Small businesses have several specific issues which they face when making a transition to a green economy, however, it is not clear whether the UK government is doing enough to address these issues. If the UK government is serious about its Net-Zero aspirations it must ensure that everything necessary for the small business across the UK to make a green transition is done, because small firms account for around half of the UK greenhouse gas (GHG) emotions (British Business Bank, 2022). In this essay, I would argue that government support is necessary for small businesses across the UK to ensure a transition to a greener economy. I would start by outlining an issue of the high cost of transition for small enterprises and argue that it discourages businesses from investing in greener assets. In addition, I would argue that small businesses are trapped in economic discounting, green investments can be seen as an investment in the future that requires firms to forget short-term profits, which small firms are highly dependent on. I will then argue that governmental support can overcome transitional cost issues by introducing finance support schemes for existing small businesses. Finally, I will argue that government can expand the planning horizon for small businesses and mitigate discounting by changing approaches to calculating business rateable value and taxation schemes. 

 

Many small businesses hesitate to commit to greener business practices because of the associated costs and are uncertain of how their investments would affect their business. There are many powerful purely ethical arguments, however, businesses are not always able to overcome economic pressures to implement necessary actions. McKinsey (2022) estimates that the transition to the net-zero target by 2050 will require increased spending by $3.5 trillion annually on physical assets. It is not clear what portion of the estimated $3.5 trillion should be invested by small businesses, however, some of it would undoubtedly need to be spent by small businesses. The problem for small businesses is lack of resources in contrast to large corporations which can be invested in the green transition, more specifically spent on greener assets or greener practices. According to the National Federation of Self Employed & Small Business (FSB) (2022), 22% of small firms say that lack of sufficient capital discouraged them from investing in energy-efficient assets, research by British Business Bank (2022) suggests that 35% of small businesses cite costs as number one barrier which prevents action towards net zero. The research on the issue suggests that small enterprises across the UK see initial investments in the greener assets as unaffordable and it is not clear how they can overcome the issue without governmental support. 

 

The burden of investing towards a greener economy can be difficult for smaller businesses, however, it is not only the lack of capital that can discourage firms from investing towards a greener future. Economic discounting is the concept that suggests that people are impatient, they would prefer 1$ of profit today to $1 of profit tomorrow (Lutge and Uhi, 2021).This poses a problem not only for the small business but for every economic actor and discourages them from investing in something that would bring returns in the distant future. According to Lutge and Uhi (2021) investing in business’ ecological sustainability can be seen as an investment in the future and economic discounting might make all possible returns on such investments seem invaluable for businesses. Discounting effects are further amplified for small businesses because they do not have the same amount of surplus resources as large enterprises, which in most cases have the necessary capital to ensure that day-to-day operations are continuing. Large enterprises can afford to invest some of their profits into transition to a greener economy without compromising their current operations. Small businesses are more dependent on short-term profits in their daily operations and cannot be expected to direct them towards investing in the green transition. 

 

Economic discounting of potential returns on green investments can be seen by some as a simple lack of information about opportunities that businesses can have when investing in a green economy. FSB (2022), 24% of small businesses have not cut their energy use due to unclear perspectives on the return on their investment. It can be argued that 24 % of small businesses are simply restricted in their understanding of the opportunities associated with going green, therefore, the only necessary step for the government is to inform them about these opportunities. However, the research by Jayeola (2015) on how the implementation of green practices is affecting small business financial performance suggests that firms are right when being cautious. Jayeola (2015) concluded that taking measures for pollution control benefited profits of small and medium-sized enterprises (SMEs), however, she found a correlation between financial effects of sustainable practice and SMEs size. Larger SMEs tend to gain more profit associated with the green practice (Jayeola, 2015). It is another proof that small businesses are in a less advantageous position when it comes to gaining returns on their green investments and their hypothetical skepticism about investing in a green future caused by the economic discounting effect, in reality, can be seen as a well-grounded approximation. 

