Two of the most pressing policy questions for the UK are how to raise productivity and how to transition the economy to net zero. Small- and medium-sized enterprises as a whole make a major contribution to emissions of greenhouse gases and to the UK’s economy. The UK cannot reach net zero without SMEs taking action – yet not many are adopting existing measures to reduce emissions.

The Innovation Growth Lab examined the case for supporting small- and medium-sized enterprises (SMEs) to take action on net zero, the challenges for policy interventions and the role for experimentation.

This scoping study is intended to guide future research and the development of policy interventions that can boost small business productivity and contribute to net zero.

• Lack of innovation and investment towards engaging and supporting SMEs in the net-zero journey can jeopardise greening across the entire economy.
• The challenges involved in encouraging SMEs to move towards net zero have much in common with the barriers to promoting the adoption of other technologies and management practices.
• Targeted policy interventions to overcome these barriers can be effective, but are not always so. The evidence base is thin, with very little information on what interventions are most effective, when, why, and for which types of businesses.
• SMEs are an extremely diverse group, and they differ widely in how much they contribute to emissions. There is also a lot of variation between them in the barriers they face to reducing emissions, as well as their capacities and their motivations for taking action. Lack of innovation and investment towards engaging and supporting SMEs in the net-zero journey can jeopardise greening across the entire economy.
• The challenges involved in encouraging SMEs to move towards net zero have much in common with the barriers to promoting the adoption of other technologies and management practices.
• Targeted policy interventions to overcome these barriers can be effective, but are not always so. The evidence base is thin, with very little information on what interventions are most effective, when, why, and for which types of businesses.

We propose using an experimental approach, carrying out systematic testing of interventions through small-scale pilots and through larger field experiments, which would include the application of randomised controlled trials (RCTs).

• Experimentation can be used not only to assess the impact of interventions, but also to optimise their design.
• In particular, experimentation funds would allow policymakers to source ideas for interventions, test them at small scale, and then scale up those that seem promising.
• Alongside experimentation, investing in the collection of richer data will be crucial to understand what businesses need, how best to structure interventions, and how to use them to yield the desired results.