What is net zero? Guide for UK small businesses

Published Friday 30 January 2026

Table of contents

• What is net zero?
• Why net zero matters for UK businesses
• How your business benefits from net zero
• Ways to make net zero work for your small business
• Take action towards a sustainable future with Xero
• FAQs on net zero for small businesses

Key takeaways

• Understand that net zero means balancing your greenhouse gas emissions with what you remove from the atmosphere, focusing first on cutting emissions as much as possible before using carbon offsetting for what remains.
• Start with simple, cost-effective changes like energy-efficient lighting or digital receipts, then build momentum gradually rather than attempting major transformations all at once.
• Stay informed about evolving regulations and government support, as compliance requirements are changing rapidly and financial incentives may be available to help fund your transition.
• Use technology solutions like monitoring software and energy-efficient equipment to reduce both emissions and operating costs while tracking your progress towards sustainability goals.

What is net zero?

Net zero is a commitment to cut greenhouse gas emissions to nothing by balancing what you emit with what you remove from the atmosphere. The UK government has set a net zero target of 2050, and as part of its Net Zero Strategy, it also legally committed to a sixth carbon budget that aims to reduce emissions by 78% by 2035 compared to 1990 levels.

Net zero works through two main approaches:

• emission reduction: cutting greenhouse gas production as much as possible
• carbon offsetting: removing remaining emissions through reforestation and carbon capture technologies

Why net zero matters for UK businesses

Understanding net zero is important because it affects how you run your business, yet research suggests that nine out of ten firms don't fully understand what the government's 2050 target means for them.

Government policies, customer expectations, and supply chain requirements are all shifting towards sustainability. Getting ahead of these changes helps you stay competitive, manage risks, and find new opportunities for growth. It is about protecting the environment and building a resilient business for the future.

How your business benefits from net zero

Net zero benefits your business in three key ways. It strengthens your brand, reduces operating costs, and creates competitive advantages.

• Cost savings: Reducing waste and investing in efficient technologies lowers your operating expenses and expands profit margins.
• Brand strength: Net zero commitments attract eco-conscious customers and open doors to new partnerships within the UK's low-carbon economy, an industry with an estimated turnover of £42.6 billion.
• Competitive advantage: Sustainable practices differentiate your business and appeal to today's environmentally aware consumers.

Ways to make net zero work for your small business

Implementing net zero can help you reduce costs, meet regulations, and attract customers through sustainable practices. These five strategies make that shift manageable and profitable.

Stay updated on regulatory and legal considerations

Following regulations helps protect your business from future penalties and keeps you ahead of new requirements. There is currently no legal requirement for small businesses to pursue net zero, but regulations are evolving rapidly.

Expected regulatory changes include:

• reporting requirements: expanded carbon emissions documentation
• financial penalties: fees for high-emission business operations
• tax increases: higher levies on carbon-intensive activities

Although many of these compliance pressures affect larger companies most, they can quickly cascade down supply chains. For example, a Financial Conduct Authority review found that 80% included net zero statements in their annual reports, forcing smaller businesses in their supply chains to adapt.

Invest in your small business to achieve net zero

Net zero investments require upfront costs, and some businesses worry that using green technology will harm their productivity; however, these investments can deliver long-term savings through improved efficiency and reduced waste.

Initial investments typically include:

• green technologies: energy-efficient equipment and renewable energy systems
• staff training: teaching teams to use new systems and sustainable practices
• operational changes: updating daily processes to reduce emissions

Return on investment: These changes boost efficiency, cut waste, and reduce energy costs over time.

Tap into government support to ease the transition

Depending on your sector, your business may be able to access government grants, tax breaks, or incentives to encourage the uptake of clean technologies, especially if you move fast.

The government has pledged to invest £12 billion and create 30,000 green jobs as part of its UK net zero strategy to support everything from research and development (R&D) for carbon-cutting innovations to upskilling the workforce.

Start small to overcome net zero challenges

Starting small makes net zero achievable and sustainable for your business. Success comes from gradual improvements, not overnight transformation.

Follow this step-by-step approach:

1. Begin with simple changes: Install energy-saving lightbulbs, a step already taken by 69% of small and medium-sized enterprises (SMEs), or switch to digital receipts
2. Build momentum: Complete one improvement before starting the next
3. Track progress: Measure results to stay motivated and identify new opportunities

Xero's blog has more info on how you can track your business's carbon emissions with Sumday or Ecologi.

Use technology to reduce emissions and save costs

Technology solutions reduce emissions while cutting costs and improving efficiency. Five key areas deliver the biggest impact:

• monitoring software: track emissions and identify inefficiencies using cloud-based tools like Xero for real-time insights
• energy-efficient equipment: switch to LED lighting, smart thermostats, and efficient appliances for immediate savings
• renewable energy: install solar panels and other green technologies as costs continue falling
• electric vehicle support: add electric vehicle (EV) charge points to reduce transport-related emissions
• industry monitoring: stay updated on emerging technologies that boost your sustainability efforts

Take action towards a sustainable future with Xero

Sustainable businesses can outperform competitors by attracting eco-conscious customers and reducing operating costs, mirroring how the UK cut emissions by 44% between 1990 and 2019 while simultaneously growing our economy by 78%. Progress matters more than perfection.

Focus on continuous improvement:

• stay informed about sustainability trends in your industry
• innovate gradually with manageable changes that fit your budget
• measure progress to build momentum and identify new opportunities

Xero helps you stay on top of your finances and sustainability efforts. Xero's intuitive accounting software makes it easy to manage your expenses, send invoices, and stay on top of your cash flow, all in one place.

Whether you are just starting out or looking to streamline your workflow, Xero makes running your business easier through clear steps, smart automation, real-time insights, and access to expert support. Try Xero for free.

FAQs on net zero for small businesses

Here are answers to some commonly asked questions about net zero and the decarbonisation of the UK economy.

Can small businesses partner with others to achieve net zero together?

Yes, partnerships make net zero more affordable and achievable. Small businesses can share costs and expertise through collaborative sustainability initiatives.

Partnership benefits include shared costs for green technologies, combined purchasing power for better rates, and access to specialist knowledge. Make partnerships work by formalising agreements, defining responsibilities clearly, and setting measurable objectives.

What's the difference between net zero and carbon neutral?

Net zero focuses on eliminating emissions, while carbon neutral relies on offsetting them.

Net zero: Reduce greenhouse gas emissions to zero by changing business operations and removing remaining emissions.

Carbon neutral: Offset existing emissions through environmental projects without necessarily reducing what your business produces.

Net zero requires operational changes; carbon neutral allows continued emissions with compensation.

Do I need to change my supply chain to achieve net zero?

Possibly. You'll need to look at how raw materials are sourced, how goods are manufactured, and how they're transported to market.

To reduce emissions across the entire value chain, work openly with your suppliers. What are their sustainability goals? What are they doing to cut emissions? If you work with like-minded partners you're more likely to hit your own goals and thrive in a net zero economy.

How can I get my team to help achieve a net zero business?

Start by teaching your team about sustainability and why it matters for the business. Introduce eco-friendly practices in the workplace, like reducing energy use and recycling. Involve staff directly; for example, by appointing a keen team member as a sustainability champion and including them in decisions on net zero.

And offer incentives like a step-count challenge to promote walking, or rewarding eco-friendly ideas.