What drives SMEs to invest in energy efficiency?
In this blog, we share insights from our latest research, conducted as part of of work with LEAP4SME, on what influences small and medium-sized enterprises (SMEs) to invest in energy efficiency.
What is LEAP4SME?
LEAP4SME is a project supporting the UK and member states in the EU to establish or improve effective policies for SMEs to undergo energy audits and implement cost-effective energy-saving measures.
It does this by highlighting the barriers to unlocking energy efficiency measures, mobilising private stakeholders, and proposing effective solutions to realise both energy and non-energy benefits.
The research from LEAP4SME supports us with our services which help SMEs to reduce emissions, such as Business Energy Scotland and Measure, Plan, Act.
Why do SMEs play a key role to reach net zero?
SMEs account for 99.9% of UK enterprises and are responsible for between 43% and 53% of UK business emissions (around one third of total UK emissions). There are 5.5 million SMEs in the UK, most of which are small businesses with up to 49 employees.
SMEs have an important influencing role and contribution to net zero. However, opportunities for businesses to improve energy efficiency and decarbonise are likely to differ across SME sectors. For this reason, our research for the Climate Change Committee in 2022 explored SME decarbonisation across diverse industries.
The latest research on energy efficiency in SMEs
Our latest research involved a review of publications and interviews with SME experts across Europe. We found that much of the existing work on the barriers and drivers to energy efficiency investment focuses on energy intensive SMEs operating in manufacturing sectors (eg metal, textiles, chemical and petrochemical industries, timber processing). In contrast, there were fewer studies on non-energy intensive SMEs including small and/or family-owned businesses based in local communities.
For example, we discovered that SMEs in the hospitality and retail sectors were underrepresented. Energy use and costs for these types of SMEs are more like those of domestic consumers than larger and/or energy-intensive businesses. Core energy needs for restaurants, for example, include cooking, refrigeration, lighting, heating, air conditioning and ventilation.
Businesses and sectors use energy differently, and helping SMEs become more energy efficient involves understanding what the energy saving and/or decarbonisation opportunities are for individual firms. This includes identifying opportunities that are within their control that won’t compromise the businesses’ core products, processes, or services.
Drivers and barriers to invest in energy efficiency
The research looked at earlier studies that identified drivers and barriers to energy efficiency investment and found that there were groups of factors that can influence SMEs propensity to implement energy efficiency measures.
The first group is professional and industry-related factors such as participation in peer networks and memberships to trade associations. This can support SMEs through raising awareness of funding opportunities and promoting best practice among professional and/ or local businesses.
Sensitivity to climate change
The second group is individual owner/ manager and/ or employee attributes. For example, our research found that decisions to invest in energy efficiency can be related to sensitivity to issues such as climate change and sustainability, staff ambition and entrepreneurial mindsets.
Timing of support
Other themes identified by the research included timing of engagement and support. Some of the experts we engaged with recognised that SMEs will be at different stages of growth and are more likely to make changes at key milestones such as expansion, (re-)leasing premises, fixing, maintaining and/ or replacing equipment.
Engaging with pro-environmental attitudes
One of the conclusions of our research was that those supporting SMEs to decarbonise need to understand each business’s strategy, mission, and values. Engaging SME owners/ managers and employees in line with pro-environmental or community values for example, can be an effective strategy for those businesses who can instill confidence in solutions and lead the way, for others to follow.
Another conclusion of the research was the important roles of different stakeholders, whether they are working within the business itself or supporting the business through providing services.
We look forward to details of the Department for Energy Security and Net Zero’s energy advice pilot for smaller businesses, and hope that existing research and best practice is incorporated in its design and any future development.
While the LEAP4SME project is ending this summer, we will continue to collaborate with our partners and networks to share learnings and draw on best practice from across Europe and internationally to inform our activities.
For more information about the role of energy audits to support businesses to save money and reduce emissions, read our blog about energy saving opportunities for SMEs in the office.
If you’re looking for further support from our expertise to start your net zero journey, please contact our team about how we can help you save energy and money and reach your net zero goals.