Policy Recommendations to Enhance Small-to-Medium-Sized Enterprise Support for Achieving the UK’s Net Zero Targets

Abstract

In the UK, SMEs account for 99.9% of the business population, with from 43% to 53% of UK business emissions coming from SMEs. However, SMEs face specific barriers in relation to net zero targets, such as a lack of knowledge about strategies to achieve net zero targets. Despite the ongoing lack of a formal decarbonisation plan for SMEs, various types of projects have been designed to help SMEs to move towards the UK’s net zero target. The Eastern New Energy (ENE) project received funding from the European Regional Development Fund (ERDF) to support SMEs across significant economic areas of the UK, namely the East of England, to help address the barriers that prevent SMEs from decarbonising. The project provided a range of measures, including raising their level of knowledge and providing technical support to help with SME decarbonisation. Following the completion of our targeted support activities, semi-structured interviews (n = 21) were conducted with SME beneficiaries to evaluate the effectiveness of the support with the ambition of providing some policy recommendations based on understanding how national and strategic support can be effective for a diverse, often unconnected ecosystem of businesses. The findings from the interviews indicated that engagement in the ENE project had positive impacts on the SMEs’ understanding of net zero, or how to start their journey towards decarbonisation by identifying their source of emissions and learning how to calculate them. However, accounting for emissions from Scope 3 activities, transition costs and building restrictions were the main barriers that undermined the ENE recommendations. Our research concludes that in designing engagement projects and support, one needs to acknowledge such restrictions and barriers, which requires government interventions to cover all aspects of the SME decarbonisation journey, from nuanced and responsive policy making to developing bespoke knowledge transfer and supporting low-carbon material provision that can support a decarbonised marketplace.

1. Introduction

The role of small-to-medium-sized enterprises (SMEs) in the global economy is vital, as they account for a large proportion of all businesses and employ around 60% of the UK labour force [1,2]. SMEs are defined by the OECD as non-subsidiary, independent companies that employ less than a given number of employees. This number varies across countries; e.g., in New Zealand, the upper limit is 20; in the EU, it is 250 employees; in the US, it is 500; and in China, it is 1000 [1,3]. The UK government uses the EU definition and defines an SME as a firm with fewer than 250 staff with an annual turnover of less than EUR 50 million/balance sheet of EUR 43 m [4]. There are more than 5.5 million SMEs (99.9% of businesses) in the UK, which employ 16.8 million people and account for an estimated GBP 2.3 billion in turnover [5,6].

While the environmental footprints of individual SMEs may appear relatively insignificant, it is not possible to ignore the aggregate impact of such a large component of the UK’s economic landscape [6]. SMEs’ contribution to emissions is significant [7]. British Business Bank estimates that between 43% and 53% of UK business greenhouse gas (GHG) emissions are from SMEs, which presents a significant decarbonisation opportunity. Even the smallest businesses produce carbon emissions; this could be through their building, their vehicles, or their supply chain [8]. SMEs can also have an important indirect influence on climate mitigation through their influence on other actors, including suppliers, customers, and other organisations [9]. A UK government study found that SMEs could save up to 25% of energy consumption through cost-effective efficiency measures, including upgrading building fabric; replacing lighting, heating, and cooling equipment and other process machinery; and implementing energy management systems [6]. There is therefore a need for all SMEs to decarbonise by 2050 to play their part in the UK meeting its net zero target.

The UK was the first major economy to pass laws related to net zero carbon emissions in 2019, and it has targeted the year 2050 to achieve this goal [10,11]. However, there are currently no regulations or strategies that apply exclusively to SMEs [12]. This is confirmed by the CCC report, as they concluded that there is currently no UK government SME-specific decarbonisation plan or strategy [13]. As such, this gap between policy directive and strategic support to deliver such a policy provides an informative case study. As a result of this lack of delivery infrastructure, the take-up of mitigation measures by SMEs remains low. In parallel, SMEs face specific barriers in relation to net zero targets. These include a lack of knowledge and understanding about climate change and how it relates to their own business activities and a lack of capacity to identify and quantify carbon emissions. Research conducted by the NatWest Group has revealed that 87% of UK SMEs are unaware of their business’s total carbon emissions [14]. A survey by the British Chamber of Commerce (2021) noted that nine out of ten businesses (90%) do not understand the term net zero and what the government’s target of net zero by 2050 means for them. The diversity and scope of SMEs and their operations also work against easy solutions or generic models for the decarbonisation of the sector. A considerable body of work has been carried out to identify and evaluate barriers to and drivers for the uptake of decarbonisation measures, which identifies the main barriers as being financial constraints [15], lack of specialist knowledge and technical skills [16], resource constraints [17], and external factors like short-term tenancies [3,18].

