When Yorkshire-based CDFI Business Enterprise Fund (BEF) made a start-up loan in 2019 to SeaGrown, a small business devoted to harvesting seaweed, it saw its potential in a way that an online, algorithm driven lender would have struggled to. Now in 2022, as a testament to CDFIs’ knack for talent spotting, SeaGrown has been featured in the Guardian as one of the projects driving North Yorkshire’s plans to tackle the climate crisis. Without sufficient government policy on ‘greening’ the UK’s SMEs, CDFIs are quietly supporting them to grasp the opportunities of the transition to net zero.
The Guardian’s piece described why some scientists believe seaweed can help to reverse the climate crisis. SeaGrown started by harvesting seaweed from rocks because of its characteristics as a sustainable crop with potential innovative uses, such as biodegradable plastics and biochemicals. When Community Development Finance Institution (CDFI) BEF first met Seagrown in 2019, it wanted to expand into bigger industries.
Wave Crookes, director at SeaGrown, said at the time: “The funding from BEF has enabled us to purchase the equipment which is fundamental for us to start processing the seaweed. We…have also taken on two full time and two part time employees… The support from Julie and the team at BEF has been outstanding; always communicative and the process was incredibly straightforward.”
Now, in 2022, SeaGrown is the UK’s largest offshore seaweed farm and its seaweed is used to make a range of products, from a biodegradable alternative to plastic bottles to condiments which are stocked in Selfridges.
Stephen Waud, Chief Executive of CDFI BEF, said: “We are hugely proud to have been part of SeaGrown’s journey.”
For a just transition to net zero we can’t treat SMEs as one homogenous group. SMEs are facing extremely tough operating conditions. This can mean the transition to net zero is being pushed down their list of priorities, and some innovative businesses providing sustainable solutions may struggle to survive.
However, there is an opportunity for the UK’s SMEs. Research has found they could add £160 billion to the economy through new enterprise activity, if properly supported through the transition to net zero[1]. Access to funding is essential[2], but we know only 40% of business loan applications to banks are unsuccessful[3]. CDFIs are well placed to step in.
CDFIs are regionally based. They can support innovative, sustainable businesses like SeaGrown even when they’re overlooked by banks or other online lenders. Or give businesses the investment they need to turn things around and get through a period of turbulence. They get to know their customers and take into account the potential societal and environmental benefits the loan will have. And as relationship lenders they give SMEs the advice and support they desperately need at this time. 90% of the businesses CDFIs lend to have been declined by another lender. 90% of loans are made outside of London and the South East. They are tuned in to the needs of their local cities and regions.
SeaGrown isn’t the only example of CDFIs at work supporting businesses which materially benefit our environment. CDFIs have supported hundreds of impactful businesses, social enterprises and community energy projects over the last decade.
Air pollution contributes to thousands of deaths a year in the UK. Glasgow-based Enjoy the Air (listen to our podcast, here), helps cities to achieve air quality standards through policy, infrastructure and behaviour change. And it recently secured a loan from CDFI SWIG Finance to enable it to create a robust and internationally recognised certification for cities.
New technology is often viewed as high risk by traditional lenders because it doesn’t have a track record. There are numerous examples of CDFIs stepping in to empower cutting edge sustainable enterprises to thrive. A West-Midlands based laundry efficiency specialist, a York-based provider helping other businesses to change inefficient lighting for the latest LED technology, and a community owned windfarm in the Outer Hebrides.
Giving SMEs the tools to transition to net zero, as well as investing in the growth of innovative sustainability-focused SMEs, has a multiplier effect as SMEs influence their suppliers and customers, including rented buildings. But the complexity cannot be underestimated; UK SMEs are highly diverse, as is their approach to sustainability, particularly in the face of today’s challenges.
CDFIs are quietly working from the bottom up but could do more to support businesses to realise the opportunities of the net zero transition. There is a strong case to create partnerships between CDFIs and banks to increase the flow of high-touch finance across the regions at this critical time when businesses might be hunkering down and unable to grasp opportunities. This would also serve to mitigate the risk of SMEs becoming economically stranded as the race to net zero intensifies.
Stephen Waud continued: “SeaGrown is one of the hundreds of businesses we support across the North of England each year. We could reach more at this critical time if we had access to more capital to lend, and would welcome more impactful partnerships with banks.”
Theodora Hadjimichael, Chief Executive of Responsible Finance, said: “Businesses are facing hugely disruptive operating conditions. They may be putting off spending on innovation and investment for decarbonisation, particularly as accessing finance from mainstream lenders can be more difficult in uncertain economic times. CDFIs are countercyclical lenders and have a track record of lending more in a challenging environment. We are asking investors to get in touch with us so we can get finance to more green and ambitious SMEs across the regions of the UK.”
If you are a bank or investor and would like to discuss this – get in touch now. It is urgent the finance sector continues to work together to provide the tools and resources to SMEs to drive this forward.
Read our pilot proposal on p.122 of the Bankers for Net Zero, Smart Data Foundry Report: Scoping exercise: the role of banks in reducing GHG emissions of UK SMEs.
[1] Natwest (2021) A springboard to sustainable recovery: unlocking the net-zero opportunity for UK SMEs
[2] Smart Data Foundry, Bankers for Net Zero (2022) Scoping exercise: the role of banks in reducing GHG emissions of UK SMEs
[3] Federation of Small Businesses (2022) Small Business Index.