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SMEs turn to UK suppliers to tackle climate change

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New research shows signs that UK companies are looking to reduce the carbon footprint of their supply chains. According to the NatWest Sustainable Business Tracker, nearly half of all SMEs (46%) have already switched to a domestic supplier due to sustainability concerns. Another 20% are looking to relocate at least part of their supply chain to build sustainability in the coming year. This suggests that around two-thirds of SMEs (66%) will have switched at least some of their external suppliers to in-country suppliers by summer 2023. Over a five-year horizon, this figure rises to three-quarters of SMEs .

Another way companies have readjusted their global supply chains has been to look to suppliers who have environmental credentials, with 28% of SMEs surveyed having already done so. Another 20% of SMEs plan to switch to suppliers with better environmental credentials in the next year.

Three of the Sustainable Business Tracker’s five sustainability priorities have increased since March 2022, with low-carbon energy use seeing the largest increase in priorities. Some 51% of SMEs said green energy was a high priority for the year ahead, up from 42% in March and the highest percentage in the survey’s history. The companies shared their plans to increase low-carbon energy consumption by installing on-site solar panels, as well as investments in battery storage and electric vehicle charging infrastructure.

SMEs indicated that increasing recycling (60%) and establishing cleaner business processes (54%) were the main areas of focus on sustainability, both of which have been increasingly prioritized since March . The results also highlight a considerable slowdown in the growth of small and medium-sized business activity across the UK, with the speed of recovery being the weakest since February 2021. Weak customer demand in response to the impact the sharp rise in input prices on them, as well as the uncertain economic outlook, were cited by survey respondents.

The increasingly difficult global economic context has not, however, prevented an increase in the prioritization of sustainable development actions among SMEs. With 43% saying it was a priority in June, compared to 40% in March, this is the highest level since the start of the pandemic (44% in February 2020).

Andrew Harrison, head of corporate banking at NatWest Group, said: “Global supply chain pressures have focused SMEs’ priorities on switching to UK suppliers. This ensures they have the consistency they need while matching their heightened sustainability priorities. It is good news that it has been accompanied by a greater priority on low-carbon energy consumption as well as ambitions to increase recycling.

NatWest’s Springboard to Sustainability Report, published in October 2021, revealed that 50% of the UK’s carbon reduction ambition can be achieved by the SME sector. It could also open up a £160bn opportunity for them. Sustainability, recovery and growth go hand in hand and SMEs need to be supported in knowing how to make the most of the opportunities available to them.