1 The business challenge

1 The business challenge

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Photograph of business people meeting and shaking hands

Engaging with small and medium-sized enterprises (SMEs) can be challenging, but it’s essential if we are to meet climate change targets and address other important environmental problems.

There are nearly six million SMEs in the UK, representing 99.9% of all businesses and collectively they have a large impact on the environment. The term ‘SME’ includes a wide variety of business types, ranging from fairly large manufacturing companies to small family firms, social enterprises and micro-businesses. There is considerable potential for improving their environmental performance. For example, the average SME could save up to 25% of its energy usage through relatively simple, low-cost measures. Unfortunately, for many different reasons SMEs don’t typically take up these opportunities.

While it is generally accepted that policy support is needed, interventions of any kind that affect SMEs tend to be politically charged. Traditional ‘hard-lever’ policies, such as regulation, can have a disproportionate impact on smaller organisations compared with larger organisations. They can struggle with the bureaucracy and paperwork required, and it can also be expensive and time-consuming for government agencies to ensure that such a large number of businesses are complying. For these reasons, incentive-based policies are often preferred when it comes to environmental policy for SMEs. These include financial support such as grants and loans for making investments in energy efficient equipment, or expert advice from sustainability professionals.

The main sources of environmental impact from SMEs is related to the energy they use in the buildings they occupy, and business travel.

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• SMEs collectively use 13% of all global energy (IEA, 2015)
• For SMEs in the UK, 18–25% savings can typically be made through cost-effective efficiency measures (DECC, 2014)
• In England and Wales, SMEs generate 60% of commercial waste and are responsible for over 40% of serious industrial pollution incidents (Blundel, Monaghan and Thomas, 2013)
• 30% of all energy efficiency improvements for SMEs require zero capital investment. (DECC, 2014)
• SMEs in the UK collectively spent £49.6 billion on energy from 2014–17. (DECC, 2016)

We begin by looking at an example of a business  that has taken proactive steps towards reducing their environmental impact by collaborating with a local social enterprise.

1.1 Introductory case

Low Carbon Hub: a collaborative business model

Low Carbon Hub (LCH) is a social enterprise based in Oxfordshire. They develop and deploy community-owned renewable energy installations across the county, on school and business rooftops. Working with a producer of medical devices, Owen Mumford, they were able to install large solar panel arrays on four of their buildings in rural Oxfordshire.

Because the finance for the panels is raised using a community-based investment model, the panels were installed at zero cost to the business. Owen Mumford benefit from a considerable saving on the cost of electricity, and anything they don’t use is then exported to the grid, to be used elsewhere. This contributes to the growing share of UK energy supplied from renewable sources. Since LCH is a social enterprise, all funds that are generated from exporting the energy can be reinvested into other similar projects.

This not only benefits Owen Mumford with lower electricity costs and reduced carbon emissions, but the nature of the Low Carbon Hub business model means that the collaboration with Owen Mumford will also be supporting the roll-out of community renewable energy to schools, church halls and community centres across Oxfordshire.

(Greg Webster, Environmental Steering Group at Owen Mumford, LCH, 2018)

Solar photovoltaic (PV) panels on the roof of an industrial building

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Solar photovoltaic (PV) panels on the roof of an industrial building

Solar photovoltaic (PV) panels on the roof of an industrial building

1.2 Effective engagement with SMEs

In the opening activity, low carbon advisor and researcher Sam Hampton opens the course with a brief introduction to the challenge of engaging more effectively with SMEs on environmental issues.

Activity 1.1: Engaging effectively with SMEs on environmental issues

Timing: This activity should take approximately 35 minutes

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Sam Hampton is a low carbon advisor with OxLEP Business, supporting local firms to reduce their environmental impact. He has also conducted research on energy policy, SMEs and the role of intermediaries at Oxford University’s Environmental Change Institute. In the following video, Sam sets out some of the more common arguments for addressing the environmental performance of smaller businesses. He also talks about the challenges that people face when they seek to engage business owners and managers in discussions about their environment-related practices. Lastly, he considers how a values-based approach might help to address some of these challenges.

Download this video clip.Video player: gg_video1.mp4

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Transcript

Engaging effectively with SMEs on environmental issues

[MUSIC PLAYING]

[Why are SMEs so important in addressing climate change and other environmental issues?]

SAM HAMPTON

SMEs are really important, firstly, because they represent 99.9% of businesses out there. And they employ 60% of the private sector. So they're very significant. There are, I think, over 5 million in the UK at the moment. And they collectively have a very big environmental impact.

[Working with low carbon advisors]

I did a piece of research last year where I interviewed about 20 low carbon advisors, intermediaries who work usually for publicly funded programmes, often EU funded. And just really interested in what their experiences were. What the challenges they encountered in their roles.

And what I found was a lot of them worked with businesses primarily on a kind of economic basis and quite a technical basis too. So they would go out and talk to businesses and really focus on the building that they occupied. So they'd do an energy audit really looking at the building fabric and producing kind of a technical report, which had things like if you invest in double glazing, this is the payback period you'll get. And they would leave them with the report.

