Going Green Is Starting to Pay Off for UK Small Businesses

For years, the assumption among many small business owners has been that environmental action is a cost — something you do because you have to, not because it helps the bottom line. New longitudinal research suggests that assumption is starting to look outdated.

A study by Dr Sylvia Gottschalk (Middlesex University Business School and University of the Witwatersrand), Prof Robyn Owen (Middlesex University Business School) and Dr Eimear McGeown (Cork University Business School), tracked a panel of UK SMEs from the Longitudinal Small Business Survey (LSBS) between 2020 and 2023 to ask a deceptively simple question: are SMEs’ net zero ambitions and environmental intentions actually linked to their growth and productivity, or are the two unrelated?

The headline finding is striking: by 2023, SMEs that prioritised environmental objectives were significantly more likely to rank in the highest productivity quartile. This is a real shift from 2021, when no such relationship was evident. Over just two years, environmental commitment moved from being unrelated to productivity to being a meaningful marker of it.

This wasn’t a one-way story of growth-driven firms simply adding green credentials as an afterthought, though that pattern does exist — firms that are already growth-oriented and more productive are more likely to offer environmental solutions and build social and environmental goals into their business models. Environmental engagement rises with productivity, peaking among mid-range and high-productivity firms.

Money, not morals, drives the action

Importantly, the research finds that when SMEs do act on energy efficiency, the primary motivation is financial, not environmental or reputational. Cost reduction is the dominant driver, especially among growth-oriented and productive firms; environmental or reputational concerns play a secondary role and matter more to mid-range productivity firms specifically.

Yet actual uptake remains low. Only 15% of SMEs reported installing energy efficiency measures in 2023, often constrained by practical barriers like landlord-tenant arrangements or simply not owning their premises. Awareness of energy-saving schemes — such as the Renewable Heat Incentive or the Energy Savings Opportunity Scheme — is also uneven, skewing toward higher-productivity firms while lower-productivity businesses face clear informational and resource gaps.

What this means in practice

Taken together, these findings point to a specific and timely policy opportunity: net zero and productivity policy don’t need to be treated as separate agendas. The research recommends several concrete steps.

Policymakers should actively incentivise environmental engagement by helping SMEs integrate environmental solutions directly into their business models, rather than treating sustainability as a bolt-on compliance exercise. Expanding subsidies and cost-saving schemes for energy-efficient upgrades — targeted especially at smaller firms least able to absorb upfront costs — would address the low uptake problem directly.

Given how uneven awareness is, particularly among lower-productivity firms, targeted outreach campaigns are needed to raise visibility of existing schemes rather than assuming firms will find them on their own. The study goes further, proposing a national support programme for green business growth that consistently combines low-cost green financing with energy and digital efficiency support — recognising that for most SMEs, the case for going green still needs to be made on financial grounds first.

The authors are candid about the data limitations behind these conclusions: green orientation is only measured every two years in the LSBS, environmental investment data is collected from just a third of the sample, and survey attrition further complicates tracking lagged effects. They call for improved scale and clarity in how SME green investment data is collected — a reminder that policy in this space is still working with an incomplete picture.

Still, the direction of travel is clear. The link between environmental ambition and productivity is no longer theoretical — it’s showing up in the data. The practical task now is building the financial and informational scaffolding that lets more SMEs, not just the most productive ones, act on it.

Based on: Gottschalk, S., Owen, R. & McGeown, E. (2025), “Longitudinal Exploration of the Role of External Finance in Helping SMEs Achieve Growth, Higher Productivity and Potential in Relation to their Transition to Net Zero,” Middlesex University Business School / Cork University Business School (LSBS Wave 9 panel, 2020–2023).