SMEs and the net zero transition: From challenge to climate opportunity

Reaching net-zero emissions by mid-century is no longer just a climate ambition—it’s a business necessity, and it cannot be achieved without the full engagement of small and medium-sized enterprises (SMEs). Often underestimated in the climate conversation, SMEs contribute between 43–53% of business-related greenhouse gas emissions, making them a crucial part of the global decarbonization puzzle. In the UK, SMEs represent over 99% of all registered businesses and employ 61% of the private sector workforce, underlining their systemic influence across both the economy and the environment. In short, SME net zero commitments are essential, not optional, for the global economy to decarbonize effectively.

While large corporations typically dominate sustainability headlines, SMEs are deeply embedded in global supply chains and local communities. They often provide critical goods and services to larger companies, meaning their emissions feed directly into the Scope 3 emissions of their corporate clients. This makes SMEs indispensable contributors to value chain decarbonization. For this reason, small business net zero strategies must be placed at the heart of national climate roadmaps, not treated as peripheral or secondary efforts.

What does it mean to be net zero?

Net zero refers to achieving a balance between the amount of greenhouse gases emitted and the amount removed from the atmosphere. For SMEs, this means cutting emissions as much as possible, from operations, energy use, transport, and supply chains - then using off setting only for the remaining, hard-to-eliminate emissions. It's a progressive journey, not a one-time fix, and every step counts. That journey typically begins with three critical actions:

• Measuring emissions across Scopes 1, 2, and 3 – learn more in this guide to carbon emissions categories
• Identifying emission hotspots
• Developing practical plans to reduce carbon intensity over time

For SMEs that want to take action but feel overwhelmed by the scale of the task, tools like carbon accounting platforms can break this down into manageable steps. As explained in Zuno Carbon’s blog on decarbonization, even modest reductions, such as improving energy efficiency or switching to low-carbon suppliers, can generate measurable impacts over time.

Why SMEs must be part of the climate solution

The Organisation for Economic Co-operation and Development (OECD) puts it clearly: "there is no net zero without SMEs." Their emissions may be dispersed, but they are widespread, embedded in value chains, logistics networks, and community services worldwide.

Moreover, SMEs bring unique advantages:

• Speed and agility:Unlike larger corporations, many small businesses can experiment with low-carbon solutions quickly and adjust strategies with minimal bureaucracy.
• Deep local ties: SMEs are trusted voices in local markets, meaning they can drive behavioural change in ways that top-down regulation often cannot.
•  Innovation drivers: Many clean tech startups and sustainability pioneers are SMEs themselves, creating breakthrough technologies and circular business models that can be scaled globally.

Challenges SMEs face in the net-zero transition

SMEs are essential to achieving global net-zero targets but despite their critical role, they face significant challenges in decarbonizing their operations.

SMEs make up over 90% of all businesses globally and are responsible for a large share of energy consumption and emissions, yet they often receive disproportionately less policy attention and climate support compared to large corporations. This structural oversight must be corrected, as there is simply no path to net zero without SMEs. However, for SMEs to fully engage in the net zero transition, they must overcome five major structural and operational barriers:

1. Limited resources and budgets

Unlike large corporations with sustainability departments and substantial ESG budgets, SMEs often operate on razor-thin margins. Investing in decarbonization technologies, such as energy-efficient equipment, carbon accounting platforms, or renewable energy can be prohibitively expensive for many small firms. According to GGGlobal, many SMEs delay climate action due to upfront costs, even though the long-term benefits are clear. A study by Khosravi et al. reinforces this, noting that lack of capital is a key inhibitor of sustainability adoption.

2. Lack of technical knowledge and internal expertise

Many SME owners want to become more sustainable but simply don’t know where to begin. Understanding how to measure emissions, comply with new ESG reporting rules, or adopt science-based targets can feel overwhelming. The Singapore Parliament report highlights a serious awareness gap, especially in micro-enterprises that may lack access to sustainability training or climate literacy.

3. Complex regulatory environment

New climate regulations such as the Corporate Sustainability Reporting Directive (CSRD) and increasing pressure from large corporations on Scope 3 emissions are trickling down to small suppliers. Many SMEs are now required to provide carbon footprint data to stay in supply chains, yet lack the resources or understanding to do so. The lack of standardized guidance and limited internal expertise leads to compliance uncertainty, which can deter action rather than incentivise it.

4. Data gaps and digital disadvantages

Many SMEs still rely on paper-based or manual systems, making it difficult to collect reliable emissions data. Digitalization is a key enabler of climate action, but SMEs often lack the infrastructure or expertise to deploy ESG software, carbon accounting tools, or digital energy monitors.The lack of real-time emissions insights slows progress and risks underreporting or non-compliance with ESG frameworks.

5. Short-term pressures over long-term strategy

Faced with rising costs, inflation, and day-to-day business survival, SMEs may deprioritise decarbonization in favour of immediate concerns. But this short-termism can lead to exclusion from green supply chains, missed funding opportunities, and exposure to climate risks that threaten business continuity.

In short, many SMEs are willing but underprepared. As the Singapore Parliament paper concludes, governments, corporates, and finance institutions must collaborate to build green ecosystems that include small businesses from the ground up.

The business case for decarbonization

While the barriers are real, the incentives for SMEs to pursue net zero are growing stronger. Decarbonization is no longer “just” about corporate social responsibility, it’s a strategic move that enhances profitability, market access, and long-term resilience.