Recognising the urgent need to help UK SMEs reduce their barriers to decarbonisation, a number of initiatives have been carried out, led by the government and others, provided by coalitions, organisations, banks, and professional bodies. In 2023, a coalition between the Department for Energy Security and Net Zero (DESNZ), the SME Climate Hub, and other stakeholders, such as high-street banks and professional bodies, established the UK Business Climate Hub. The hub provides a pool of resources, including tools and advice for SMEs on decarbonising operations, such as free carbon calculators and guidance on sectoral decarbonisation. In addition, the West Midlands Combined Authority is on a pilot programme known as the Business Energy Advice Service (BEAS), which provides free energy assessments and grants from GBP 1000 to GBP 100,000 for SMEs across the West Midlands [19]. Other initiatives are delivered by major business representations such as the Confederation of British Industry (CBI), the Federation of Small Business (FSB), the Chambers of Commerce, organisations within the finance industry, such as British Business Bank, and independent organisations like the Energy Saving Trust, the Broadway Initiative, and the Carbon Trust. As such, the SME support landscape is dense and fragmentary, including a mix of regional, national, and sector-specific factors, and, above all, is complex and competitive.

Since 2016, the funding behind the complexity of support organisations for business support to address environmental sustainability has become less generous than the European Regional Development Fund (ERDF) [20]. Owing to Brexit, the UK Shared Prosperity Fund (UKSPF) is the government’s replacement to the European Structural and Investment Programme (ESIF) and ERDF. Since its inception in 2022, the UK government has allocated GBP 2.6 billion across local communities and businesses between 2022 and 2025, but details of expenditure to date have not been publicly released. As a top-up, the Rural England Prosperity Fund (REPF) supports capital projects for SMEs in rural communities [21].

2. Eastern New Energy Project (ENE)

The Eastern New Energy Project (ENE) was one of the ERDF-funded projects aimed at supporting SMEs across the East England region to understand and help remove the barriers that prevent SMEs from rapidly decarbonising, which has now been completed. The aim of this paper is to assess the effectiveness of SMEs’ support provided by the ENE research project to address their decarbonisation barriers. The ENE business support took place through several types of activities, including a knowledge exchange programme (KEP) and bespoke technical business support.

• KEP:

Three KEPs were run in March, July (2022), and February (2023), with a total of 28 participants. The participants came from a range of sectors, including construction, service, and manufacturing, and all had a desire to reduce their carbon emissions. The KEP sessions aimed to support SMEs who wanted to drastically reduce their emissions but did not have the knowledge, skills, or confidence to do so. KEPs were offered in two ways: The first was a 10 h programme delivered as a 5-day workshop of 2 h per day (Figure 1), which included a mixture of presentations and collaborative workshop activities to help SMEs to understand and calculate their business emissions, write a policy, set objectives, and undertake actions targeted at decarbonisation (building, behaviour change, electric vehicles, supply chain), as well as gaining knowledge on funding mechanisms. Following the five-day workshop sessions, attendees were able have a one-to-one session with an expert to ask questions about areas of decarbonisation they were interested in and wanted to further develop. This ERDF-funded programme has the potential to become a valuable source of Continuous Professional Development (CPD) for SMEs beyond the duration of the ENE project.

• Technical business support

The first type of support (KEP) was a support template, which was broad and provided general information on various aspects of decarbonisation. However, with the second type of support, some SMEs would benefit from unique, tailored support, rather than the broad, general offering of the KEP. Some examples of technical support included conducting life cycle analysis (LCA), providing materials, and carrying out product testing in the laboratory for sustainable building materials and designs, building energy modelling for energy efficiency advice, and GHG accounting. The number and type of support interventions provided by the UEL team to SMEs in the East of England are summarised in Figure 2.

