Small and medium-sized enterprises (SMEs) play a vital role in the global economy, accounting for around 99% of businesses in the UK and EU. However, SMEs are also significant contributors to climate change, accounting for 67% of UK emissions. So, what regulations effect SMEs?
In recent years, there has been a growing global focus on sustainability regulations. While some focus on ensuring companies are acting with responsibility, others ensure practices are transparent to aid the rapid decarbonisation of economies through the flow of finance into clean and sustainable businesses and products.
It’s also worth noting that whilst many regulations require businesses to act with a sustainable mindset, in reality, that mindset also brings with it broader benefits that contribute to a stable and successful business.
What regulations apply to SME’s?
There are two fundamental things to understand before we dive into the regulations that UK SMEs need to consider.
First, there are hundreds of regulations that apply to businesses operating in the UK. These include the Companies Act of 2006, general data protection regulations, and intellectual property laws. In this article, we will focus on regulations that specifically relate to sustainability.
Second, it’s important to define what an SME is. According to the EU and UK, an SME is a company with fewer than 250 employees and either a turnover of €50 million or a balance sheet total of under €43 million.
UK-based regulations
Now that we have that out of the way, let’s take a look at the regulations that UK SMEs need to be aware of.
Environmental permitting regulations (learn more)
- Mandatory for businesses and organisations that carry out certain activities that could have a significant impact on the environment
- These activities include waste disposal, water discharge, air emissions, and noise pollution
- Businesses and organisations that require an environmental permit must apply to the Environment Agency or Natural Resources Wales
Waste regulations (learn more)
- Mandatory for all businesses and organisations that produce waste
- Sets out requirements for the management of waste, including collection, recycling, and disposal
- Businesses and organisations must comply with the Waste Regulations, or they could face enforcement action from the Environment Agency or Natural Resources Wales
Packaging waste regulations (learn more)
- Mandatory for businesses and organisations that place packaging on the market in the UK
- Sets out requirements for the collection, recycling, and recovery of packaging waste
- Businesses and organisations must comply with the Packaging Waste Regulations, or they could face enforcement action from the Environment Agency or Natural Resources Wales
Energy performance of buildings (England and Wales) regulations (learn more)
- Mandatory for all commercial and public buildings in England and Wales
- Sets out requirements for the energy performance of buildings, including the installation of energy-efficient appliances and lighting
- Businesses and organisations must comply with the Energy Performance of Buildings Regulations, or they could face enforcement action from the local authority
Wildlife and countryside act (learn more)
- Mandatory for all businesses and organisations that carry out activities that could harm or disturb wildlife
- Sets out a range of protections for wildlife, including birds, animals, and plants
- Businesses and organisations must comply with the Wildlife and Countryside Act, or they could face enforcement action from Natural England
Water resources act (learn more)
- Mandatory for businesses and organisations that consume water from rivers or lakes or discharge wastewater into rivers or lakes
- Sets out requirements for the consumption and discharge of water, including the protection of water quality
- Businesses and organisations must comply with the Water Resources Act, or they could face enforcement action from the Environment Agency
UK emission trading scheme (learn more)
- Mandatory for certain businesses and organisations that emit greenhouse gases
- The UK emission trading scheme is a cap-and-trade system that sets a limit on the total amount of greenhouse gases that can be emitted
- Businesses and organisations that emit greenhouse gases must surrender allowances to cover their emissions
Companies Act 2006 emission reporting (learn more)
- Voluntary for most businesses and organisations, but mandatory for certain large businesses (over 250 employees and either a turnover of over €50m or a balance sheet of over €43m)
- The Companies Act 2006 requires certain businesses to report their greenhouse gas emissions to the government
- This information is used to track the UK’s progress towards its climate change targets
Of course, it’s worth noting that regulations and requirements can be subject to updates and changes over time, so it’s essential to consult the latest official sources and guidelines for the most up-to-date information to remain compliant.
Sustainability regulations
The Corporate Sustainability Reporting Directive (CSRD) and the Sustainable Finance Disclosure Regulation (SFDR) are two new regulations that have the potential to impact businesses around the world.
The CSRD requires companies to report on their sustainability performance, including information on their environmental impact, social impact, and governance (ESG) practices. SMEs will only need to disclose if they are listed on markets that are subject to the regulatory framework of the European Union, and those companies will need to report from 2027.
The SFDR, on the other hand, requires financial market participants to disclose how they integrate sustainability risks into their investment decisions. Any UK-based bank and other lenders to individual investors offering products or services to the EU will need to remain compliant.
It pays to be forward thinking
Until now, SMEs have been largely ignored in sustainability disclosure regulations, but, this is likely to change. The climate transition is prompting banks, investors, and companies to re-align their strategies to avoid the dangers posed by the shift in climate. SMEs form the majority of clients and suppliers, and as such will need to follow suit on sustainability initiatives to remain competitive.
Additionally, SMEs account for 67% of UK emissions. As governments strive to achieve their net zero targets, a combination of regulating the damage from businesses and ensuring clear and transparent finance into only those sustainable businesses, regulations are likely to begin impacting a wider range of companies, including those that are smaller.
Many SMEs are already laying the foundations for sustainable disclosure, not only to remain compliant, but to allow them to benchmark their progress and improve over time.
Tips for SMEs looking to incorporate sustainability
Here are some additional tips for SMEs on how to comply with sustainability regulations:
- Start by understanding the regulations that apply to your business
- Develop a sustainability strategy that outlines your goals and how you plan to achieve them
- Implement the necessary changes to your business operations
- Track your progress and report on your sustainability performance
Initiatives to support SMEs
There are a number of voluntary sustainability initiatives that SMEs can participate in to improve their environmental performance and reduce their impact on the planet.
Some examples of these initiatives include:
- The Carbon Trust SME Climate Hub. This hub provides SMEs with free advice and support on how to reduce their carbon emissions.
- The Business in the Community Greener Business Programme. This programme helps SMEs to improve their environmental performance through a range of activities, including training, mentoring, and networking.
- The Sustainable Business Toolkit. This toolkit provides SMEs with a range of resources to help them to become more sustainable, including a self-assessment tool, case studies, and checklists.
- BCorp certification. This certification means that companies meet the highest standards of social and environmental performance, transparency, and accountability but offers support on the route to get there.
