KfW Research: German SMEs invest EUR 22 billion in climate action

• One million small and medium-sized enterprises invested in climate action in 2020 or plan to do so
• Frequency and scope depend on size and sector
• One in three SMEs plan climate change adaptation measures

Transitioning to climate neutrality by mid-century is currently a key challenge for Germany. In order for it to succeed, enormous efforts will be necessary. A green investment surge would simultaneously lay the foundation of a successful and competitive economy in the future. Small and medium-sized enterprises, which make an essential contribution to value creation and employment in Germany, have a special responsibility in this regard. On the basis of the representative KfW SME Panel, KfW Research has now identified for the first time to what extent SMEs have completed and are planning climate action investments in the short term. It found that in 2020, some 460,000 or 12% of all small and medium-sized enterprises invested a total of EUR 22 billion in climate action measures. In other words, one in 10 euros invested by SMEs in 2020 went to climate action projects. The average sum invested by an SME in a climate action project was EUR 72,000.

SMEs are currently investing roughly the same amount of funds in climate action measures as they are spending on digitalisation (2019: EUR 17.5 billion), the second major task in the transition. KfW’s analysis shows that SMEs’ climate action measures are set to continue. A good one in seven small and medium-sized enterprises (490,000 companies) plan to invest in such measures by the end of 2022 but have not yet done so. That means climate action currently has priority for around one million SMEs, or one in four companies. The spectrum of possible measures is broad and ranges from investments aimed at improving energy efficiency in production and existing buildings to the use of renewable energy or climate-friendly means of transport.

“It is encouraging that 12% of SMEs are investing in climate action, especially when we also consider that a large portion of companies have not yet invested at all. Given the scale of the challenge of the transition, however, it is clear that much more actually needs to happen here”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “One fourth of small and medium-sized enterprises currently have climate action on their agenda. Conversely, however, this also means that three in four companies did not complete any investment projects with a focus on climate action last year nor plan to in the foreseeable future. Given the high overall volume of expenditure required to reach the goal of climate neutrality, investment momentum needs to speed up noticeably in the SME sector as well.”

There are clear size and sectoral effects both in the frequency and in the volume of funds invested by SMEs in climate action.

• The frequency of investment projects increases with the size of the enterprise. In 2020, a mere ten per cent of micro-businesses with fewer than five employees invested in climate action compared with one in three large SMEs with 50 and more employees (36%). Large SMEs alone are responsible for 37% of all climate action investments – although they make up a share of only 2% of the entire SME sector. The average sums invested ranged from EUR 29,000 in micro-businesses to EUR 346,000 among large SMEs.
• A sector comparison shows that climate action investment plays a major role in manufacturing, where 33% of enterprises completed relevant projects in 2020 for a total volume of EUR 3.6 billion. Another 34% are planning climate action investments by the end of 2022. However, this sector comprises only 249,000 SMEs. Services businesses, which make up around three fourths of all SMEs or 2.89 million firms, accounted for the largest portion of climate action investment by far in 2020 – EUR 15.6 billion.

Irrespective of climate action investments, SMEs also need to strengthen their crisis resilience against climate change impacts. According to the KfW study, one in three SMEs intend to increase climate change adaptation measures. These may take the form of improved insulation or ventilation of buildings and facilities, improved flood control, establishing an onsite energy supply and acquiring emergency power generators or maintaining higher stockpiles in preparation for supply chain disruptions, for example.

“Small and medium-sized enterprises in particular are likely to require further advice and support when developing climate action and climate change adaptation strategies”, said Dr Fritzi Köhler-Geib, Chief Economist of KfW. “Not least, an adequate financing and support framework needs to be established for such investments. Climate action investment makes SMEs fit for the future. For one thing, businesses that take the lead on climate action have competitive advantages in the long term as carbon prices rise and customer behaviours change. For another, climate-friendly products and processes are growth markets of the future. That ensures opportunities for growth and employment.”

The current study by KfW Research can be retrieved from www.kfw.de/fokus

The dataset:

The current study is based on the KfW SME Panel, the only representative survey of the German SME sector with a database of up to 15,000 companies per year. The basic population of the KfW SME Panel includes all private-sector companies from all industries with annual turnovers of up to EUR 500 million. The analysis analyses on climate action investments are based on the data collected in the most recent 19th wave of the KfW SME Panel (survey period: 15 February 2021 to 25 June 2021). A total of 11,403 SMEs took part in the current wave. The analyses on climate change adaptation measures are based on a supplementary survey to the KfW SME Panel conducted in September 2021. All enterprises that had already participated in the main survey and had provided a valid email address were surveyed. Responses from a total of 2,400 enterprises were evaluated. As the supplementary survey was linked to the main database of the KfW SME Panel, its results also provided a representative picture.