Labour’s U-Turn raises questions about whether its Green Plans can boost UK SMEs to reach Net Zero

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By Dr Roshan Boojihawon, Department of Strategy and International Business, Birmingham Business School 

Labour’s commitment to “throw everything” at the UK’s net-zero transition and now doing a U-turn appears to amplify the ambivalence and confusion regarding the policy’s role in helping Net Zero transitions, particularly for SMEs. SMEs’ efforts to respond to the recent calls to rapidly scale and accelerate their decarbonisation are notable, but overall policy, legislative and supply chain support are still lagging. 

Starmer’s previous green plans wanted to create new jobs and boost domestic opportunities while positioning the UK to capitalise on the growing, competitive global low-carbon technology market. However, the success of these ambitious plans hinges on their implementation, hence may be a U-turn. Challenges such as securing adequate funding through supportive legislation, ensuring quick access to green technologies at affordable prices, and easing regulatory barriers may thwart progress. Furthermore, the success of these initiatives depends on the broader economic context, such as financial institution’s willingness to invest in green projects and SMEs’ ability to adapt to new low-carbon business models quickly to retain their competitiveness.

SMEs are the backbone of the UK economy and an integral part of global supply chains. To enable their net zero transitions, we need a better understanding of how SMEs can accurately measure and report on Scope 3 (which mostly relates to supply chain activities), or effectively adapt their businesses around its impact and what that adaptation process may look like. Rushed and blanket approaches to help SMEs towards decarbonisation may be ineffective until we understand SMEs’ individual journeys to net zero. SMEs can be very influential in achieving UK net zero targets, and more attention should be paid to their distinct needs and the development of tailored support to help their transition faster and more effectively. Research in the UK led by the FSB (Federation of Small Businesses) shows that SMEs face an “uneven and fragmented” net zero support landscape and that such support does not achieve the desired effects as they fail to reach the majority of SMEs. 

Our research has noted that whilst getting started might be an initial hurdle, having an approach that understands and tallies the unique needs and current pressures of SMEs might work to support them better. A recent SME policy support analysis shows that an enhanced and much more joined-up regional policy and support framework that works better with the different needs of SMEs in different sectors is needed. Our research shows that such support should look beyond the common net zero challenges that small businesses face regarding upfront financing, time and knowledge constraints, and acknowledge the importance of SMEs’ strategic priorities. The value that the transition to net zero can add to SMEs’ business models should be considered alongside the costs generated by the decarbonisation of their businesses. In its previous plans, Labour did not provide detailed plans for where all of the funds would come from and go , and even fewer details on how they would be targeted to help SMEs decarbonise without compromising their competitiveness.

As the sustainability of entire supply chains comes under greater scrutiny, that pressure will only intensify on firms, including SMEs. Scope 3 challenges are addressed in coordination and collaboration with bigger supply chain partners, which adds further complexity to measuring and reporting emissions for SMEs. SMEs are increasingly expected to adjust or conform to their business partners’ decarbonisation demands or risks within supply chains. They are also expected to evidence and share relevant ESG information as the smaller suppliers to the larger suppliers in the global supply chain. There is room for consideration of how larger players can lead or contribute more to SMEs’ transition and how policy and legislation can enable that.

Balancing ambition with pragmatism, combined with bottom-up policy thinking, will, in my view, provide better insights into the practical support and mechanisms most viable for SMEs in their net zero transitions amidst a concerted commitment to enable a “green competitiveness” – one that combines both the imperatives of decarbonisation and economic competitiveness. While Labour’s U-turn on its green plans offers an opportunity to rethink how Net Zero transitions plan can be better implemented; their success will ultimately be measured by their ability to translate into actionable support that meets SMEs’ diverse needs.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the University of Birmingham.

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