3. Methodology

The semi-structured interviews were the main method applied to understand how effective the ENE support had been and how it helped SMEs to reduce their decarbonisation barriers. Permission to collect the data through semi-structured interviews was received via the University of East London’s Ethics Committee. Following this, invitations were sent to 39 SMEs to participate in a follow-up interview. The participants were selected from those SMEs that had received ENE engagement, such as technical business support, or KEP support, as summarised in Figure 3. Twenty-one out of thirty-nine SMEs accepted the invitation to attend the interviews, which were conducted between December 2022 and March 2023. Ten of the interviewees only attended KEP, and eleven had received various types of technical support from the ENE team.

The interview questions were designed based on the literature review, the aim of the research, the assessment of the effectiveness of Small-To-Medium-Sized Enterprise support provided by the ENE project, and the type of business support provided by the ENE project to facilitate the SME’s journey from awareness of net zero to action taken towards decarbonisation. The interview questions are attached in Appendix A and cover the following themes:

• Impact of the support on their awareness of net zero (KEP support);
• Impact of the support on their actions taken towards decarbonisation (technical support);
• Feasibility of applying the recommendations (interventions) provided by the ENE support interventions.

All 21 interviews were recorded via MS Teams Microsoft. These were then transcribed verbatim. The transcriptions were prepared and analysed using qualitative thematic and deductive coding with a predefined set of codes, in line with the interview questions. The participants provided a range of responses that offered insights into SMEs’ business mindsets and receptivity to a particular form of support and advice offer framed within the ERDF programme.

4. Results

4.1. Impact of the Support on SMEs’ Awareness of Net Zero

The interview questions started with a question on whether the ENE support had had any effect on the SMEs’ awareness or understanding of net zero. As Figure 4 shows, 72% (n = 15) of the participants confirmed that engagement in the ENE project had impacts on their understanding of net zero depending on where they were in their net zero journey. Of these SMEs, 48% (n = 10) said that the ENE project made them realise what net zero means. This group of SMEs were in the very early stages of their journey, and they had a basic understanding of net zero. Therefore, ENE engagement helped them to develop their understanding of what net zero means for their business and how to develop their journey. Furthermore, 24% (n = 5) of the SMEs confirmed that the ENE programme reinforced their understanding of net zero and that the programme helped them to move to the next stage. This group of SMEs were already aware of net zero, and they had already taken some initiative. Thus, the KEP confirmed that they were on the right track and helped them to understand how to measure their carbon footprint. A participant from one building company said the following:

“… I would say I’m better informed, that definition of Net Zero as opposed to carbon neutral and scope one/two/three offsetting, all these things that we’ve learnt about over the last maybe couple of years I would say,”

In addition, 28% (n = 6) of SMEs claimed that they were familiar with the meaning of net zero and had calculated some parts of their emissions and that the support did not help them. In this regard, one construction company said the following:

“…… we’d measured our carbon footprint, scope 1, 2 and some scope 3 categories. So, what I was hoping to get out of the ENE workshops was, how you could measure scope 3. But I didn’t get that. It’s quite hard, but no one else was doing it… because it’s not targeted any one particular industry, for example, measuring the embodied energy of buildings.

With over a quarter of them not reporting effective support, there are clear indicators that a number of SMEs are already surpassing the level at which the support was aimed or that the support was beyond the understanding of the participating businesses. The documentation indicates the former; however, with Scope 3 emissions calculation lacking agreed-upon frameworks and methodologies, this is perhaps indicative of a wider failure to determine effective and measurable frameworks for decarbonisation.

4.2. Impacts of ENE Support on SMEs’ Actions Taken Towards Net Zero

As Figure 5 shows, the ENE support led to various changes due to the type of support SMEs received and their progress towards net zero. These effects are as follows:

• Could calculate their carbon emission (by themselves or by hiring a consultant to calculate them);
• Could understand how to increase energy efficiency;
• Could change their organisational policy;
• Could understand their further research;
• No considerable change (it just informed and reinforced their knowledge).