 

The nature of small businesses such as the concentration of assets in one place or operations in a small geographical area makes them extremely exposed to natural disasters associated with climate change but as it has been argued above they are also restricted in their ability to address the transition issues on their own. The remaining part of the essay would make suggestions about the necessary steps for the UK government which can help the transition. The first issue which can be addressed is insufficient resources for the initial asset investment. Access to government-supported financing schemes is one way to address the issue. According to the British Business Bank (2022), 11% of smaller-size firms have already used eternal finance to support their net-zero transition efforts. In addition, 22% of smaller firms say that they are planning to borrow in order to invest in net zero efforts in the next five years (British Business Bank, 2022). It is noticeable that small businesses across the UK are prepared to take action if they have the necessary funding and it is also safe to assume that a purposefully developed financing scheme subsidized by the government can accelerate the transition. Another recommendation which is suggested by the FSB (2022) is allowing small businesses to write off losses caused by the investment in green assets which did not yield expected results at a similar rate at which gains are taxed. It has already been mentioned above that smaller businesses’ profits are compromised when making a transition towards greener assets and the initiative by the National Federation of Self Employed & Small Business would allow accounting for that. Another recommendation by the FSB (2022) will allow minimizing economic discounts effects, the suggestion is to exempt all of the green improvements to the firm’s assets from being counted towards business rateable value. Finally, small businesses across the UK suggest that in addition to external financing and taxation clear standards and regulations would help them in achieving net-zero target (British Business Bank, 2022). The government has all the capabilities to ensure that small businesses across the UK would actually make a  transition towards net-zero.

 

In conclusion, this essay argued that small businesses in the UK have barriers that would not allow them to achieve the net-zero target in the near future and that governmental support can overcome these barriers. Specific barriers preventing green transition have been identified. In particular, the lack of resources available for small businesses discourages them from investing in green assets. The effects of economic discounting and the potential of harming financial sustainability are other factors that prevent small businesses to act towards net zero. The ability to gain profits by investing in green assets is also correlated with the company’s size, making it difficult for small businesses to justify making these investments.  However, this essay also argued that small businesses are already borrowing money to invest in greener assets which means that government-supported loans can accelerate the trend and allow for a faster transition. In addition, exemption of the more sustainable assets from being counted towards business rateable value and taxation policies which can encourage new investment in financially risky assets will remove barriers for making the transition to net-zero.

 

 

The most commonly practised tool of assessment – essay writing – is still considered by business leaders to be a major asset, lauding writing ability as a key attribute for graduates. They highlight that essay writing provides training in much more than simply the ability to write well. Essay writing also involves training in reading significant amounts of information, while simultaneously sorting through what is relevant and what is irrelevant, and often determining what is factual and what is not factual. In turn, the composition or planning of an essay requires the structured ordering of thoughts and ideas, in order to develop and articulate a coherent argument.Retrieved and adapted from: Storycraft. The importance of narrative and narrative skills in business. Dr James Robson, Dr Ben Holgate, Dr Ashmita Randhawa. 2021. https://skope.ox.ac.uk/publications/storycraft/

 

Write an extended essay (1500 words) with a title agreed by your tutor and yourself using the theme of Sustainability (try to be relevant to your subject area), but not the same as your IRP or any subject specific essays or previously written/oral work you have done.

 

Your mindmap, detailed plan, a minimum of four academic sources, drafts, and draft essay with feedback will be uploaded onto a writing process padlet page: template to copy. Write annotated bibliographies for two of your main sources.

 

You may use or adapt the example titles from the session.

 

You should ensure that:

- You have read a minimum of four academic sources which may include multimedia sources but must be academic (may include government papers/reports). You may, additionally, include other relevant academic sources, and possibly one or two quality magazines/newspapers/websites. If you are unsure about the suitability of a source, ask your tutor.

 

- You have selected, summarised and paraphrased where appropriate 

- You use vocabulary and grammar accurately

- You use an appropriate academic style consistently

- You cite and reference your essay correctly

- You use examples to support your arguments

 

Semester 1: Upload the first draft to turnitin via QM+ Sunday (23:55) end of week nine

Semester 2: Upload the final draft to turnitin via QM+ Sunday (23:55) end of week one