Here are five key reasons why SME net zero is good for business:

1. Cost savings through energy efficiency

According to multiple pilot projects SMEs have achieved significant energy savings by implementing low-cost energy efficiency measures such as LED upgrades, smart controls, and operational adjustments. Energy audits funded by local or national programmes can further uncover low-hanging fruits in energy, waste, and water usage.

2. Improved brand reputation and customer loyalty

A green reputation is no longer optional; studies show that sustainable SMEs are more competitive and attractive to both customers and business partners. As sustainability becomes a core consumer expectation, environmental credentials are now a key driver of brand trust and loyalty.

Even job seekers now favour companies with a clear climate mission, making sustainability a lever for attracting and retaining top talent.

3. Enhanced supply chain integration and tender eligibility

Large corporations are under growing pressure to reduce Scope 3 emissions and require their SME suppliers to report carbon data. SMEs that can demonstrate emissions transparency and reduction progress are more likely to be retained or selected as preferred vendors. As highlighted by GGGlobal, forward-thinking SMEs that align with corporate climate targets can win more business and access new markets.

4. Resilience to climate and market risks

The impacts of climate change - floods, extreme heat, resource scarcity (including food and water) all over the world disproportionately affect small businesses. Resilience planning, energy independence (through renewables), and low-carbon operations make SMEs more capable of weathering shocks. SMEs are highly vulnerable to both physical climate risks and transition risks like carbon taxes or disrupted supply chains.

5. Access to green finance and incentives

Banks and government programmes increasingly reward sustainable SMEs with preferential loan terms, tax breaks, and grants. Green finance is a rapidly growing sector, and SMEs with ESG strategies are more likely to secure investment. For example, the Eastern New Energy programme in the UK has helped SMEs implement energy-saving measures with real economic benefits.

How ESG software can help SMEs achieve net zero

Carbon accounting and ESG platforms are no longer just for large enterprises. For SMEs, the right tools can:

• Automate compliance reporting
• Reduce reliance on spreadsheets
• Benchmark progress over time
• Identify reduction strategies across business functions

As a result, ESG tools not only drive carbon reduction but also support investor confidence and client retention. As regulatory pressure mounts across the globe, SMEs need robust digital systems to stay competitive and credible.

Empowering the SME net zero movement

The road to net zero is long, but SMEs have a vital role to play. Despite facing unique barriers, these businesses are also nimble, innovative, and well-positioned to lead sustainable transformation from the ground up.

To succeed, SMEs need:

• Supportive policies and grants
• tailored decarbonization tools
• incentives to digitise operations
• reliable partners who can simplify the ESG journey

The climate crisis doesn’t differentiate by company size and neither should our solutions. SMEs are not just participants in the net zero journey; they are the engine driving it forward. Representing over 90%of businesses worldwide, they are central to achieving any meaningful global climate target.

Yet they face real barriers - limited funding, regulatory burdens, technical knowledge gaps, and digital disadvantages. If these challenges go unaddressed, SMEs risk being left behind or excluded from green supply chains. But with the right frameworks, financial incentives, and digital tools, small businesses can turn climate action into opportunity.

Decarbonization enhances profitability, improves resilience to climate risks, and opens doors to sustainable finance and global markets. Supporting SMEs to go green is not just an environmental necessity, it’s an economic strategy.

If you're an ESG professional or consultant supporting SMEs, platforms like Zuno Carbon can simplify carbon accounting, streamline ESG reporting, and help your clients realise their net-zero ambitions from day one. The path is clear and every SME should be empowered to take it.

Frequently Asked Questions (FAQs)‍

What is the role of SMEs in sustainable development?

Small and medium-sized enterprises (SMEs) play a pivotal role in sustainable development due to their sheer number, economic impact, and reach into local communities. Globally, SMEs represent over 90% of all businesses and are significant contributors to employment and innovation. In terms of sustainability, they are essential for:

• Reducing greenhouse gas emissions across supply chains
• Supporting green jobs and local economies
  
• Driving innovation in clean technologies, materials and processes
• Building climate resilience at grassroots level

In short, SME net zero efforts are a cornerstone of any inclusive and effective global sustainability strategy.

How do SMEs benefit from environmental sustainability strategies and practices?

Environmental sustainability is not just a cost, it’s a growth driver for SMEs. By adopting sustainable practices, small businesses can:

• Lower operational costs through energy efficiency and resource optimisation
• Enhance brand reputation and meet rising consumer expectations
• Access new markets and contracts, especially with large corporations seeking climate-conscious suppliers
• Build business resilience against climate-related disruptions like extreme weather or supply chain shocks
• Improve staff engagement, retention, and recruitment by aligning with employee values

Sustainability opens the door to long-term profitability, risk reduction, and innovation.

Why is it important for SMEs to establish strong sustainability practices?

Strong sustainability practices are essential for SMEs to remain competitive in a fast-evolving business and regulatory environment. With tightening ESG regulations (like CSRD), increasing customer scrutiny, and growing pressure from supply chain partners to disclose emissions data, SMEs that fail to act risk being left behind.

Embedding sustainability into core operations also helps SMEs future-proof their business, secure funding or grants, and align with national and international climate targets.

In essence, building sustainability from the inside out isn’t just ethically the right thing to do - it’s smart, strategic, and increasingly necessary for business survival.