As mentioned earlier, each KEP included a 12 h support session to help organisations to identify and calculate their carbon emissions, set targets, and create action plans. The ENE support helped 38.5% of the SMEs to map out their sources of emissions and calculate their emissions (by themselves). In this regard, one organisation said the following:

“Following the KEP, we’ve done the calculation, and we reckon that we’re probably at about seven tons, and we have a plan on how we want to reduce that, and we’re now working towards that plan to make it happen. We’ve been ambitious and I think 2025 that we would be Net Zero.”

“… the workshop that I did, learning about how to calculate emissions, with you made me able to communicate with the consultant and do it more effectively with.”

The ENE support provided to one SME was given through innovative mathematical modelling of mass and energy transfer through their incinerator and LWA rotary kiln. The organisation explained how the support provided insight into how processes can be utilised to increase energy efficiency.

“… I think better utilisation of the energy that’s in there. And there’s other things that we haven’t gone onto yet, but as I go forward, we were also looking, for example, on… I have a cooling process and I have a drying process. Ultimately with work I’ve done with you, but I’ve not gone there yet, I will look to… rather than have two bits of equipment, connected together by fans and everything else, I would actually look to combine that in one piece of equipment, greatly reducing the amount of material movement and increasing the efficiency. But that part of it, we haven’t taken further yet. If you find me a grant, I’ll do it.”

Some organisations noted that the support helped them become aware of some funding opportunities, which could accelerate their decarbonisation plan. For example, a participant from a climate tech start-up company said the following:

“…… largely for us, part of the gain is the data (data from mechanical properties testing) that’s been generated is extremely valuable for us because it allows us to apply for grants and further funding and extend our ability to achieve our goals which is producing carbon negative construction materials.”

The ENE support led some SMEs to understand that they need to conduct further research. One company, a construction material wholesaler, said the following:

“…… Putting more of some of our insulation products actually increases the carbon footprint of the product, so it has helped us to navigate some kind of strategies when we’re looking at projects and trying to be as carbon-efficient as possible, you would always assume that the more energy-efficient the building, the overall improvement in carbon you would see, but, if you’re looking at the embodied carbon, it’s not true in that respect. So, yeah, just interesting stuff like that, which will be informing our work, going forward, but also would be good to be able to do more research and work around to understand that better.”

Only two SMEs, who already had the necessary in-house expertise and knowledge to calculate their emissions, said that the ENE project did not make any considerable change to their net zero journey.

“…… what it did is reinforce that we did know what we were talking about, to a degree. It reinforced that we were on the right track rather than telling us something we didn’t already know. That’s how I’d characterize it.”

4.3. Feasibility of Applying the Recommendations (Interventions) Provided by ENE Support

Furthermore, 20% (5 out of 20) of the SMEs confirmed that the recommendations provided by the ENE were feasible for them to apply. These SMEs said that they had started carbon accounting already. They had the in-house expertise to implement it, as one SME said the following:

“… We’re lucky because we have expertise in-house who are confident with working with information and data in that form.”

In addition, 35% (7 out of 20) said the recommendations were partially feasible, and 40% (8 out of 20) said the recommendations were not feasible to implement. The reasons for not fully or partially implementing the recommendations are summarised in the following

Table 1. Reasons for non-feasibility of implementing the recommendations.

Subcategories	Count
Lack of skills to calculate emission Scope 3 (supply chain)	6
Building restriction (listed building or rental property)	2
Time (not right time for it, no time to put in)	2
Cost	2
Planning system challenge	1

.

Calculating emissions from Scope 3 activities was one of the main reasons that made the recommendations of the ENE support not feasible to apply. This is because they are mainly beyond the reporting company’s boundaries and control [22]. Furthermore, there are existing gaps in companies’ knowledge of how to measure and manage emissions in the value chain [23]. This was confirmed by half of the interviewees as the main reason for not implementing the recommendations (carbon calculating) provided by the ENE support. In this regard, one company said the following:

“… neither a requirement, nor a competitive advantage to accounting scope 3 and it’s expensive and complicated as we have quite a complex supply chain. On a typical project we may have 15 to 20 different specialist subcontractors. They not only provide the labour on site, but they also bring materials to site. We ourselves use general merchants, general builders’ merchants and if one of their lorries turns up, we might think it’s come from the local depot, but it might have come from halfway across East Asia.”