And quite often, they were complaining that they had no idea what long-term impact those reports had, whether action resulted. And what they really found frustrating was they were saying that they couldn't really develop longer term relationships. And there was this lovely quote, the softer stuff that's hard. They were saying, you know, what would be nice is to talk to businesses about what's important to them, what motivates them, and ultimately, maybe talk about actually the issue at hand, which is climate change and the environmental impact. A lot of advisors that I spoke to would avoid those topics of conversation, even though they said it was actually really important to them.

[Personal and business values]

What we found in our research was that a lot of businesses are actually full of people, individuals. And in those individuals' personal lives, they might be really committed to issues like waste and recycling and the environment. But then when they come to work, there's a bit of a mismatch between what's important to them, those values, with what they do at work.

And actually, if we could delve beneath that and actually think what's important to people and uncover some of those personal values and marry those with what the business does, and think about things like the long-term legacy of businesses. So asking a business owner rather than thinking about where they want to be in a year or two years and thinking about making enough profit and keeping going, actually thinking actually in 15, 20 years when you're thinking about retirement, what do you want to have achieved with this business? And who do you want to leave it to? What kind of legacy do you want from this business?

[Values-based engagement vs. conventional policy interventions]

So when it comes to environmental and energy policy for SMEs, the kind of mainstay of what we do is basically kind of carrots rather than sticks. So we give incentives, like face-to-face advice and energy audits and even grants and loans for businesses to take practical measures. But of course, these are relatively expensive forms of policy compared to things like regulations. And so then the question is, you know, are they fit for purpose? Are they actually achieving what we want them to?

[MUSIC PLAYING]

[The ‘Growing Greener’ project team has drawn on these insights, related research findings, and run a series of practitioner workshops to co-create a toolkit for values-based engagement]

End transcript

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Watch the video (around 4 minutes) and make your own notes on the following points:

1. Sam gave a number of reasons why SMEs have an important role to play in addressing climate change and other environmental issues. Summarise his arguments in your own words, indicate how far you agree with him, and note any other issues that you see as important.
2. Sam explained how his research on people working with SMEs, and his own experience as a low carbon advisor, reinforced the view that, ‘it’s the soft stuff that’s hard’. In other words, while technical discussions can be difficult at times, many practitioners find that the most difficult part of their role is dealing with the attitudes and values of business owners and managers. What is your initial reaction to this argument (e.g. how does it compare to your own experience)?
3. Sam suggested that a ‘values-based’ engagement approach could reinforce conventional policy interventions, such as financial incentives and advisory services. Are you convinced by his arguments (e.g. do you think that this approach might work in your own work setting)?

We recommend that you keep these notes as a record of your initial thoughts that you can revisit during the course. Feel free to copy them into the note-taking file provided.

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Comment

This video and the accompanying questions are designed to get you thinking about the concept of values-based engagement and how it might be used in your own situation. There are no ‘right’ or ‘wrong’ answers, but you may be interested to know that practitioners in our research, and at the workshops, expressed a range of views on these issues.

• Some advisors felt that it was too difficult to initiate relationships with SMEs on anything other than financial terms:
  • ‘It’s pretty basic really – we go on the pound sign. That’s how we sell these programmes to businesses. We've come across it time and time again: when we rock up with a clipboard and say we're from the County Council, the shutters come down.’ (SC)
  • ‘A lot of businesses seem to think that it’s some sort of scam or catch.’ (GD)
• However, advisors knew that the financial case for being more energy efficient wasn’t enough to convince SMEs to make changes.
  • ‘I’ve seen 10 billion projects start and fail because all they do is go in and do an audit, write a report, leave a report, walk away. Nothing happens and I get absolutely infuriated because it is not just information failure, it’s a wider, more complex market failure.’
• Most advisors in our research were themselves strongly motivated by the desire to fight climate change. And it was a source of frustration that in their work they nearly always avoided that topic, and tried to achieve carbon emissions reductions through other means:
  • ‘Every time I speak to businesses I tell them they can save money, that’s the main focus. I know the business is not going to be that interested in being green. Even though they should, it’s just one of those things.’ (GD)
• Other programmes would not compromise on their own values and wanted to build them into their engagements with SMEs:
  • ‘We're looking to imbue the project with our ethics, in everything we do. But there is a sensitivity with respect to marketing, because you're approaching a market which is not necessarily aware or wants to know about reducing their carbon footprints.’

1.3 Effective business support

The second activity in this session presents evidence on the work of low carbon advisors and how it might be made more effective.

Summary and action points

In this session we have reviewed the energy consumption and environmental impact derived from SMEs, and seen examples of the kinds of approaches taken by low carbon intermediaries in order to bring about positive change.

You should now be able to:

• Compare your own professional experiences of working in or with SMEs with other low carbon advisors such as Sam Hampton in the video.
• Explain why there is a need for government-funded intervention.
• Understand the most common approaches to providing low carbon business support, and explain why ‘it’s the soft stuff that’s hard’.

You have now completed Session 1.

Now complete the short quiz for this session.