Posted: June 28, 2023 By Kieran Darmody

The Benefits of Sustainable Finance for Small Businesses

Discover how small businesses can harness the potential of sustainable finance to drive growth, reduce costs, and enhance their reputation in the modern ethical economy.

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Traditionally, small and medium-sized enterprises (SMEs) simply had to understand what the customer wanted before giving it to them at the right price to make money. Today, however, there’s an added layer of complexity in the quest to turn a profit: the modern ethically conscious consumer wants businesses they engage with to put people and the planet ahead of profits. This contemporary mindset has been stoked by the climate change conversation, which has risen in volume amid a growing understanding of the damaging impact businesses are having on the environment. 

Underpinning this need to create sustainable value in the modern business landscape is a commitment to invest in Environmental, Social, and Governance (ESG) issues – cementing the role of sustainability in contemporary business ethics. A cornerstone of this vital evaluation of a business’s collective conscientiousness for social and environmental factors is sustainable finance: the process of taking ESG considerations into account when making investment decisions, leading to enduring investments in sustainable activities and projects. 

By leveraging sustainable finance, SMEs – the largest segment of the UK business population – can make a sizeable contribution to the UK government’s net zero strategy. And the benefits of doing so from a business perspective are compelling:  

Access to funding and incentives

Access to finance is a major constraint for SMEs seeking to undertake sustainable investments. They typically point to the high upfront costs and limited access to finance as the main obstacle. In the EU, for example, 60% of SMEs that have undertaken resource efficiency investments and 61% of SMEs that offer green products or services have relied on their own funds. 

They also face knowledge-related barriers that restrict their demand for net zero investments and sustainable finance. For example, A 2021 survey conducted by the UK Chamber of Commerce shows that only one in ten SMEs currently measure their GHG emissions. 

SMEs must overcome the economic and educational hurdles that block their ability to harness sustainable finance as a driver for meaningful change. To achieve this, they must be aware of and understand the sustainable financing options available to them that reflect the benefits of sustainable practices – from government grants and green bonds to sustainable loans and development funds. For example, almost £5 billion of funding is available to help UK businesses become greener as part of the government’s commitment to reach net zero emissions by 2050 

Empowered by this knowledge and understanding, they can look beyond their bank when seeking funding for sustainable initiatives. These legacy providers’ rigid lending frameworks have perpetuated erroneous assumptions that SMEs are too risky to engage with – depriving them of the funds they need to thrive. 

They must also be aware of the tax benefits and incentives for adopting sustainable practices. With environmental issues high on the global agenda, governments are targeting businesses in their drive to sustainability. Environmental taxes encourage SMEs to operate in a more environmentally friendly manner, such as reliefs from the UK government for buying energy-efficient technology for your business. 

Cost savings and efficiency

Sustainable finance options can help SMEs access capital to invest in sustainable initiatives that lead to significant cost savings and efficiency gains – such as: 

  • Replacing outdated energy-intensive equipment with newer, energy-efficient models that reduce operational costs, such as a fleet of electric vehicles that save on fuel. 
  • Implementing waste reduction and recycling efforts that lower waste disposal costs, such as modifying the design, manufacture, purchase, or use of materials or products. 
  • Optimising supply chains to minimise environmental impacts and social risks. By promoting sustainable practices throughout the supply chain, businesses can reduce costs related to waste management, transportation, raw material sourcing, and regulatory compliance. 

Enhanced brand reputation

The modern consumer, who is increasingly conscious of environmental and social issues, prefers to support businesses that align with their values. By integrating sustainability into their operations and culture, SMEs can engender a positive reputation that appeals to this ethically motivated bunch.  

Sustainable finance provides the foundation needed to build a positive brand image around environmental and social responsibility. Invest wisely and they will appear more trustworthy and attractive to not only customers but employees and stakeholders as well. This fosters a strong reputation that can lead to increased customer loyalty, reduced marketing costs, and a competitive edge. 

Increased market opportunities

The growing demand for sustainable products and services amid a stark realisation of the impact we are having on the planet is reflected in a recent study around Gen Z and sustainability: the report reveals that 62% of Gen Z shoppers prefer to buy from sustainable brands, and a staggering 73% are willing to pay more for sustainable products. 

Sustainable finance can help align investment decisions with consumer preferences by promoting ethical investments and sustainable products and services. Proactive SMEs can use this funding to tap into this eco-conscious sentiment, opening the door to new customer segments and revenue streams. To be successful, they must harness the power of sustainable finance to integrate ESG considerations as a core driver of their strategy and differentiate themselves from a sustainability perspective. 

Improved risk management

Sustainability focuses on minimising negative environmental impacts, such as pollution, resource depletion, and climate change. By integrating sustainability principles into their operations, SMEs can identify potential environmental risks, assess their impacts, and develop strategies to mitigate them. This proactive approach helps mitigate environmental incidents that could result in financial penalties, legal liabilities, reputational damage, and regulatory non-compliance. 

Sustainable finance encourages SMEs to assess and disclose environmental risks in their portfolios. By integrating environmental risk analysis into their decision-making processes, they can identify and manage potential vulnerabilities, strengthening their resilience against disruptions. 

By channelling capital towards eco-friendly projects and initiatives – such as renewable energy, energy efficiency, and climate-resilient infrastructure – sustainable finance helps future-proof SMEs by providing them with the agility to adapt to changing market dynamics. 

Overcoming challenges

Tackling the climate crisis and working towards a net zero economy by 2050 might be increasingly pressing issues – but they come at a financial cost. To be successful, sustainability initiatives require sufficient funding – something SMEs typically struggle with. According to our 2022 survey commissioned with YouGov, 15% of SMEs say rejection is one of their biggest funding concerns. Sustainable grants, loans and programmes allow SMEs to bypass their bank and obtain the initial investment required to kickstart these initiatives.  

With the finances secured, SMEs can dedicate resources to implementing environmentally responsible strategies and integrating sustainability into their business practices. This firm financial footing ensures their core function won’t be disrupted and potential resistance from stakeholders is allayed.  


SMEs are responsible for around 50% of all greenhouse gas emissions from the UK business sector. Against this troubling backdrop, they must understand why they need to adopt sustainability initiatives and how they go about it. When it comes to the all-important how sustainable finance can mean the difference between these vital plans remaining nice ideas and getting off the ground. Crucially, it typically removes interaction with a legacy bank from the lending process, which have a poor track record when it comes to funding SMEs. 

The adoption of sustainable practices must not be a box-ticking exercise; they must be underpinned by an understanding of environmental issues and a genuine commitment to drive meaningful change – otherwise, they will remain rudderless. Get this right and SMEs can reduce operational costs, attract new customers, improve brand loyalty, and create new revenue streams – benefits that are born out of initiatives that appeal to the current environmental zeitgeist.  

Sustainable finance is moving from niche to mainstream as more SMEs recognise the importance of integrating ESG factors into their strategy and decision-making. This is being accelerated by governments and regulatory bodies, which are increasingly taking steps to implement frameworks to promote sustainable finance – including mandatory ESG reporting requirements, tax incentives for sustainable investments, and regulations that encourage transparency and accountability. 

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