Building restrictions such as rental properties and listed buildings: Interview research by the Carbon Trust [13] identified that SMEs do not often own their buildings, which makes it difficult to decarbonise their site of operation. This was also confirmed by some participants as one of the reasons that makes recommendations unfeasible for certain organisations, with their tenure conditions leaving them unable to apply the recommendations provided by the ENE towards decarbonisation. For example, an SME who rented a unit from local authority said the following:

“… if we were in a privately owned place, it’d be different, we have rented a unit in an engineering centre that’s owned by the county council. One of the things that we have onsite here, we’ve got a site that has got 72 units. I’d suggest, on a good day, you probably have 400 staff amongst, probably, 40 businesses, and there is no facility to charge an EV car, on a government-owned property. The only ones that are there, they’re due to a couple of private individuals that have put them in. So, there are definitely things that sit there that are probably out of our control.”

Another company with a rented property mentioned that

“… the LED lighting and changing the lightbulbs on some sort of rolling programme. We rent our cabins from the CITB, so it’s essentially their asset, and what we’re trying to do is change their understanding and their perception and move them forward in how they run things.”

Being in historic or listed buildings (Grade I or II) was one of the themes recognised as a barrier to implementing recommendations towards SMEs’ decarbonisation. This was confirmed by two SMEs. One participant said the following:

“…We’re in a Grade II listed building, so there’s very little you can do. You can’t proof windows when they’re sash windows, very old.”

This participant is incorrect in their assessment of the limitations that listed buildings place on energy efficiency.

Cost and need for financial support: One of the top barriers identified by the SMEs as preventing climate change action is a lack of funds [24]. One company said the following:

“… All of what we discussed is feasible. like the combined heat drier, we can’t do it now. I think the combined cooler/drier… the problem I have is that, as you’re aware, to go from lab and small-scale demonstration to full size plant, somewhere in the full-size plant you have to persuade somebody to spend a lot of money…”

5. Discussion

Net zero means that you are putting no more carbon into the atmosphere than you are taking out of it [24,25]. According to a survey conducted by British Business Bank (2022), 74% of SMEs do not fully understand how ‘net zero’ applies to their business. It seems the term net zero is not well understood by SMEs [26]. The result of our interviews shows that 72% of participants confirmed that engagement in ENE the project had impacts on their understanding of net zero and how to start their journey, depending on where they were in their net zero journey. Nearly half of them, who were at the very early stages of their journey, confirmed that the ENE project made them realise what net zero means, understand their source of emissions, and learn how to calculate their emissions. Some initiatives in the UK have been taken to raise SMEs’ awareness of net zero and how to start their net zero journey, such as British Business Bank’s online Finance Hub, which provides a series of guides and information on how SMEs can start their journey towards net zero, or the Climate Hub/Race to Zero campaign, which has had some success [13]. Nevertheless, based on our results, more initiatives are vital to raise SMEs’ awareness. Our study confirms that raising awareness plans and advice support should cover various aspects of knowledge, such as providing information on regulations, access to financing support, foot printing, and audit services.

Apart from the KEP, which provided general and broad advice support, some SMEs have benefitted from unique, tailored ENE support, such as LCA and building energy modelling. When the participants were questioned on whether it was feasible for them to implement the recommendations, 40% said the recommendations were not feasible to implement, and 35% said the recommendations were partially feasible. The main reasons for not implementing the recommendations were to do with the supply chain. This is confirmed by other studies on UK SMEs’ net zero journey, where they have found that a lack of control over certain aspects of business operations within the supply chain is the most important barrier to achieving net zero [21]. Accounting for emissions from Scope 3 activities is challenging as these are mainly beyond a company’s control [22]. Similarly, there are existing gaps in SMEs’ knowledge of how to measure and manage emissions in the value chain [23].

