Capturing the group critical to net-zero: SMEs
A year into the Government initiative to help SMEs UK-wide exploit data to achieve net zero, Simon West, COO and cofounder of Scottish proptech arbnco, reflects on the key lessons learnt from its project with British Gas
As far as all things net-zero, carbon-neutral or energy-efficient go, SMEs rarely form the main subject of conversation.
But with companies with fewer than 250 employees accounting for almost 20 per cent of the UK’s total carbon emissions, perhaps they should: it’s clear that these organisations yield enough influence to play a critical role in delivering the UK’s ambitious greening agenda.
This is why in 2019, the Department of Business, Energy and Industrial Strategy (BEIS) launched an innovation competition called “Boosting Access for SMEs to Energy Efficiency” (BASEE). The initiative was developed to encourage a dynamic and forward-looking energy services market that would support a pool of c.6 million small businesses to improve their energy efficiency by at least 20% by 2030.
As part of the second phase of this Government project, Scottish proptech arbnco was awarded a £641,000 contract to pilot its Digital Energy Efficiency platform (DEEP) – software designed to simplify the process for SMEs to engage with energy efficiency. By then bringing Centrica on board – the UK’s largest utility company with 350,000 commercial customers and 500,00 buildings – arbnco has been able to access an extensive SME client base and help to begin to address this market failure.
Because it’s not that appetite for change among SMEs is lacking: research by the Carbon Trust has shown that 51% of this cohort are eager to do more around energy efficiency.
Market access, on the other hand, is another story
As some of the most time-poor, ill-equipped and least liquid kinds of businesses, SMEs often struggle to act on this encouraging instinct.
Admittedly, legislative drivers such as the Government’s target to achieve net-zero emissions by 2050 have already begun to dismantle market barriers for SMEs striving to improve their energy efficiency. It’s far from true, however, to say that obstacles don’t remain.
If we are to take greater strides towards sustainability and truly realise SMEs’ potential impact on achieving the UK’s net-zero goals, we must get to grips with the unique set of challenges that they face.
So, what exactly are they, and what can be done to tackle them?
The “hassle factor”
Time and again, SMEs cite lack of time and money as the number one barrier to act on improving energy efficiency.
Even though the longer-term commercial incentives for SMEs to implement energy-efficient measures are aplenty, these are unfortunately often side-lined in the face of more immediate, and what are perceived to be the more urgent priorities arising in the day-to-day operations of the core business.
This is a shame, especially since for this market, it’s somewhat a falsehood to think that the environmental and commercial benefits of greater energy efficiency are not balanced. The commercial rationale behind these measures is often overlooked, but in reality, what is good for the environment can often be just as good for business.
Financial barriers and benefits to energy efficiency
It is true that SME business model types are less able to accommodate for high upfront capital and transaction costs and have less access to financial resources.
High financial hurdle rates can understandably turn SMEs off sustainability in the first instance, but to excuse responsibility on account of this would be costly in various ways – not least because of the future financial benefits that investing in energy efficiency can bring.
Providing finance options that help handle the upfront costs to implementing retrofit strategies can combat this. Our BASEE project, for instance, includes a financial partner that supplies this kind of financial support, ultimately making energy efficiency more accessible to more SMEs.
Similarly, simple activities can pack an energy-saving punch. Installing LED lighting for example, which reduces energy consumption by 80% compared to traditional lighting solutions, can have a relatively high impact at a low cost to SMEs.
The benefits of these measures then speak for themselves: BASEE promises to deliver up to £6 billion in cost savings in 2030, of which approximately £2.7 billion are attributed to SMEs – all leading to a potential 30 per cent reduction in SME energy bills in 2031.
In arbnco’s now complete piloted analysis and improvement reports for UK SMEs across the UK, it was shown that in total, the 200+ project recommendations that were made would amount to carbon savings of between 1.1 and 1.4m kgCO2 annually.
Even with financial logistics and hostile market dynamics aside, SMEs still find themselves on the backfoot from a lack of in-house energy expertise. Many SMEs don’t know where to start when it comes to improving energy efficiency, and without the kind of centralised or dedicated ESG function available in bigger organisations, they are left either to rely on external support or to carpool knowledge amongst themselves.
Providing SMEs with critical insight into their energy use, building performance and so on can help tackle this. Simpler processes and more accessible information facilitate deeper engagement, hopefully encouraging action on energy efficiency in turn.
For example, harking back to arbnco’s work with BEIS and Centrica on phase two of the BASEE project, the tech solution DEEP utilises a range of data sources, such as energy use and building energy performance – retrieved automatically or supplied by the SME – to generate a bespoke list of physical and behavioural energy efficiency recommendations together with costs, trusted suppliers and finance options.
The holistic nature of these types of tools is particularly appealing to SMEs, since it provides an intuitive and efficient way to approach reducing one’s carbon footprint. If struggling to take the initiative themselves, SMEs can benefit from a solution that tailors information and even retrofit recommendations based on an assessment of their building’s energy performance and energy consumption to identify savings and finance opportunities on their behalf. This will help hundreds of thousands of businesses to become more energy efficient.
SMEs: the golden – or green – ticket on the road to net-zero?
It’s becoming more widely acknowledged that SMEs are underserved by the current energy services market, and action is increasingly being taken to support this influential cohort of businesses. With green recovery from Covid-19 currying both consumer awareness and demand for companies to improve their carbon credentials, now more than ever must SMEs, and the organisations who support them, step up to help build a more sustainable future.