How SMEs can access transition funding and deliver on Net Zero

ICAEW is running a series in the lead-up to COP28, highlighting what needs to happen to ensure a socially just transition to net zero that also delivers for nature and society.

The Institute of Chartered Accountants in England and Wales (ICAEW) is a professional membership organisation that promotes, develops and supports chartered accountants and students around the world, and who Suzy Kerton - Chief Executive Officer at Zyla Accountants is a proud member of.

A global coalition of central banks have acknowledged that nature-related risks could have significant macroeconomic and financial implications. Worsening climate change, nature loss and inequality is not just a human tragedy, it’s a risk to global financial stability. Businesses and financial institutions are leading the way because this is a business and financial issue.

The annual COP climate meetings convened by the UN are a high-profile way for political and business leaders, scientists and environmental experts to tackle the climate crisis. But any agreements or policies hashed out are only useful if we all play our part in implementing them.

Many existing products for SMEs are taking net zero and climate plans into account.

Two years ago, the British Business Bank surveyed SME businesses in the UK about their views and activities around the transition to net zero. While 76% said that they hadn’t implemented a decarbonisation strategy, that does not mean they aren’t taking action; 94% had taken at least one action to reduce their emissions. 

SMEs don’t always have the time and resources to create strategies, says Tony Greenham, ESG Director at the British Business Bank. Speaking at the ICAEW Climate Summit, he outlined the barriers to progress, including costs, feasibility and lack of information. Access to finance for net-zero transition is one critical area for this; 11% of SMEs had already accessed external finance to support net-zero actions, and 22% were prepared to seek funding in the next five years. 

The priority areas for investment for SMEs can be broken down, in colloquial terms, between bricks, wheels and kit, says Greenham. For example, switching to renewable energy sources, improving insulation, switching to electric or other zero-emissions vehicles and improving the energy efficiency of production equipment.

The British Business Bank has a remit to improve access to finance for SMEs, working with commercial banks to offer more products to stimulate growth and investment. When it comes to sustainability funding, Greenham breaks it down between start-up, scale-up and ‘stay ahead’ funding. 

For startups, there’s the Start Up Loan, which allows businesses with no track record to access loans at a relatively low interest rate. “The Startup Loans company, which administers this, is already very switched on to opportunities to finance green sustainable companies…rather than counting against you [net-zero plans] very much counts for you.”

The new Nations and Regions funds are dispersing £1.6bn across the South West, Midlands, North, Scotland, Wales and Northern Ireland. “We’re halfway through the launches of these new funds, which can offer both debt to small businesses and equity.” 

Businesses with a strong sustainable story on investment sustainability will hopefully find the finance that they need through these funds, Greenham says. The British Business Bank also offers guarantees through initiatives such as the recovery loan scheme, where a commercial bank isn’t able to make a loan for reasons such as a lack of collateral. 

There is also a set of programmes that support finance providers to expand their lending to SMEs. All of these products can now be used for green and transition finance or for net-zero finance.

“In one or two cases, we are beginning to look at introducing more favourable terms for finance providers that are using the finance specifically for decarbonisation and net zero,” says Greenham. “A lot of the mainstream providers, regardless of whether it’s through our scheme or not, are introducing more green finance products, sometimes on more favourable terms.”

There has been a huge surge for strong equity investments that have a cleantech or decarbonisation story to them, with existing equity programmes being utilised for green and transition finance. For example, the Regional Angels Programme offers seed funding, while the Enterprise Capital Fund is aimed at early stage businesses. 

British Patient Capital, a subsidiary of the British Business Bank, is the largest limited partner equity investment venture capital firm in the UK, and its teams are fully integrating ESG issues and sustainability into investment decisions. 

As for what to invest in, SMEs can find guidance through OFGEM (the Office of Gas and Electricity Markets), which outlines several energy efficiency grants and schemes available and how they can be used. 

In addition, the UK Business Climate Hub – part of a global initiative – is a partnership between businesses, trade bodies and banks to provide a central source of information on what businesses can do to take action on net zero. 

The British Business Bank is also looking at ways to provide more information for SMEs and make it easier for businesses to access green and transition finance – and spend it wisely. “We are looking to see where we can introduce more. What that also comes down to is accountants’ role as trusted advisers and helping SMEs to understand their case for action and the benefits of acting on sustainability, as well as where they can look to get the money.”