Study: Most SMEs Progressing on Environmental Goals, But Emissions Action Still Lags
Small and medium businesses across the UK are building better systems for managing environmental issues. However, most still lack the concrete emissions targets and operational plans needed to turn that preparation into results. Recent data shows a clear gap between setting up governance structures and actually cutting carbon.
Nearly 11,000 SMEs shared environmental information through the Carbon Disclosure Project in 2025. The findings reveal widespread progress on foundational measures, yet significant delays in taking the next step. More than 95% of participating firms improved on at least one environmental measure. Meanwhile, only 20% had set emissions reduction targets. Just 32% reported active projects to cut their carbon footprint.
This pattern matters for UK businesses navigating tighter compliance expectations and growing supply chain scrutiny. Understanding where progress stalls can help firms focus effort where it counts.
Governance advances outpace emissions action
The Carbon Disclosure Project examined environmental performance across eight indicators. These included governance arrangements, risk management processes, stakeholder engagement, and greenhouse gas disclosure. They also covered electricity use, reduction targets, active initiatives, and transition planning.
Results showed that preparation is widespread. Nearly 40% of participating SMEs met most or all basic indicators. However, the proportion taking operational action remained low. Only one in five had established an emissions reduction target. Fewer than one in three had launched initiatives to reduce emissions in practice.
Consequently, many businesses have improved their capacity to identify and report environmental risks. Far fewer have committed to measurable reductions or invested in the changes required to deliver them. This gap reflects a common pattern in corporate environmental management. Policies and procedures often move faster than capital investment and operational change.
Transition plans remain more aspiration than reality
Transition plans are intended to connect climate ambitions with specific actions. These plans typically include investment decisions, energy system changes, and emissions baselines. They also set out timelines, responsibilities, and funding commitments.
Around 63% of SMEs in the dataset either had a transition plan or expected to develop one within two years. Nevertheless, only 15% had one in place when they disclosed. This suggests intention is growing, but implementation lags considerably.
Without clear baselines, deadlines, and accountability, transition plans risk becoming statements of intent rather than operational tools. For UK businesses, this matters particularly as larger customers and public sector buyers increase their expectations. Procurement requirements now regularly ask suppliers to demonstrate credible climate plans, not just policy documents.
Carbon Disclosure Project guidance recommends that firms establish structured targets. These should identify the baseline year, target year, emissions scope, and percentage reduction sought. Specificity helps ensure plans translate into measurable progress rather than vague commitments.
Regional and sector differences shape performance
Performance varied significantly across countries. SMEs in Spain, France, and Sweden were among the strongest performers. Those in Singapore and the United States showed the least progress against assessed indicators.
Sector differences were also notable. Manufacturing, materials, transportation services, and power generation companies demonstrated relatively strong progress. Retail and service businesses generally recorded weaker results.
Several factors likely explain these patterns. Regulatory pressure differs across regions and industries. Supply chain expectations are more intense in sectors with high carbon intensity. Access to technical expertise, capital, and reliable emissions data also varies. Firms in energy-intensive industries face stronger external pressure to measure and manage their environmental impact.
For UK SMEs, these findings highlight the importance of sector-specific support. A manufacturing business faces different challenges than a service provider. Tailored guidance and financing mechanisms can help bridge those gaps more effectively than generic advice.
Why disclosure alone is not enough
Environmental disclosure has grown significantly in recent years. Large companies now routinely report emissions data, and many smaller firms are following suit. However, disclosure is a transparency tool, not a decarbonisation strategy.
Reporting environmental information establishes accountability. It helps identify risks and inefficiencies. Yet it does not automatically lead to emissions reductions. Action requires funded projects, operational changes, and measurable results.
The findings show that most disclosing SMEs have not yet moved beyond reporting. Without emissions reduction targets, there is no formal benchmark against which progress can be assessed. Without active initiatives, there is no mechanism to deliver reductions. Disclosure creates the conditions for action, but it is not a substitute for it.
This distinction matters for UK businesses preparing for tougher compliance requirements. Regulations such as the Streamlined Energy and Carbon Reporting framework already require certain businesses to disclose emissions. Meanwhile, supply chain pressure is rising as larger firms seek to account for Scope 3 emissions across their value chains. Meeting these expectations will require more than transparency. It will require evidence of progress.
Supply chain pressure increases expectations
Many SMEs operate as suppliers to larger corporations. As major companies strengthen their climate commitments, they increasingly ask suppliers to disclose emissions, set targets, and demonstrate progress. This trend is accelerating across sectors.
For smaller firms, these requests can create both opportunity and burden. Demonstrating environmental performance can secure contracts and differentiate businesses in competitive tenders. However, poorly designed requirements can impose disproportionate administrative and financial costs on firms with limited resources.
Support mechanisms therefore play a critical role. Suppliers are more likely to reduce emissions when corporate buyers provide direct financial incentives, according to research cited in coverage of the Carbon Disclosure Project analysis. Training and education help, but access to capital and commercial support drive measurable change.
