Lack of options hindering access to SME green finance

While demand for, and interest in, green finance products is growing, many smaller businesses still face barriers accessing sustainable financial products, according to a new report by the The Lending Standards Board (LSB).

The LSB identified around 15 products currently being offered to SMEs specifically for green purposes by its registered firms. The number of customers accessing these products ranges across firms and product types from zero to 500. Green loans were the most common product offered, most of which were aimed at SMEs looking to make efficiency improvements to their premises or travel arrangements (for example, electric vehicle purchases).

Separate research from the British Business Bank (BBB) found that around half of SMEs are open to improving their environmental impact. But while 47%t of SMEs are open to reducing their environmental impact and 22% are prepared to use finance to invest in changes, they are put off by factors like cost, capacity, and uncertainty over the lack of information on the green finance options available.

The LSB also noted that SMEs have been hit by an onslaught of negative economic events over the past two years, meaning that business-as-usual and how to cope with rising costs was sucking up bandwidth. Perceived complexity was also a major factor putting businesses off.

The LSB’s report also observed that most action on the regulatory front had so far been focused on disclosure requirements for large businesses, as well as the labelling of investment products: “However, the direction of travel is clear, and the wider financial services sector needs to consider how products and services are being used to support green or sustainable initiatives,” the report reads.

Emma Lovell, chief executive of the LSB, commented: “As the drive to transition to net zero continues to intensify, firms should be considering, across all finance products, how they can help customers to achieve their green objectives, whilst balancing the effects of the wider landscape. For customers looking to borrow or use finance to make changes that are positive for the environment, firms should be understanding how their products – whether they are labelled as green or sustainable, or not – can support the SME’s objectives.”