Introduction

Until the mid-1990s, outside the scientific literature, small and medium enterprises (SMEs) were often forgotten when academics and other stakeholders thought or wrote about environmental impacts (Hillary 1995; Tilley 1999). While this is understandable from the perspective that large quantities of natural resources are polluted or otherwise harmed by large businesses (Madu and Kuei 2012) and householders (Kennedy et al. 2013), collectively, SMEs also have a significant negative effect on natural resources (Calogirou et al. 2010) and this impact must also be considered.

Large firms and householders have two key characteristics which have appealed to stakeholders more so than targeting SMEs; they are more homogenous and more visible. Moreover, they are perceived to be causing more environmental damage and wasting natural resources at a higher rate than SMEs. Therefore, large firms and householders have been targeted by stakeholders (particularly governments) to think and act on environmental improvement (e.g. Warren 2014) and as a consequence, some behaviour shifts have occurred. Having not received the same attention as large businesses, most SMEs remain inactive in managing the environmental damage their operations may cause (Agan et al. 2013; Lynch-Wood and Williamson 2011; Sudath Weerasiri and Zhang 2012). The key reasons for this reluctance are resource deficiencies (Blundel et al. 2013; Lynch-Wood and Williamson 2011) and the need for empirical evidence, such as a convincing business case to do so (Luetkenhorst 2004; Walker and Redmond 2014; Revell et al. 2009). Recently, government and other stakeholder have seen working with SMEs as an opportunity to further reduce energy consumption as they are less energy efficient (Cagno and Trianni 2013; Trianni Cagno and Worrell 2013) but care must be taken as they have different economies of scale (Martin-Tapia et al. 2008) to larger businesses and as such need to be approached differently to gain their participation. For example, Grimstad and Burgess (2014) found that there can be advantages to small businesses and the environment when they work in clusters to achieve environmental goals.

Background

Opportunities for businesses, including SMEs, to engage in environmental management have increased through the implementation of international standard environmental management systems such as ISO 14001 (Boiral 2011; Ferenhof et al. 2014). Most SMEs however do not look to implement formal management systems, so other effective but less costly or bureaucratic methods are critical to engaging them so that they make organisational behaviour changes. A method used quite extensively in the EU to help businesses reduce their energy consumption has been energy auditing (Thollander et al. 2007), yet this is not as common in Australia. For example, Moloney et al. (2010) advise 60 % of environmental programmes are being delivered by local and state governments, however, only about 10 % target the business sector, primarily SMEs. Of the programmes that target SMEs, they focus on business resource efficiency (60 %) and on energy use (40 %) with only some including energy audits (Moloney et al. 2010). Given the extensive use of audits in Europe, the lack of use in Australia is perplexing and investigating the impact of their use may help uncover whether they will be of similar value in Australia as they are overseas.

So what do we mean by energy audits? Standards Australia (AS/NZS3598) (2000, p. 4) advises that “Energy audits and surveys are investigations of energy use in a defined area or site. They enable an identification of energy use and costs, from which energy cost and consumption control measures can be implemented and reviewed. Organisations will gain direct financial benefit from effective energy management. They may also achieve recognition by the community, including potential customers, as an environmentally responsible corporate citizen.” Based on this definition, energy audits can offer the practical, industry- and business-specific professional advice and bottom line reductions that SMEs have called for and are thus potentially an appropriate method of engaging them. In addition, the audits have the capacity to increase energy literacy (Coles et al. 2014); environmental awareness (Lynch-Wood and Williamson 2011; Thollander et al. 2015) and monitoring within the business (Boiral 2011) and the generated reports can be presented in a format that is informative, specific and delivered directly to the individual business owner.

Like other SMEs globally, Australian SMEs have common reasons for their disengagement in addressing their businesses impact on the environment; yet environmental forces suggest they need to do so quickly. Common reasons for SME disengagement include a lack of resources, environmental knowledge and know how (Redmond and Walker 2011). These common problems pose significant barriers for stakeholders wanting to engage Australian and other SMEs in environmental management programmes. However, recent increases in energy costs and the growing number of governments setting challenging emission targets suggest that SMEs need to engage in programmes that will give them the knowledge and skills to prepare their business and employees to respond effectively. Investigating the outcomes achieved through energy auditing in Australia, where this practice is less common than in Europe and other countries, and when energy costs will continue to rise (Energy White Paper 2015), may offer insights into the burden on SMEs in regard to economic resources and help determine whether the strategy can both engage and increase the knowledge and know how within the SMEs. The results of this investigation may help demonstrate to SME owners that the current perception that energy efficiency measures are costly and unlikely to provide a return (Palm 2009) is incorrect and determine whether or not the strategy is cost effective within Australia as it has been shown in other countries (e.g. Germany) (Fleiter et al. 2012). Moreover, a well-designed programme that uses qualified stakeholders to conduct the energy audits and provide expert advice to the SMEs should be able to increase knowledge and know how within the SMEs that will provide a base for other environmental management activities in the future.