Practical assistance could include standardised emissions calculation tools, shared supply chain data platforms, and affordable loans for energy efficiency projects. Longer-term purchasing commitments from major customers also help smaller firms justify investment in cleaner technology. Simplified reporting requirements reduce administrative burden without sacrificing transparency.
UK businesses supplying public sector organisations face additional pressure. Procurement Policy Note 06/21 requires suppliers bidding for central government contracts above certain thresholds to publish a carbon reduction plan. This plan must cover the firm's direct emissions and set out environmental management measures. Our net-zero program for carbon reporting compliance helps businesses meet these requirements with structured support.
Core findings from the disclosure data
The Carbon Disclosure Project analysis highlights several key points for UK SMEs:
- More than 95% of nearly 11,000 participating SMEs advanced on at least one environmental indicator, showing widespread engagement with environmental issues.
- Only 20% had established emissions reduction targets, indicating that most firms lack formal benchmarks for progress.
- Just 32% reported active emissions reduction initiatives, meaning two-thirds have not yet invested in operational measures to cut carbon.
- Around 63% either had a transition plan or expected to develop one within two years, but only 15% had one in place at the time of disclosure.
- Performance varied significantly across regions and sectors, with manufacturing and materials businesses showing stronger progress than retail and service firms.
- Disclosure and governance improvements have outpaced measurable emissions reductions, creating a gap between preparation and action.
Turning preparation into funded action
The findings illustrate a familiar pattern in corporate climate work. Organisations often develop policies, governance structures, and risk assessments before making substantial operational changes. That preparation is necessary, but it does not guarantee emissions reductions.
For UK SMEs, the challenge now is to move beyond governance and reporting. Businesses need to establish clear baselines, set time-bound targets, and implement specific measures. Progress must be documented and demonstrated year on year.
This requires access to reliable data, technical expertise, and capital. Many smaller firms lack in-house sustainability specialists. Emissions calculation can be complex, particularly for Scope 3 emissions across supply chains. Investment in energy efficiency or low-carbon technology often requires upfront capital that may not be readily available.
External support can help bridge these gaps. Larger customers can provide clearer requirements, practical guidance, and financial incentives. Lenders can offer affordable financing for energy upgrades and clean technology. Government schemes and industry bodies can deliver standardised tools and technical assistance.
Businesses should also consider what support is already available. The government's net zero strategy outlines various funding programmes and policy measures. Industry bodies such as the Institute of Environmental Management and Assessment provide guidance on environmental reporting and target setting. Professional training, such as that offered through SBS Academy training on emissions measurement and reduction, can build internal capability.
What this means for compliance and tenders
Environmental performance increasingly affects commercial success. Public sector tenders now routinely include sustainability criteria. Private sector buyers are auditing supplier emissions. Investors are scrutinising climate risk. Regulatory requirements continue to tighten.
For UK SMEs, demonstrating environmental progress is no longer optional in many markets. It is a condition of participation. However, buyers and regulators increasingly distinguish between reporting and action. Publishing a policy is not the same as achieving reductions. Stating an ambition is not the same as meeting a target.
Businesses that move early to establish credible targets and implement reduction initiatives will be better positioned. They will find it easier to meet tender requirements, satisfy supply chain audits, and respond to regulatory change. Those that delay risk exclusion from contracts, higher compliance costs, and competitive disadvantage.
Importantly, smaller firms do not need to replicate the extensive reporting systems of large corporations. Proportionate approaches are available. Simplified frameworks, sector-specific tools, and collaborative platforms can reduce the administrative burden while still delivering meaningful results.
Our ESG compliance and carbon reporting services are designed to help SMEs navigate these requirements without diverting resources from core business operations. Support should be practical, focused, and aligned with commercial realities.
The practical test ahead
The Carbon Disclosure Project data confirms that most SMEs have started addressing environmental issues. Governance is improving. Reporting is becoming more common. Awareness is rising. These are positive developments, but they are not sufficient.
The next phase requires converting preparation into measurable action. Businesses must set clear targets, allocate funding, implement projects, and track progress. They must demonstrate reductions, not just report activity. This shift from governance to outcomes will define which firms succeed in a tightening regulatory and commercial environment.
For UK businesses, the opportunity is to act before pressure becomes crisis. Firms that establish baselines, set credible targets, and invest in reduction initiatives now will find compliance easier and commercial opportunities greater. Those that wait risk being forced into reactive, costly responses later.
Support is available, but businesses must take the initiative. No external programme can substitute for internal commitment and investment. The gap between preparation and progress will only close when firms treat emissions reduction as a funded, managed, operational priority.
Where to find further guidance
Several authoritative sources provide detailed information on environmental disclosure, target setting, and emissions reduction for UK businesses.
The Carbon Disclosure Project offers guidance on environmental reporting and provides frameworks for setting credible targets. The UK government's greenhouse gas conversion factors support consistent emissions calculation across organisations. The Institute of Environmental Management and Assessment publishes resources on environmental management systems and professional standards.
Businesses seeking practical support on carbon reduction plans, emissions reporting, or sustainable procurement can explore targeted programmes designed for SMEs. Understanding the options available helps ensure effort is focused where it will deliver the greatest commercial and environmental benefit.