Going green is good for business and for the planet. But as policymakers focus on geopolitical risks, energy security, and the rise of AI, the transition to a low-carbon economy risks being sidelined, especially for smaller businesses. So, how can governments keep up the momentum?
Where SMEs stand today
Across the EU, SMEs (up to 250 employees) account for around 40% of business sector greenhouse gas emissions. In Canada small businesses (from 1-99 employees) alone contribute 30% to business-related greenhouse gas emissions. Yet few SMEs have a clear strategy to become carbon neutral, and many continue to baulk at the costs and complexity of environmental action.
New crisis, old lessons
Measures to reduce emissions and energy consumption are not only essential for mitigating climate change. They are also an important way of bolstering business resilience. They can help shield SMEs from energy-price volatility, an issue that has become increasingly urgent amid recent shocks on energy markets following the escalation of the conflict in the Middle East.
The new crisis brings old lessons back into focus
The 2022/23 energy crisis showed how quickly energy shocks can become business shocks. In the EU, cost of electricity and gas took up a growing share of SME turnover, increasing from 4% in 2018 to 6.4% in the first half of 2022.
How governments help SMEs bridge the gap in climate action
Short-term relief measures can help protect households and businesses from price spikes, but do not solve the underlying problem. Our recent OECD report, drawing on the experience of 7 OECD countries, looks at what is needed to do so.
In the EU, for example, the Recovery and Resilience Facility (RRF), a central instrument in the EU’s plan to emerge more resilient from the COVID-19 crisis, placed SME greening high on the policy agenda. By 2025, SMEs accounted for 56% of private-sector beneficiaries of RRF funding, much of which supported climate objectives.
In Germany, one of the largest national funding programmes, EEW, allocated close to half of its EUR 1 billion annual to SMEs, saving the equivalent of around 7 million tonnes of CO₂ per year. That is roughly the same as taking 1.6 million cars off the road for a year.
Public and private banks have also been providing new financing options. Green loans, such as Australia’s CEFC MetroEco Green Loans and Bpifrance’s Climate Action Loan, offer SMEs better terms for investments in energy efficiency and renewable energy.
What works well? Three lessons
There are some important lessons that have been hard won. First, funding alone is usually not enough. The most effective support combines financial assistance with practical advice, including support to monitor emissions. This integrated approach can turn greening efforts into real savings – both in emissions and in costs.
The Business Energy Scotland programme gives SMEs free access to energy specialists and identifies potential savings of 24% on business energy bills on average. SMEs can then use the savings recommendations to apply for preferential funding for energy efficiency measures.
Second, some sectors require more targeted policies. Many governments run broad funding programmes that work well, open to firm of all sizes while offering better terms for SMEs. But in some critical sectors such as light manufacturing or agriculture the transition is less straightforward.
SMEs may need to redesign production processes and adopt leaner ways of working. This is where sector-specific programmes designed with knowledge partners can make the difference.
Third, reaching SMEs at scale also requires strong local ecosystems and delivery channels. Regional banks, business associations, universities and research organisations play an important role in helping SMEs measure emissions, access finance and apply sector-specific knowledge. Subnational authorities also matter.
The UK’s Local Net Zero Hubs lead clean energy projects across the five regions of England. To ensure local delivery doesn’t add to complexity, governments are increasingly centralising information and services through online one-stop shops.
However, to gain traction, programmes need stable funding and delivery mechanisms to build trust and momentum with the business community.
So, what’s next?
For SMEs, going green is not only about the planet. It is about staying competitive, reducing exposure to volatile energy prices, and building resilience. While governments face competing priorities, SME decarbonisation support must not slip off the radar.
Keeping up targeted support will be essential to ensure that SMEs move with the transition, not fall behind.
To read related OECD content, check out Benchmarking SME decarbonisation policies | OECD.