SMEs themselves are often part of the supply chain of larger companies and face pressures to decarbonise business operations. The SMEs we interviewed highlighted these as issues. Firstly, they indicate that the supply chain is complex. This can be the case for companies with multi-tiered suppliers. This depends on how some of these organisations source materials; some of the SMEs interviewed import products from Asia. In the UK, the highest proportion of net imported carbon emissions originates from China [27]. This is mainly due to factors such as lower labour costs and relaxed emission regulations in the source country. Another big barrier to supply decarbonisation remains the difficulty of obtaining data from suppliers [28]. A recent study illustrated how SMEs’ decarbonisation ambitions can be stifled due to a lack of support from their partners. We observed a similar trend in our research, as the SMEs interviewed illustrated how gaining carbon neutrality for their business largely depends on the decision of suppliers [29].

Another key factor in supply chain decarbonisation gaining traction is the diversity of the leasing industry—buildings, vehicles, or industrial equipment. Whether the building an SME uses is owned or rented affects the changes that can be made to that building related to consumption [3,18]. Similarly, energy efficiency adoption in SMEs is dependent on factors such as the building type and lease length [30]. The companies interviewed spoke about how difficult it is to obtain data from the landlords and owners of leased vehicles. A direct implication of this is the inability to obtain data required for Scope 3/value chain emissions calculations. As previously discussed, the emission share of businesses is in the Scope 3 category, and having a significant decarbonisation effect relies on measuring and reducing Scope 3 emissions. As recommended by a recent study, it is crucial to identify key aspects of supply chain development (buildings, transport, and industry) required to decarbonise UK SMEs [13].

The SMEs interviewed illustrated the difficulties of decarbonising buildings due to building restrictions such as requiring planning permissions and occupying historic properties. Occupying historic or listed buildings (Grade I or II) was another reason recognised as a barrier to SMEs’ decarbonisation. According to a survey conducted by an organisation called historic houses [31], 87% of historic building owners see the UK’s planning system for heritage as a major barrier to decarbonising it. In this regard, reviewing the practical planning barriers that organisations can face when implementing energy efficiency measures, such as improved glazing or insulating historic and listed buildings, is necessary and has to be undertaken at the scale of the individual buildings, each of which has its own technical and heritage value challenges.

To gain an understanding of what recommendations could work best, SMEs were asked what could help them overcome decarbonisation challenges. Here, we applied a bottom-up approach rather than the often-employed top-down approach to policy recommendations. It was unsurprising to see that the most proposed recommendation in our interviews was funding together with expert support to implement potential solutions. This is because incentives such as grants, loans, free energy audits, or face-to-face advice are often a preferred form of intervention for SMEs [7]. SMEs would see a lack of funds as a barrier to decarbonisation; hence, they highlight that the availability of funding and grants would potentially aid organisational decarbonisation. The availability of funding has helped SMEs in countries such as the UK, Canada, and Italy to invest in acquiring energy-efficient equipment and renewable energy technology, which provide considerable carbon emission reduction in the long run (SME Climate hub n.d.). These interventions could be delivered in the form of tax privileges, as currently practised in many OECD countries such as the Netherlands, France, and Japan, or by offering SMEs soft loans for environmental investments [32]. Across the EU, incentives such as grants, loans, and the provision of expert advice are available to help businesses overcome financial barriers and to help demonstrate a case for making efficiency investments [33]. Therefore, the government should publish plans which will ensure that SMEs have sufficient financial support for energy efficiency and low-carbon heat retrofits [34]. This includes the availability of and access to grants to carry out projects that could improve energy efficiency and promote the use of renewable energy.

