Funding the green transition of SMEs in Finland

Green Deal provides an impetus and funding

On 14 July 2021, as part of the European Green Deal, the European Commission adopted a set of proposals intended to reduce net greenhouse gas emissions by at least 55% by 2030. Achieving this goal will put Europe on track to become the world’s first climate-neutral continent by 2050.^[i] (European Commission, 2021.)

In Finland, EU funding for this goal is utilized within the framework of the Sustainable Growth Program (Suomen kestävän kasvun ohjelma, SKKO hereafter) approved May, 2021. The Program is built on four pillars, the two most important of which are the green transition and digitalisation. Half of the € 2.1 billion funding for the program will go to the green transition and about a quarter to digitalisation. The SKKO provides additional funding for companies, which can be applied for mainly through existing channels such as the ELY Centre and Business Finland. (Finnish Ministry of Finance 2021.)

Grants for SMEs

One example that targeted SMEs specifically is the ELY Centre’s React-EU funded SME sector development grants, which accepted applications from 26 February until August 2021. Priority was given to small businesses impacted by the COVID-19 pandemic with the intention that green transitioning and digitalisation would be part of the recovery process. The grants funded green innovations and transitions, such as developing low-carbon, green economy and circular economy products, services, solutions, material efficiency and production methods, and digitalisation–developing digital know-how, digital business, productivity, etc. All development projects were required take into account the environmental impacts of products throughout their life cycle.[ii] (ELY Centre 2021.) Significantly, the grants could also fund research and development, areas of activity that are often beyond the capacity limits of many SMEs.

Another grant possibility specifically for SMEs and Green Deal innovations that support post-COVID19 economic growth is the Horizon EU EIC Accelerator which supports high-risk and potential SMEs and start-ups by helping them develop and launch new, innovative and market-changing products, services and business models with the potential to support Europe’s economic growth.[iii] The grants are administered by Business Finland. First round applications are accepted continuously. Invitations are issued for the second round. There were two second round application periods in 2021 and there will be four in 2022.[iv] The funding range is 0.5-2.5 M EUR. (Green Deal Office, 2021 and Business Finland, 2021)

For SMEs, transitioning to green practices can be particularly daunting because of limited financial and human resources. Many SMEs may encounter difficulty in finding financial and technical assistance to help them transition their businesses to more green practices. Finland received additional funding to support the competitiveness of SMEs in accordance with country-specific recommendations issued by the European Commission in May, 2020.[v] (ELY Centre 2021.)

The EU-level Interregeurope project SME POWER (2019-2023), which targets low carbon economy public policies to encourage better adaptation to the needs of non-energy intensive SMEs so that they become a key driver in the European low carbon transition, maintains that:^[vi]

SMEs form the backbone of the economy, however, their potential for energy efficiency and renewable energy use remains untapped. The huge number of SMEs operating across the EU means that a change in their energy behaviour is an essential part of the shift to a low carbon economy. The specific target of SME POWER are non-energy intensive SMEs: a silent majority that does not yet recognise the benefits of committing to this shift.^{^[vii]}

SMEs will play a major role in achieving Finnish and European green transition goals, but they need help to realize their potential for innovation and to take action. SME Power hopes to make an impact at the level of policy change.

The Finnish partner in SME Power, Heinola City, is targeting Finland’s ERDF Sustainable growth and jobs 2014 – 2020 programme. The specific part of the policy they address is Priority Axis 2. Producing and using the latest information and knowledge, which includes developing solutions based on renewable energy and energy-efficiency.[viii] This measure is meant to promote the business environment overall and is not targeted to SMEs in particular.[ix] (SME Power, 2021)

Heinola selected Energy Aid, Finland (EAF) as an example good practice for SME Power. EAF grants may be used for climate and environment friendly investigation and investment projects that increase energy efficiency and use of renewable energy. Unlike the special grant cycle ELY Centre opened for SMEs in 2021, EAF is an ongoing source of support. The Ministry of Economic Affairs and Employment (MEAE) funds the grants (about 30 M EUR per year).[x] EAF grants are available to companies of all sizes, including SMEs. The grants are managed by Business Finland. (SME Power, 2021)

Other grant programs that might support SMEs in green transitioning include the Leader Action Group (LAG) business grants. While not specifically focused on energy or digitisation, they are available to SMEs for start-up aid, investment support and investment feasibility studies. In addition, entrepreneurs can work together with other entrepreneurs and development organizations on collaborative projects. This pooling of resources may make certain transitions more viable for SMEs. Throughout Finland, Leader groups, such as Yhyres in Ostrobothnia, support SMEs in rural areas. Supporting local entrepreneurs and businesses in transitioning to more green methods supports the sustainability of local economies. LAG project funding 2007-2013 (the last reporting period) comprised 45% EU, 35% Finnish State and 20% municipalities contributions.[xi] (Yhyres, 2015) In addition to public support, local Leader groups are required to meet at least 35% of the total amount from private funds. Volunteer boards recommend projects to fund to local government ELY-Centres.

Other forms of support

Grant money is key to helping SMEs bridge the gap in transitioning to green practices. However, other kinds of financial assistance may be needed in addition.

Loan guarantees, such as those offered by Finnvera, help SMEs with limited capital and collateral to secure loans which may go to greening their businesses.[xii] While the businesses do have to repay the loans, the loan guarantees open up financing that may otherwise be out of reach.

Light entrepreneurship, such as the services offered by Ukko.fi and OP Bank, may fit with a greener business model by digitising invoicing and other accounting activities and thereby limiting the use of paper and transportation, for example.[xiii]

In Finland, startiraha gives individual entrepreneurs a livelihood support for their initial year in business.[xiv] It does not so directly fund green initiatives but it may contribute to the overall success of small-scale enterprise and, in combination with other sources of finance, support the adoption of green practices in the fledgling enterprise.

SMEs in search of EU-funding can research their options on the website https://greendealoffice.fi/ which provides search fields for amount of funding sought, company turnover, and industry.

[i] https://ec.europa.eu/info/strategy/priorities-2019-2024/european-green-deal_en

[ii] https://www.ely-keskus.fi/-/yritysten-kehittamishankkeisiin-haettavissa-react-eu-rahoitusta-31.8.2021-saakka

[iii] https://greendealoffice.fi/rahoitukset/eic-accelerator-challenge-tukea-korkean-riskin-ja-potentiaalin-omaaville-pk-ja-startup

[iv] https://greendealoffice.fi/rahoitukset/eic-accelerator-open-tukea-korkean-riskin-ja-potentiaalin-omaaville-pk-ja-startup

[v] https://www.ely-keskus.fi/-/yritysten-kehittamishankkeisiin-haettavissa-react-eu-rahoitusta-31.8.2021-saakka

[vi] https://www.interregeurope.eu/smepower/

[vii] https://www.interregeurope.eu/smepower/

[viii] https://www.interregeurope.eu/smepower/

[ix] https://www.interregeurope.eu/smepower/

[x] https://www.interregeurope.eu/smepower/

[xi] https://yhyres.fi/mediafiles/alueellinen_vaikuttavuus.pdf

[xii] https://www.finnvera.fi/kasvu/ajankohtaista-yrityksille