There is a considerable academic literature on residential (e.g. Pitt et al. 2012; Wierzba et al. 2011) and commercial building energy audits (e.g. Masoso and Grobler 2010; Vine 2013). In addition, there is also some research that has attempted to explore how household research outcomes can be adapted to industrial SMEs (e.g. Palm 2009); however, there is less attention paid to energy auditing in Australia, presumably because it is a less common practice than overseas. The studies that have been published about energy auditing in SMEs also cover a wide range of topics, for example, energy auditing within government-sponsored and other programmes (e.g. Catarino et al. 2015; Fleiter et al. 2012; Stenqvist and Nillson 2011; Thollander and Dotzauer 2010); use and effectiveness of energy auditing within environmental management systems (e.g. Cooper 2011); use as a method for monitoring compliance with environmental law (Wilson et al. 2011); to call for an interdisciplinary approach to examining energy efficiency (e.g. Palm and Thollander 2010); and for reviewing policy initiatives (e.g. Mallaburn and Eyre 2013). More details from some of these studies that discuss the impact of energy auditing within SMEs are outlined below.

Catarino et al. (2015) analysed 125 Portuguese SMEs (predominantly) across five industry sectors to determine the conditions that both supported and were barriers to the adoption of energy efficiency. The researchers found that industry sector varied the outcome due to the existence or lack of a strong internal structure, increased and broader information search behaviour and the level of dependency on energy sources. In the majority, energy management was found to be assigned to top administrative management, rather than technical staff and the researchers reported that this meant that less attention was given to control and measurement activity than invoice and contract analysis. Key identified barriers were information, management/organisation, motivation and training, and economic and financial barriers. Critically, low energy costs compared with total costs were found to be a demotivation factor (Catarino et al. 2015, p.17).

Fleiter et al. (2012) evaluated a grant programme introduced in Germany in 2008 to provide grants for energy audits in SMEs. In doing an assessment of issues such as savings, cost effectiveness, types of measures and contribution to reducing engagement, barriers were explored. This evaluation found that SMEs from all sectors applied for the grants but a higher percentage of food processing and food retail trades were represented. The participants had an average of 38 employees, and as would be expected, larger firms also accounted for a large proportion of the energy demand (i.e. 10 % of the largest firms = 30 % energy demand). Importantly, the “firms adopted 1.7–2.9 measures, which they would not have adopted without the program, and achieved energy savings of 3–5 % of their energy demand. The energy efficiency measures adopted have an average payback period of 6 years” (Fleiter et al. 2012, p.47). Moreover the authors’ claim that if the programme was continued at the same level, it would accelerate progress on energy efficiency in German industry and the service sector by about 3–6 % and that it was cost effective to do so. Schleich’s (2004, p.226) German study also found “that energy audits help to overcome barriers, such as lack of time or information, uncertainty about energy costs, or the landlord/tenant dilemma”.

Thollander et al. (2007) and Stenqvist and Nillson (2011) both reviewed Swedish voluntary programmes. The latter found a total gross annual avoided demand impact of 1450 GWh was achieved and showed “a cost effectiveness ratio with a relatively low cost per saved amount of energy”. Importantly, the authors claim that “less energy-intensive industries have a lot to gain from the attention-raising activities that are typical for PFE and some other VasFootnote 1 (e.g., energy auditing and analysis …)” (Stenqvist and Nillson 2011 p. 32).

Mallaburn and Eyre (2013) completed an extensive international review of energy efficiency policy and programmes from 1973 to 2013 and applied them to the UK. They concluded that market forces alone will not deliver all cost-effective energy efficiency savings but the wrong type of intervention can cause other difficulties. In discussing the role of markets and government, Mallaburn and Eyre (2013 p.29) state that the “Most rapid improvements in energy efficiency result from programmes with a carefully managed combination of government intervention (which is generally regulation-led) and market support (see Chai & Yeo 2012)”. Moreover they support local programme delivery.

Where energy audits are offered, the uptake is not always high. For example, Yacob et al. (2013) found only 13 % of their Malaysian sample had undertaken an energy audit but noted that the likelihood increased as the firm size increased. This suggests that there may be the need to implement policy initiatives that support the uptake of energy audits. Shin and Welch (2012, p.353) confirm that “environmental audits are ubiquitous; not all governments require them, not all environmental management systems (EMSs) incorporate them, and not all organizations adopt them”.

