By Dr Fred Paterson - 25 November 2021
No matter which report or analysis you look at, business is a major contributor to greenhouse gas emissions in the UK. Government Statistics show that business operational emissions contribute 17% of UK C02 emissions even before energy supply and transportation is included. With SMEs contributing 70% of these emissions, it’s clear that businesses have a major role to play in creating a zero-carbon economy and sustainable future. Here, Dr Fred Paterson, Associate Professor of Sustainable Business and Clean Growth at the University of Derby, examines the results of a six-year study into pro-environmental business and clean growth trends undertaken by the University’s Sustainable Business Research group in collaboration with the East Midlands Chamber.
The East Midlands has the highest emissions per capita of all the UK regions due to the high proportion of manufacturing and engineering companies in our region. This provides an additional imperative for businesses to respond positively to national net-zero targets, climate warming, environmental degradation and air quality challenges by leading the way in pro-environmental innovation.
There are around 76,000 active enterprises in the D2N2 region, a quarter of which are located in Derby and Nottingham. The D2N2 LCEGS Market Snapshot (kMatrix, 2021) estimated that in 2019/20, 1,876 Low Carbon and Environmental Goods and Services (LCEGS) companies employed nearly 35,000 workers in the D2N2 region (up from 24,000 in 2017/18). This analysis suggests LCEGS suppliers represent around 2.5% of firms in the region and that the LCEGS sector is growing in D2N2 - but not as much as the Midlands Engine region, or the country as a whole.
Research by the University of Derby Sustainable Business group, however, suggests that many more companies than these are engaging in broadly ‘pro-environmental’ business activity that supports the drive towards a zero-carbon economy. This is partly because accepted categorisations of low carbon business too narrowly define pro-environmental business activity and miss some important elements of the picture. First, a growing number of firms (who are not LCEGS suppliers) are addressing emissions by improving energy and resource efficiency and reducing waste. Second, sustainable food and drink, farming and retail companies, that are becoming major contributors to the zero-carbon economy, are largely ignored by current regional economic analysis. And finally, current analysis does not acknowledge that around 80% of business emissions are located in supply chains rather than business operations.
In 2020, the UK Government launched a new taskforce to support the drive to create two million new “green-collar” jobs in the UK by 2030 to help fulfil the nation’s 2050 net-zero target. Our own skills study in 2017 suggested there are pro-environmental niches in every sector of the economy, with each having its own skills needs. This highlights the significance of building capacity in ‘pro-environmental’ management skills such as: environmental audit and compliance, resource and energy management, carbon accounting, sustainable supply chain innovation and sustainable business strategy, amongst many other sector specialist skills.
However, the UK’s Climate Change Committee has warned that it is likely to take 10 years or more to secure the appropriate skills, capacity and supply chains in key sectors like building and transport. This is one of the key reasons we advocate for a broader definition of pro-environmental business. One which specifically refers to a business mindset that sets out to “protect the environment, the climate, biodiversity and natural ecosystems”. This broader ‘pro-environmental’ categorization, therefore, encompasses both ‘specialist’ LCEGS supply companies and those whose focus is on improving their environmental performance through better energy, resource and waste management.
So, what did our study reveal? Over the last six years we have incorporated questions related to clean growth and low carbon business in the East Midlands Chamber Quarterly Economic Survey. Each year we received between 350-450 responses from ‘regular’ businesses in Derbyshire, Nottinghamshire and Leicestershire – with manufacturing, engineering and professional services companies being most prevalent amongst firms from every major sector.
When we asked if they had considered opportunities presented by clean growth in 2021, 36% of companies said clean growth was already wholly or partly integrated into their business growth strategies; up from 29% in 2020. But 45% of firms had not considered or discounted clean growth as an opportunity. This is clearly something all the agencies that support local business need to work on if we are to meet our net-zero ambitions.
When asked whether they were integrating clean growth into their business strategies, there was a clear correlation between strategy and size of the organisation. As Table 1 shows, larger companies on the right were much more likely to have started or completed integrating clean growth strategy than the smallest companies on the left – by a ratio of more than 2:1 (62% - 27%).
We also know that in comparison with larger organisations, SMEs tend to be less engaged in sustainability management practices, which limits their potential for reducing environmental and social impacts. A recent survey by Small Business Britain found that, while 99% of small firms recognise the importance of sustainability, three quarters of them (77%) don’t know how to measure their carbon emissions and need support.
This is compounded by results from our own survey that shows nearly three in ten firms (29%) are not engaging with the clean growth agenda (a small decline from 2020) and four in ten firms (42%) do not feel well informed about support for clean growth. This offers a clear call to action to all regional supporting agencies to re-double their efforts to reach out with resources, guidance and inspiration to firms across the region to support a radical improvement of their environmental performance.
On a more positive note - one of the most interesting outcomes of the study stems from our question ‘What level of turnover does your firm generate from Low Carbon and Environmental Goods and Services (LCEGS)?’. When we asked this question in 2015 – 16% of firms said they supplied LCEGS. At the time we considered this high and thought our questionnaire might be faulty. However, over the years there has been a steady upward trend, resulting in 37% of firms claiming they were LCEGS suppliers in 2021 – a figure that has more than doubled in six years.
Table 2: % turnover generated by pro-E firms – analysis by year
The detailed analysis by year provides a more nuanced understanding of this trend. When we look at companies generating 1-19% of their turnover (third from the left), we can see a clear increasing trend over time (from 8%- 25% of the respondents). In contrast, the companies generating 50% or more have remained around 6-8% over the entire period.
Our analysis suggests that growth in the sector is driven by market entrants and companies gradually shifting their product lines towards low carbon options, rather than ‘specialist’ LCEGS suppliers whose main business model is based on pro-environmental goods and services. This might explain the lower growth in the LCEGS sector in D2N2 compared with the rest of the Midlands Engine region and raises questions about the effectiveness of support for eco-innovation and clean growth more broadly.
Nevertheless, compared with only six years ago (when we began our study), the positive news is that there is an increasingly sophisticated body of evidence about the performance and needs of pro-environmental businesses in general and the zero-carbon journey of our region specifically, which has implications for the way we support firms on their journey to zero carbon.
At the University of Derby, we have signed the UN Race to Zero Pledge and established an Education for Sustainable Development group, which aims to embed the UN Sustainable Development Goals and Principles of Responsible Management Education (PRME) into our curriculum to assure that graduates of the future have a clear awareness of their environmental responsibilities and those of the sectors in which they will work in the future.
There is also a range of support for pro-environmental business at the University, including the Derby City Climate Change Commission, the Green Entrepreneurs Programme, the Low Carbon Business Network and the ERDF co-funded DE-Carbonise programme.
In collaboration with our partners at Derbyshire and Derby City Councils, we have supported more than 600 firms with energy audits, £1.5 million in grants, leveraged £2.2 million private sector funds, provided more than 180 R&D and clean growth support projects and built a low carbon business network of more than 160 firms, whilst delivering around 30,000 tCO2 emissions reductions.
In addition, we are supporting SMEs to progress on their journey to zero carbon business at an online event for businesses on 1 December 2021.