SMEs are diverse and exhibit varying perceptions and practises regarding energy efficiency; therefore, there is a need for sector-specific measures targeted at SMEs given their heterogeneous nature [35]. For instance, SMEs in the manufacturing sector believe that, as intense users of electricity, they should monitor and reduce energy use compared to SMEs in other sectors such as construction and commercial sectors [36]. Again, the results from our interview demonstrated how SMEs in specific sectors have specific needs (sector-specific guidance). A construction firm interviewed suggested that rather than the generic tool we offered for greenhouse gas accounting, perhaps a tool specific to the construction sector would provide better values. Hence, the government could introduce a package of measures within this, including a one-stop shop for SMEs to access decarbonisation advice with a carbon-footprinting tool, building on the UK SME Climate Hub [34]. SMEs in England can benefit from having a platform with sector-specific guidance on decarbonisation, such as NetRegs, provided for SMEs in Northern Ireland and Scotland by a partnership between the Northern Ireland Environment Agency (NIEA) and the Scottish Environment Protection Agency (SEPA) [37].

The results from our interviews outlined the different stages of the decarbonisation of SMEs. Using the five stages outlined by Lloyd’s Bank (2023) [38], some SMEs were in the researching and planning phase (stage 1), whereas others had started measuring emissions (stage 3), and others had a plan in place to reach net zero (stage 4). Our research showed a range of stages, from organisations who were unaware of how to undertake GHG accounting to organisations who had set baseline emissions and were measuring emissions annually. Therefore, while having expert support and advice is required, streamlining support to suit the stages and current needs of SMEs is essential. This was confirmed by the results of the exit interviews, as some SMEs were of the opinion that the KEP did not provide much help to them as they were already far along in their journey and they already possessed the skills, resources, and knowledge required to calculate and manage emissions.

Providing support for SME decarbonisation is one thing, but this support has to be relevant and specific given the range of different sectors SMEs occupy [13]. Specifically, organisations suggest that this support should be streamlined, e.g., engineering support and soil carbon code knowledge. This is geared towards eliminating the previously described lack of knowledge as a barrier. This was supported by the results of our interviews; one SME from the construction sector said a construction-specific greenhouse gas protocol-type spreadsheet from concept design to construction could help to start off these processes. Sector-specific guidance lays out best practises for inventory and target boundary setting, emission accounting, and target calculations, in line with the GHG protocol. As an example, Horticulture Wales provides practical guidance and tools to support businesses in managing and reducing waste [13]. Another example is the National Farmers Union, which has set a goal of reaching net zero across the UK agriculture sector by 2040 and has drawn up guidance for its members on how they can play their part in this ambitious target. The sustainable agriculture hub provides expert resources, including a comprehensive report with practical steps to support business transition, sector factsheets, and links to carbon calculators designed specifically for farmers.

Our results showed the extent to which SMEs vary. Regarding size, 52% were small SMEs (10–49 employees), 33% were micro-SMEs (1–9 employees), and 15% were medium-sized SMEs (50 to 250 employees). Using the UK standard industrial classification of economic activities, we had a range of different sectors (11), ranging from administrative and support services to manufacturing and construction companies. Being from these different sectors means that SMEs will do well to receive more specialised support, as highlighted by an organisation interviewed. Thus, there is a need for expert advice, as this has been proven to produce knowledge that propels environmental practises in SMEs [33]. Effective policy making can benefit SMEs, such as through the introduction of free energy-saving audits and guidance using regional support organisations [36]. To make interventions effective, these need to be streamlined to take into consideration the differing characteristics of SMEs [32].

The need for expert support cannot be overemphasised, as currently, SMEs are not driven by regulations, although there are suggestions that introducing coercion to some extent, such as regulations, could bolster a greater adoption of climate action by SMEs, including the measurement of GHG emissions [39]. To reinforce SMEs’ need for experts, when we asked the organisations what could help them become leaders in decarbonising their business operations, over half of the organisations surveyed indicated expert support and guidance would aid them to get there. Lastly, other recommendations included obtaining managerial and leadership support and improved data exchange, particularly for measuring Scope 3 emissions, which can be up to 11 times higher than other operational emissions, i.e., Scopes 1 and 2 [22].

6. Policy Recommendations

Our results are relevant to policymakers, as the current conditions provide an opportunity to introduce a mix of policies that may support SMEs in transitioning towards net zero. As mentioned earlier, we applied a bottom-up approach to providing policy recommendations. Therefore, SMEs were asked what could help them overcome decarbonisation challenges. Here is the result:

(1)

Financial support;

(2)

Advice support;

(3)

Sector-specific guidance;

(4)

Providing low-carbon material and affordable environmentally friendly products;

(5)

Policy and regulation revision.

