UK. Providing research and digital tech tips for SMBs. MA in Journalism and in Diplomatic Studies. 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