More SMEs are embedding sustainability in their day-to-day operations, but the numbers could be higher, revealing a key challenge in the sector. In the current climate, how can businesses afford to invest while safeguarding cash flow?

According to new research from Novuna Business Finance, seven years after net zero targets were announced, over a third of manufacturing SMEs are carrying out sustainability-related activities on a daily basis. Over 20% revealed that sustainability is more strategically integrated into their business culture.

This is a significant amount of SMEs, and the rising level of action is a positive, but the numbers aren’t quite as impressive as they might seem at first glance. There are clearly still many SME manufacturers that could do more to target sustainability objectives, in particular as 96% of these firms said that sustainability is more important to their business than 12 months ago.

Sustainability reporting: why smaller firm investment is critical

The pressure is building for small businesses not just in terms of their use of electric vehicles, smart lighting or green power, or their elimination of single-use plastics or promotion of paperless administration and communication, etc. The need for these firms to engage with sustainability reporting continues to grow.

While such reporting is still voluntary for small businesses, for the many that are part of a supply chain linked a large company client, the trend towards disclosing climate-related risks, governance, strategy and performance is clear.

The scrutiny of large company sustainability practices is growing, with the government introducing its UK Sustainability Reporting Standards, and this means more and more will be asked of smaller firms in the supply chain in terms of sustainability reporting. And if they can’t produce this information, their place in the chain is at risk.

How alternative lenders can help fund sustainability investment

Why aren’t small businesses embracing sustainability at a faster rate, in particular as awareness is at a high level? According to the Novuna research, cost is the major barrier, with 78% of SME manufacturers citing operational and market pressures as a key challenge, while a further 42% point to wider economic and political uncertainty.

It is a familiar picture: development is important and investment is required, but the environment in which this must be achieved is a highly challenging one, not least as traditional banks remain cautious with regard to small business lending. How can firms access the finance they need?

This is where alternative lenders can help.

Small business lending from legacy sources remains difficult in Q2, with almost 40% of firms are finding accessing affordable finance one of their biggest challenges. Notably, there has been a call for the introduction of legislation that would require banks to increase access to low-cost lending for small businesses.

In response, alternative lending solutions, such as invoice finance, asset finance and peer-to-peer lending, have become funding lifelines. For example, asset finance is being commonly used means for buying vehicles, machinery or equipment, while invoice finance is being employed to manage staff costs and, more broadly, to cover costs while income catches up.

Overall, by offering a more accessible, cost-effective and personalised approach to lending, these alternative finance facilities are helping small businesses navigate the current climate and target greater stability and growth.

Smaller business finance options for sustainability investment

If the pace of sustainable activity adoption is going to accelerate among small businesses, and if they are going to be meet the coming demand for greater sustainability reporting, it is essential that these firms increase investment. However, accessing finance remain problematic, not least from traditional lenders.

This is why it is important that going into the second half of the year key decision-makers are aware of all the finance options available to them, including the services of alternative lenders.

To find out more about A&T Business Associates services, contact Steve Bowles on 01903 602211 or steve.bowles@atbusinessassociates.co.uk