The elements of these recommendations are loosely similar to the ‘capacity pyramid’ suggested by Potter and Brough [40]. The ‘capacity pyramid’ follows a bottom-up problem-solving approach with an emphasis on solving challenges encountered on lower levels, which partially solves upper-level challenges [11]. Linking the SMEs’ recommendations to the ‘capacity pyramid’ theory shows the following:

• Government interventions need to cover various aspects of SMEs’ decarbonisation journey and cannot only focus on one isolated subcategory. These include an SME-specific decarbonisation plan or strategy, advice and financial support, sector-specific guidance, and technical assistance, such as providing low-carbon materials.
• It provides a hierarchy of components, which shows that the less tangible factors (such as a lack of policy and regulations for SMEs’ decarbonisation) are the most important.
• There is evidence of links between various barriers (Figure 6).

From SMEs’ perspective, financial and advice support are the potential recommendations with the highest scores to ease the burdens of the net zero journey. However, as Figure 6 shows, solving challenges on the lower levels of the capacity pyramid (lack of SME-specific decarbonisation policy or regulations) is a precondition for the upper levels and will partially solve upper-level challenges [11]. The lowest level of the pyramid is institutional capacity, which refers to policy, planning, and regulation [40]. According to the existing evidence, there are no policies and rules which apply exclusively to SMEs ([3,12]). Thus, a starting point for providing SME-specific decarbonisation policy design should be organisational capacity. The results of our research show that rules and regulations are the recommendations of least priority suggested by the SMEs. This is because SMEs are typically resistant to ‘hard levers’ such as tax and regulation [3]. On the other hand, incentives such as grants, loans, free energy audits, or face-to-face advice are often a preferred form of intervention [7]. This could be the reason that human capacity (advice and financial support) was the potential solution with the highest score provided by our interviewees. Sector-specific guidance (scientific capacity) and providing low-carbon materials (technical capacity) were also prioritised. However, these components need to be supported by relevant policies, e.g., some incentives and a financial policy, to lower the costs of a low-embodied carbon building compared to the cost of a high-embodied carbon building, with some interviewees noting that using low-embodied carbon materials is expensive. A relevant policy is needed to incentivise the design and uptake of low-carbon materials and provide clear guidance on the safety of these materials (some interviewees suggest that low-carbon materials are not readily available, which is another significant supply chain restriction for decarbonisation options).

It is worth mentioning that the ENE and ERDF framework and methodology for support and advice delivery could form a template or framework for future development via policy.

7. Conclusions and Policy Implications

In this research, we linked the policy recommendations for SME decarbonisation to the capacity pyramid (Potter and Brough, 2004 [40]), which is a generalised problem-solving approach for eradicating underlying challenges in various sectors. Although various aspects of SMEs’ decarbonisation journey have been discussed separately by scholars, the capacity pyramid shows that to make this journey feasible, all elements must be considered as a system, and government interventions need to cover all aspects of SMEs’ decarbonisation journey, from policy making and regulations to supporting low-carbon material provisions (Figure 6). More importantly, solving the lower levels of these challenges (SME-specific policies and regulations) is a precondition for effectively delivering solutions at the upper levels, which can include delivering financial support, advice support, sector-specific guidance, and low-carbon materials. Using this supporting framework, researchers can further improve the efficiency of the framework with more in-depth studies on its individual levels.

Although lack of knowledge has been identified as one of the main barriers that hinders SMEs’ decarbonisation, the results of our qualitative assessment proved that even when providing advice and technical support to SMEs, it is still not feasible for SMEs to implement the proposed interventions due to external factors such as supply chain limitations. The lack of control over certain aspects of business operations within the supply chain, such as complexity, and the leasing industry were the main barriers SMEs face in their journey to decarbonisation, and this requires government interventions or incentives to change. Thus, designing policies specific to SMEs is a first step and precondition for other elements of SMEs’ decarbonisation journey. As Fawcett and Hampton (2020) [3] concluded, further research with a systematic approach is needed to support policymakers using better evidence and data.