Although some energy auditing has been conducted in both large and small businesses in Australia, and accepting the limited amount of government funding to support such an approach, there appears to be inadequate literature reporting the outcomes from these energy audits. An exception is Price (2005) which included Australia in a review of 23 energy efficiency or GHG emissions reduction voluntary agreement programmes in 18 countries. It was found that the Australian schemes tended to be government funded and focus on information, assistance and training rather than energy auditing. This may also reflect the timing of the work by Price when there may have been less support to encourage the use of this strategy.

Apart from the general lack of resources which reduce SME engagement in energy efficiency programmes, the dual issues outlined by Shin and Welch (2012) of integration (i.e. the number of different types of audit and how these are integrated with each other and practised and reviewed by stakeholders) and tension between flexibility and accountability (i.e. voluntary systems versus societal demands) may also be reducing the willingness of Australian SMEs to engage in energy auditing.

One of the common omissions in reporting on business energy auditing is that only broad whole of programme outcome data is provided (i.e. x amount of GHG emissions were realised annually or x amount of savings have been calculated), with little data that provides a breakdown of the individual business audit data or indeed the level of the audit conducted. Such data could help determine whether the investment of resources to conduct an energy audit has or will provide a return on that investment for the individual SME. This type of data is particularly useful for SMEs as they are resource poor, and it is important that they can obtain useful individual information. Moreover, if the SME has not had an audit, this type of data may allow them to gauge how the energy output of their business compares with others in a similar situation (e.g. industry, location) and identify the potential savings that could be gained from participating in an energy audit. To fill this gap in the literature, a study was conducted to answer the following research questions:

  1. 1.

    Are Australian SMEs willing to participate in free, in situ energy audits?

  2. 2.

    What is the average saving that can be realised by SMEs as a result of participating in an energy audits?

This paper outlines the results from 49 energy audits conducted in 2012 on Australian SMEs. The paper begins by outlining the method used to collect the data and then discusses the results with published research. Finally, the implications of these findings for stakeholders and policy are discussed.

Method

Aim

The aim of this research was to determine if SMEs would engage in a programme aimed at environmental management improvement and, as a consequence, receive direct benefits from free, local, in situ energy audits (i.e. research funds were used for this purpose rather than the participating SMEs needing to pay for the audits). Eliminating the associated costs and having a professional auditor going on-site were considered crucial to gaining participation from resource-poor SMEs. It was also acknowledged that removing these barriers did not guarantee that changes recommended by the auditors would be made by the SME owner-manager as this could, in most cases, require financial outlay and the costs involved may be prohibitive (Thollander et al. 2015). However, based on previous experience, it was feasible that many SMEs would be able to make significant changes without large capital expenditure (e.g. low-cost modifications, changes in processes and behaviour).

Approach

The research was conducted in two phases. A quantitative approach was initially used to obtain baseline survey data and identify SMEs that were interested in engaging in the energy audits. Prior to conducting the survey, checks of the instrument for both face and content validity were made. The baseline survey data was collected face to face with the SME owner-manager by the researchers. The second phase required that a telephone call be made to each of the SMEs that agreed to participate in the energy audit to discuss the opportunity and set a date for the audit to be conducted by a professional energy auditor. A professional energy auditor was contracted to complete the audits to ensure accuracy of the data as this capability was outside the expertise of the academic research team.

The majority of the energy audits conducted were consistent with a Level One Energy Audit (Standards Australia 2000) with the remaining described as “walk through audits”. The researchers received training to support the professional auditor during the energy audits (e.g. data to be noted, process). In the majority of cases, the time taken in the business to collect the information to complete the audits took between 30 and 45 min. This time varied dependent on the size and complexity of the business. Considerable extra time was taken to complete the audit and subsequent reports.

With the consent of the SME owner-manager, the professional auditor undertook an inventory of energy consumption devices within the business and, in consultation with the SME owner-manager, determined time of use for each item. In addition, the owner-managers were asked to provide energy billing information for the previous 12 months to verify the collected data and to allow an audit report to be developed.

The report given back to the SME owner-manager consisted of a chart of energy use by total equipment in heat, ventilation and air conditioning (HVAC); refrigeration, lighting and other equipment; a summary of daily usage and cost over 12-month period; and where applicable, a breakdown of energy consumption and costs associated with each of the various types of energy consumption devices and recommendations for improvements. SMEs were given these reports face to face and had the opportunity to clarify with the auditor and researchers any information or how to implement recommended changes.

