When focusing on the need for corporate action on climate change, many people think about the major multinationals – airlines, car manufacturers, energy companies, and food and drink brands. But net zero economies will be built on the foundation of decarbonised small and medium sized companies (SME).
SMEs represent about 90% of businesses and more than 50% of employment worldwide1. They are key to ensuring economic growth, innovation, job creation, and social integration across the globe and are critical to the sustainability of cities and regions. They also feature heavily in larger companies’ supply chains – many of which are increasingly aware of the need to decarbonise beyond their own operations.
Simply put, without SMEs committing to, and delivering, carbon emission reductions, the goals of the Paris Agreement will not be achieved.
Which is why it’s important to understand their approach to energy efficiency. Are SMEs aware of the impact that climate change will have on their business and is energy efficiency a priority? What motivates SMEs to act? What are the barriers and the opportunities?
We commissioned research to do just this - focusing on UK SMEs, of which there were 5.9 million in 2019, accounting for over 99% of all businesses2. B2B International has interviewed 564 SMEs about their attitude towards sustainability and the actions they have taken to reduce energy consumption.
Reasons to be cheerful
The findings of the research give cause for optimism with over 80% of SMEs surveyed taking action on energy efficiency and 51% saying they want to do more. Reduced costs, reduced energy consumption and improving the environment were identified as the main business benefits of becoming more energy efficient.
The most popular energy efficiency action to be implemented was the installation of LED lighting, followed by the installation or improvement of insulation/draught proofing and the monitoring and reviewing of energy usage. Unsurprisingly, the installation of more innovative/high capital cost measures, such as ground source heat pumps and use of electric vehicles, were the least implemented energy efficiency measures.
While it is positive to note that one in two SMEs surveyed have upgraded to LED lighting, we are far from reaching saturation point for the take-up of even the most low cost and straightforward of energy efficiency measures. The research also suggests that encouraging SMEs to go beyond these to consider investing in other higher initial cost technologies will remain a challenge for some years to come.
SMEs are increasingly concerned about their energy spend. Over 60% of those surveyed said they were very or fairly concerned – up from 46% when we conducted a similar survey of SMEs in 2016. Decreasing energy consumption and social and environmental responsibility objectives are also important to them – though not as important as many other objectives, such as complying with legislation and achieving a strong financial performance.
Interestingly, however, many of the objectives that rank higher are likely to be impacted by climate change – risk management and becoming more customer-centric for example. The survey suggests that many SMEs are yet to fully appreciate the importance of climate change for their business and, linked to this, the need to focus on decarbonising objectives such as energy efficiency.
While almost nine in ten SMEs surveyed knew that international governments have declared a climate emergency (and were unanimous in their support for this), anecdotal evidence suggested that most SMEs thought it wouldn’t impact their business.
With revised regulation, energy cost changes, supply chain impacts and new customer preferences resulting from the climate emergency, it is unlikely that any SMEs will be unaffected by climate change.
Clearly, there is more work to be done to communicate the impact of the climate emergency sufficiently well to all parts of the economy.
It may well be that customers will be the best conduit for influencing SMEs in this area. The survey found that SMEs are much more likely to be asked by customers/service users to reduce their environmental impact than three years ago (28% have been asked compared to 12% in 2016). This interest, in turn, significantly increased the perceived importance of energy efficiency for business survival and often motivated change within the business.
Support still essential
No matter what the driver, some fundamental barriers continue to prevent SMEs from implementing energy efficiency measures. A lack of resources (time and money) is by far the biggest of these. Even for engaged SMEs that are planning to implement an energy policy, a lack of time and money was cited by 46% as a barrier compared to 15% or lower for other barriers.
When asked what specific support they were looking for, access to funding and grants, training on how to become more sustainable and advice from local experts were top of the list. This tallies with our experience of running multiple programmes providing energy efficiency support to SMEs, such as the Green Business Fund, the Welsh Energy Efficiency Loan Fund and the PSEE - National Energy Efficiency Initiative in South Africa.
The Green Business Fund, for example, worked with 1,363 companies over three years providing funding, energy assessments, workshops, webinars, guides, and tools. It found that:
- there is big demand within the SME sector for support and advice
- making funds available accelerates the implementation of energy efficiency projects and as a result accelerates the transition towards a low carbon economy
- services, such as guides, webinars and remote assessments have been well received
So there remains a huge opportunity for SMEs to implement more energy efficiency measures but the case for them to do so still needs to be made and support measures are also still essential.
It may be that work from larger companies to decarbonise their supply chains, along with growing public pressure and perhaps some regulatory drivers, will have a decisive impact on many SMEs in the future. Ultimately, the need to act will grow as the climate emergency becomes more tangible for them and their customers.
1. SME Finance - World Bank
2. BEIS, Business Population Estimates, 2019 - House of Commons Library, Business Statistics - Briefing Paper Number 06152, 16 December 2019
Originally published on 3 February by BusinessGreen