by George Littlewood – Head of Sales Vendor Finance, Siemens Financial Services, UK
The financial services association, UK Finance, notes that, although they individually have a relatively small environmental footprint, SMEs collectively account for 43-53% of UK business emissions. As such, it is clear that the UK’s 1.4 million small and medium-sized businesses must play a central role in achieving the Government’s 2050 Net Zero target.
What’s holding up sustainability among SMEs?
Rising business costs are the biggest reported obstacle to improving sustainability performance. A report from UK Finance confirms that almost half (48%) of small business owners is worried about the impact of increased costs and economic conditions on their businesses, rising to 57% among those who want to reduce their climate impacts.
These pressures are restricting investment into renewable assets – even though they end up saving the company money. Confidence to invest in sustainability improvements is low. Inconsistent policy framework is also proving problematic; as one study puts it, “Establishing clear and consistent policies is crucial for providing organisations with a tailored and stable framework to plan and implement their net zero strategies” .
How can private finance help?
Although grants and other incentives are already available to SMEs, such as the government’s Business Finance Support hub and the UK Business Climate Hub, Access to private, flexible financing that can spread capital costs over several years is a critical part of most SME’s business cases. It brings costs and revenues into alignment, making investment affordable.
Such solutions are also particularly useful to introducers who can work with knowledgeable financiers like Siemens Financial Services to design lease structures that form a compelling part of their value proposition.
How can SMEs make their first sustainability steps?
‘Small-ticket’ investments (anything under £500,000), such as solar panels, LED lights or
electric vehicle chargers, can significantly cut down footprint – while also cutting costs. An experienced financier with efficient digital tools in place can help businesses invest in these assets quickly, and can approve financing without lengthy and complex conversations – thanks to their knowledge of the assets in question.
Solar panels
Given rising energy costs in recent years, solar panels have become even more attractive as a means of energy self-sufficiency. As one commentator notes, the upfront costs of commercial solar installations “can range from £15,000 to £29,000 for a typical system size required by small to medium-sized businesses…the payback period often falls between 6 to 8 years. After this, the energy generated is essentially free, barring maintenance costs, which are typically low.”
LED lighting & HVAC systems
Powerful savings can also be made through energy-saving assets such as LED lighting and
heating and cooling systems. And financing options such as energy performance contracting agreements, which spread payments over an agreed term to align with guaranteed savings, effectively make the investment net zero cost.
As part of a smart building, incorporating features such as occupancy tracking, air quality monitoring and asset tagging can also save energy. The built environment contributes to around 25% of the UK’s carbon footprint, so wider uptake of energy efficiency initiatives could make a serious dent in emissions.
Electric vehicles & charging infrastructure
For businesses with a fleet of vehicles, or businesses where employees often bring their car to company premises, electrification can bring further sustainability and commercial benefits. Fleet and business demand for electric vehicles (EVs) has risen at a faster pace than consumer interest but the upfront costs may be slowing down further uptake.
As PwC notes, “electric vehicles typically cost more to buy but are less costly to operate than diesel”. The analyst therefore suggests different payment structures, where investors “could finance the upfront capital required, allowing fleet operators to focus on their core operations”.
A parallel concern is that, available public EV chargers as a proportion of the EV fleet is only 3.7%. Providing EV charging onsite supports the EV rollout and contributes significantly to reduced transport emissions.
Bridging the sustainability investment gap
It’s crucial that businesses explore both public and private funding options, even if there is a reluctance to reach outside their immediate means. Private sector financing solutions can help bridge the gap between what a business can invest and what is needed to achieve meaningful returns. In the long run, this can produce extraordinary sustainability and financial results.
Click here to find out more about how flexible finance options are helping SMEs to drive sustainability in the UK.
