Small businesses are starting to engage in efforts to reduce their environmental impact and drive energy efficiency gains. In comparison to large corporations, however, small and medium sized companies (SMEs) experience significant financial constraints.
Some SME’s need financial support to assist them in adopting environmentally sound practices and alleviate the associated costs.
In this article I outline the importance of sound environmental performance for an SME and illustrate the types of financial support available to SMEs for energy efficiency schemes from national programmes in the UK, Ireland, France and Germany.
SME’s and the environment
Although small businesses’ individual environmental footprint may be low, their aggregate environmental impact is significant. For example, SMEs contribute roughly 64% to the industrial pollution in Europe and two-thirds of commercial and industrial waste in the UK comes from small or medium sized firms.
The key sectors where SMEs have a particularly significant environmental impact include livestock farming, construction, metal finishing, waste treatment, the food and drink industry, and textile and leather manufacturing.
Statistics show that up to 24% of SMEs actively engage in actions to reduce their environmental impact; however only 0.4% of European SMEs have a certified Environmental Management System (EMS) like ISO 14001.
Many SMEs are willing to invest in more energy-efficient and environmentally friendly processes, but they face numerous obstacles that prevent them from actively greening their business activities.
Commonly cited challenges are: limited financial resources, knowledge and technical capacity, the fact that most EMS-related costs are upfront and benefits are medium-term, as well as low public visibility of enhanced environmental practices.
To encourage further adoption of environmental standards and energy efficiency, SME’s need financial incentives!
Financial incentives for ‘green behaviour’
There are several financial mechanisms available to private companies, particularly SMEs, willing to go beyond compliance and invest in green technologies offered by public agencies and private banks. These incentives help to lower the barriers for SMEs’ entry into the market of green technologies and facilitate their diffusion.
UK
- The Energy Saving Trust (a UK-wide non-profit organisation) provides zero-interest small business loans of up to GBP 100,000 to help businesses install renewable energy technologies or measures that reduce energy consumption
- The Green Deal, the UK government’s initiative to enhance energy efficiency, is to provide businesses with loans for energy efficient equipment without down-payment and with payback tied to cost savings obtained over the course of its operation
Ireland
- Enterprise Ireland, a public industrial development agency, provides grants to SMEs as a percentage (up to 50%) of consultancy costs for the identification and implementation of resource efficiency and other environmentally oriented measures. An enterprise can get up to EUR 200,000 over three years. Grants are associated with compliance audits, which also serves as a compliance assistance tool
France
- France’s Environment and Energy Management Agency (ADEME) provides direct financial assistance (limited to projects going beyond compliance) for a wide range of investment projects in air pollution reduction, waste management, soil remediation, renewable energy, energy efficiency, and cleaner transportation. ADEME also subsidises up to 50% of the costs of environmental audits, which cover both compliance and resource efficiency
- OSEO, a public investment bank of France, offers loans at favourable rates and without collateral from EUR 50,000 to EUR 3 million for up to seven years for SMEs who adopt environmentally friendly technologies (with the share of capital costs exceeding 60%) or develop new ones
Germany
- The German public bank “Kreditanstalt für Wiederaufbau” (KfW) has a “Special Fund for Energy Efficiency in SMEs” which covers up to 80% of costs for SMEs to receive professional advice on energy efficiency improvements
In addition, several governments across Europe offer tax incentives for environmental investments. For instance, the Netherlands has been operating two tax reduction schemes to promote the purchase of new environmental technologies: the Random Depreciation of Environmental Investments (VAMIL) allows accelerated depreciation of newly purchased environmental technologies listed by the government, and the Environmental Investment Allowance (MIA) allows a partial write-off of an investment in environmental technology against tax.
It must be noted, however, that the current economic crisis has had a negative impact on such favourable conditions. Banks have restricted access of SMEs to loans in general while budget austerity has threatened public funding as well.
Thus, the engagement of SME-dominated sectors in green transformation remains a challenge essentially relying on the future of the economic climate.
