Nature Positive SME Finance

The climate and ecological emergency is driven by unsustainable business and investment and negative environmental societal (consumer) behaviours. These adverse effects can be addressed through approaches to investment that consider environmental consequences and where the nature becomes a valued asset. However, research and related policy/business initiatives have focussed on large corporates while ignoring the issues facing Small and Medium-sized Enterprises (SMEs), despite the fact that they form a larger proportion of the UK and global economy.
There is more recent attention to investment for climate change, but there remain major gaps in understanding concerning investors impact on biodiversity and nature positive impacts. Furthermore early stage SME innovators offer disruptive technology and new business models to support nature positive impacts. This is underpinned in the Dasgupta report (2021) and the recommendations for a Central Bankers (2022) mandate to improve the biosphere.
Both investors and the SMEs seeking finance face challenges in terms of having information on each other about commercial and sustainability factors. These SME finance information asymmetries' (Owen et al 2022) are greater when considering nature positivity due to the lack of clarity in defining biodiversity impacts with related Science Based Targets (SBTs). These information asymmetries are even greater when dealing with new and small disruptive SMEs operating in novel and emerging sectors.
This research examines the constraints facing investors wanting investees to report on biodiversity. It will also examine the current good practice in businesses seeking nature positivity and Net Zero. This requires attention to the metrics used and how their measurement can be practical and affordable for SMEs. Finally, it will explore the steps required to encourage a support ecosystem for both investors and SMEs so they can assess nature and carbon impacts.
The study will examine four high-risk and potentially high net-gain impact sectors: i) agri-food; ii) infrastructure (transport and construction and appliance of Biodiversity Net Gain); iii) fashion and clothing; iv) advanced engineering and biotech (sectors offering tech for mitigating and measuring biodiversity). Across all of these we will examine the diverse sources of finance, such as banks, supply chain finance, and early stage equity investors (e.g. venture capitalists, business angels, accelerators). Through our project partners, the study will build on UK-based networks derived from impact investor groups, business case studies and support agencies. Key partners already committed to this project include early stage investors, banks, financial intermediaries (notably ESG advisors), and small business support and representative organisations.
Data will be collected through qualitative interviews and workshops with investors, SMEs and other key informants advising on reporting for Net Zero and biodiversity. In a period of rapid change, this project will examine the process of change by continuing Middlesex University's longitudinal sample of businesses and SME investors developing innovative approaches to biodiversity reporting.
Further work will examine the burgeoning industry around biodiversity reporting for SMEs and other businesses. Ecologists and business reporting specialists will work together to explore the approaches being used, the metrics being prioritised, the methodologies used to assess impact, and the technology being developed to reduce the costs and extend the depth and accuracy of analysis.
By having practice partners embedded in the project from the start, the impact plan will ensure there are a range of good practice guides for SMEs, investors and those providing biodiversity and carbon assessment services. The results will reach a wider audience building on the strengths of the Centre for the Understanding of Sustainable Prosperity (CUSP) communications team.