CDP Report: Over 95% of SMEs Show Environmental Progress
Small businesses across the UK are taking environmental reporting more seriously than ever before. However, a significant new analysis from CDP reveals a troubling pattern. While disclosure and planning are moving forward, concrete action on carbon reduction remains weak.
Nearly 11,000 small and medium-sized enterprises reported environmental data through CDP's dedicated SME questionnaire in 2025. The findings show that over 95% improved on at least one key environmental measure. Yet when it comes to actual emissions reduction, the picture changes sharply. Only one in five disclosing SMEs has set emissions reduction targets. Fewer than a third have initiatives in place to cut their carbon footprint.
This gap between intention and implementation matters for every business operating in a supply chain. Large firms are under growing pressure to account for their upstream and downstream emissions. That means SME environmental performance is no longer a nice-to-have. It is becoming a commercial requirement.
For businesses seeking public sector contracts, the implications are particularly clear. Procurement policy already requires carbon reporting for many government tenders. As compliance expectations tighten, firms without credible emissions data and reduction plans will find themselves locked out of valuable opportunities.
What the CDP data reveals about SME climate action
CDP's 2026 SME disclosure insights draw on responses from almost 11,000 companies that used the organisation's simplified questionnaire during 2025. The framework was developed with the SME Climate Hub to make environmental reporting more accessible for smaller firms. It focuses on core indicators such as governance, risk management, transition planning, and emissions reduction.
Nearly 40% of responding businesses met most or all of the basic environmental indicators assessed. That suggests engagement is broad. However, the depth of that engagement varies considerably. Specifically, 63% of SMEs either already have a climate transition plan or expect to develop one within two years. Nevertheless, only 15% currently have a plan in place. The rest are still in preparation mode.
When it comes to emissions, the numbers are more concerning. Just 20% have formal emissions reduction targets. Meanwhile, 32% report having emissions reduction initiatives underway. The remainder are either not measuring emissions or not acting on the data they collect.
Regional differences are pronounced. European SMEs performed better overall across the indicators assessed. Conversely, businesses in Singapore and the United States showed the least progress. Many in those regions met none or only a few of the assessed criteria. This variation suggests that regulatory context and support infrastructure play a significant role in shaping SME climate performance.
The findings align with broader evidence about SME sustainability challenges. Smaller firms often lack dedicated environmental staff, struggle to access affordable carbon accounting tools, and face difficulty navigating reporting standards. Consequently, many support climate action in principle but cannot translate that support into measurable decarbonisation outcomes.
Carbon reporting gaps create commercial and compliance risk
The disconnect between disclosure and delivery creates several risks for UK businesses. First, there is the compliance dimension. Government procurement policy requires suppliers to demonstrate carbon reduction in line with PPN 06/21. Firms bidding for contracts above £5 million per year must publish a carbon reduction plan and commit to reaching net zero by 2050.
For many SMEs, meeting this requirement means measuring Scope 1 and Scope 2 emissions at a minimum. Some larger contracts now expect Scope 3 reporting as well. Without baseline emissions data and reduction initiatives in place, businesses cannot credibly complete the documentation required to tender. Therefore, the gap identified by CDP is not just an environmental issue. It is a direct barrier to revenue growth.
Supply chain pressures add another layer. Large corporations are increasingly responsible for emissions across their value chains. As a result, they are asking suppliers to report carbon data and demonstrate reduction plans. This trend is accelerating as regulatory requirements such as the Streamlined Energy and Carbon Reporting framework expand. Firms that cannot provide credible emissions information risk losing contracts to competitors that can.
There is also a cost control angle. Businesses that measure their emissions typically identify efficiency gains in energy use, transport, and waste management. Those savings are real and often significant. Conversely, firms that delay action miss opportunities to reduce operating costs. In a tight economic climate, that matters.
Financial risk is another factor. Banks and lenders are building climate considerations into credit assessments. Insurance providers are adjusting premiums based on environmental risk exposure. Meanwhile, grant funding and public support schemes increasingly favour businesses with credible sustainability credentials. SMEs without emissions data or reduction plans may find themselves at a disadvantage when seeking finance or insurance.
The CDP report highlights that many SMEs are moving in the right direction on governance and planning. However, governance alone does not reduce emissions. Planning without implementation does not satisfy tender requirements. Ultimately, businesses need both the intent and the infrastructure to act.
Core findings from the CDP SME analysis
- More than 95% of disclosing SMEs improved on at least one environmental indicator during the reporting period.
- Nearly 40% of responding businesses met most or all of the basic environmental criteria assessed by CDP.
- Only 20% of SMEs have set formal emissions reduction targets, despite broad engagement on other sustainability measures.
