Fintech leaders call for government-discounted green loans to accelerate UK SME drive to Net Zero

With environmental summit COP26 opening in Glasgow on 31 October, a group of financial services providers and small business leaders are lobbying the government to adopt proposals designed to reduce the carbon footprint of UK SMEs and make the nation a world leader in green finance.

British Business Bank estimates that small companies are responsible for around half of the UK’s industrial emissions, yet just 20% of small businesses have committed to a Net Zero target, according to a British Standards Institution survey. This is in contrast to 50% of larger businesses. 

Concern over additional and unnecessary cost is cited as the primary reason for the lack of activity. In the government’s Greening Finance: A Roadmap to Sustainable Investing, the Chancellor Rishi Sunak stated that “greening the financial system is an integral part of my plans for the future of the UK’s financial services” but to-date financial products that marry both commercial competitiveness and ESG-related benefits have not been offered to SMEs. Not addressing this could derail the government’s 2050 Net Zero target.

The group is calling on the government to act now by providing the right incentives to enable targets to be hit. It proposes two key measures:

1. A government-backed guarantee (50% of losses), in respect of eligible commercial ESG-related lending to small businesses, administered through  British Business Bank in a similar manner to BBLs and CBILS; and/or

2. A £1bn ESG Lending Pool of capital to be run by state-owned British Business Bank, that is match-funded by institutional private capital, for lenders to originate loans to ESG-oriented business and/or for ESG-related purposes.

Led by business Finance marketplace Funding Options and alternative lender Swishfund, the open letter has been co-signed by some of the biggest names in fintech and the small business community, including Enterprise Nation, Capitalise, Fintech North, Inchorus as well as Greenr, an organisation that enables businesses to baseline emissions, support offset projects and engage their employees to reduce emissions at source through their gamified mobile app and web dashboard, and Carbon Footprint Ltd, which for almost 20 years has guided private companies of all sizes and public sector organisations on tracking and reducing their environmental impact. The open letter calls for HM Treasury to open discussions with a view to announcing measures in the 2022 UK Budget, if not sooner.  

The problem, it states, is that “for many small businesses, environmental responsibility is seen as an additional and unnecessary cost, and lenders with a strong ESG brand are considered expensive and/or unsuitable for small business lending”. <

The group argues that issuing government-backed guarantees on ESG loans to visibly cover losses, via the infrastructure used to deliver the Coronavirus Business Interruption Loan and Bounce Back Loan schemes (CBILS and BBLS), will bring the positive benefits of green-bonds, social-bonds and sustainability-linked bonds into the small business environment.

“We will only achieve cultural change in the small business community when ESG and commercial competitiveness become happy bedfellows,” the open letter states.