- Just 32% report having emissions reduction initiatives currently in place.
- 63% of SMEs either have a climate transition plan or expect to develop one within two years, but only 15% have a plan in place now.
- Almost 11,000 companies disclosed environmental data through CDP's dedicated SME questionnaire in 2025.
- European SMEs performed better overall, while firms in Singapore and the United States showed the least progress on environmental indicators.
Why emissions action lags behind reporting and planning
The gap between disclosure and decarbonisation is not surprising. Reporting frameworks are becoming more accessible, but implementation requires resources that many SMEs do not have. Measuring emissions is one thing. Reducing them is another.
First, there is the knowledge barrier. Many smaller businesses lack in-house expertise on carbon accounting, energy efficiency, or supply chain emissions. They may understand the concept of net zero but struggle to translate that into a practical action plan. Consequently, they engage with disclosure as a compliance exercise rather than a strategic priority.
Second, there is cost. Installing energy-efficient equipment, switching to renewable energy contracts, or redesigning logistics networks all require upfront investment. For businesses operating on tight margins, those costs can feel prohibitive. Grants and support schemes exist, but navigating them takes time and administrative capacity that many SMEs lack.
Third, there is the issue of data. Calculating Scope 1 and Scope 2 emissions is relatively straightforward for most businesses. However, Scope 3 emissions, which cover the full supply chain, are far more complex. SMEs often depend on data from suppliers and customers that is incomplete or unavailable. Without that data, setting credible reduction targets becomes difficult.
Fourth, there is the perception that climate action is a burden rather than an opportunity. Businesses that view sustainability as a regulatory obligation are less likely to invest in reduction initiatives. Conversely, firms that recognise the commercial advantages of efficiency, resilience, and market access are more likely to act. The CDP data suggests that many SMEs remain in the former category.
Support structures matter too. In regions where governments, trade associations, and industry bodies provide clear guidance and affordable tools, SME performance is stronger. Conversely, in markets where businesses are left to navigate the transition alone, progress stalls. The regional variation in CDP's findings underscores this point.
For UK SMEs, the message is clear. Disclosure and planning are necessary steps, but they are not sufficient. The businesses that will succeed in the transition are those that move quickly from intent to implementation. That means measuring emissions, setting targets, and putting initiatives in place now rather than waiting for perfect conditions or complete information.
It also means recognising that climate action is increasingly a condition of market access. Tenders, supply chain contracts, finance, and insurance are all starting to reflect environmental performance. Businesses that treat emissions reduction as optional risk finding themselves commercially disadvantaged.
From an advisory perspective, the priority for most SMEs should be establishing a credible carbon baseline. That means measuring Scope 1 and Scope 2 emissions at a minimum and understanding where the largest sources of carbon sit within the business. Once the baseline is clear, setting reduction targets becomes more straightforward. Initiatives can then be prioritised based on cost, impact, and feasibility.
Many businesses assume that carbon reduction requires large capital expenditure. In practice, the most effective early actions are often low cost or cost neutral. Switching to renewable energy tariffs, improving building insulation, optimising delivery routes, and reducing waste all deliver emissions reductions and cost savings. Consequently, the barrier to entry is lower than many firms expect.
For businesses that supply the public sector or large corporations, carbon reporting compliance is becoming non-negotiable. The sooner firms put the necessary systems in place, the better positioned they will be to compete for contracts and retain existing customers. Waiting until compliance is mandatory means playing catch-up under pressure.
Where to find guidance and support
Several authoritative resources are available to help UK SMEs navigate emissions measurement and reduction. The government's greenhouse gas conversion factors provide the data needed to calculate emissions from energy use, transport, and other activities. These are updated annually and form the basis for credible carbon reporting.
For businesses seeking to meet public sector procurement requirements, the guidance on PPN 06/21 explains what is required in a carbon reduction plan and how to demonstrate alignment with net zero commitments. This is essential reading for any firm tendering for government contracts.
The CDP website offers detailed information on its SME questionnaire and provides access to disclosure resources designed specifically for smaller businesses. Firms considering disclosure for the first time will find practical guidance on what data to collect and how to structure responses.
Industry bodies such as the Institute of Environmental Management and Assessment and the Chartered Institute of Procurement and Supply also publish guidance on carbon management and sustainable procurement. These resources are particularly useful for businesses looking to understand sector-specific expectations and best practice.
Finally, our net zero program supports SMEs through the full process of carbon measurement, target setting, and reduction planning. We work with businesses to establish credible baselines, identify cost-effective reduction initiatives, and prepare compliant documentation for tenders and supply chain requirements. For firms that need structured support, this provides a clear pathway from disclosure to delivery.