Sample

A database of local SMEs was derived from existing databases and resulted in a total of 229 businesses from within a metropolitan city in Western Australia. As this was exploratory research, a convenience sample was appropriate (Davis and Condenza 1988), rather than attempting to conduct any random type of sampling. Due to historically low rates of survey participation by SME owner-managers (i.e. 10–15 %), phone calls were first made to owner-managers to secure an appointment for survey completion. The researchers visited the SME and completed the survey with the owner-manager to ensure accuracy of the survey information and to establish a rapport. From the initial 229 SME database, 111 surveys were completed giving a participation rate of 49 % and 50 of these SMEs (or 22 %) agreed to an energy audit. One SME owner-manager could not remain in the study leaving a total 49 SME audits to report.

Data analysis

Demographic and business data is provided on each of the participating SMEs and the owner-managers. The energy data was provided as part of the individual business reports by the professional energy auditor and was analysed based on the electricity billing information and the energy device inventory and time of usage provided during the audit. The statistical package SPSS was used to analyse the basic numeric data.

Results

Table 1 outlines the key results from this research. The demographics of the energy audit sample (Table 1) show a majority of businesses were small (86 %), as classified by the Australian Bureau of Statistics, that is, they employ less than 20 full-time staff (ABS 2010). In relation to the business category of respondents, the strongest industry representation was in retail (35 %) which is consistent with the business demographic in the metropolitan area where the research was undertaken; however, there was also a reasonably strong representation from both childcare and recreation services.

Table 1 Audited business results
Full size table

The individual respondents were predominantly male (63 %), between the age of 41 and 50 years (33 %) with a trade or technical college-based education (59 %). Although more than half of the respondents were owner-operators (63 %), a significant percentage of these businesses were housed in leased premises (74 %) thereby limiting the extent to which major changes, including environmental changes, could be implemented. The only major difference between this sample and other general SME samples is the high percentage of leased premises (i.e. normally around 50 %). This needs to be acknowledged when reading the data.

The energy audits focused on energy consumption and cost. Of the 49 completed audits, 36 were level 1 audits and 13 were “walk through audits” with the type of audit conducted related to business size and available time. The audit reports showed that all 49 of the businesses involved could make improvements in energy management.

Table 1 also shows that the estimated annual energy usage of the audited SMEs ranged from 2898 to 611,021 kWh with the annual estimated per business cost ranging from A$847Footnote 2 to A$110,871. These large variations in energy consumption and cost are consistent with the SME heterogeneity, especially across industries. Likely savings (i.e. those the SMEs were probably going to make) were identified in the majority of the audited businesses (n = 44) with savings estimated between 2 and 40 % of annual energy costs depending on the size of the business and type of operations. In the table, maximum savings (i.e. how much could be saved if the SMEs were to implement every recommendation) are also reported and ranged between 3 and 50 %. The difference between likely and maximum savings in many cases is considerable, reflecting restrictions of leasing arrangements and other internal organisation capacity to change issues (e.g. attitudes, knowledge, resources, ROI, time lag). In a limited amount of cases, the lack of capacity to make all the recommended changes is also due to the nature of the business. For example, some retail businesses use display lighting to attract customers to their business or products.

In answer to the first research question, it was found that about 45 % of those that completed our survey were willing to participate in an energy audit. This shows a good level of interest from these SMEs in this engagement strategy. Some of the reasons for this were that the audits were free, in situ and required little resource from them. Another factor, the government is stating that they were increasing energy consumption costs over the next three financial years and that the increases would be likely to continue and will also have an impact on their decision. Finally, other issues such as a pro-environmental attitudes, knowledge seeking, and the broader programme incentives such as professional advice were also evident from conversations with the SME owner-managers.

In answer to the second research question, the average saving that can be realised by SMEs as a result of participating in the energy audits was between A$1315 (potential highest minimum savings) and A$2819 (potential maximum savings). These figures do not sound high, but no business can afford to lose money and must operate as efficiently and effectively as it can. However, if the collective savings in GHG emissions are considered, then the need for SMEs to engage becomes more compelling. In this small sample, over 3 million kWh of energy (3401412 kWh) are being consumed annually and this equates to emissions of 3129.299 (tonnes Co2-eq). Based on an average Australian passenger vehicle travelling 14,000 km every year and has an average fuel consumption of 11.1 l per 100 km (3.5 T Co2-eq/annum) this is the equivalent to the GHG emissions of 894.08 average passenger vehicles. If savings of between 10 and 15 % can be achieved, then this would equate to taking 90–134 vehicles of the road. Of course, some of the SME samples can save much more than the 15 %.

Discussion

The first point of discussion must be the high percentage of leased premises in the sample. Although it was encouraging that the SME owner-managers were still willing to engage in the research, they acknowledged that lacking ownership of the premises restricts their ability to implement extensive recommendations (e.g. retrofitting) unless the landlord is willing and able to resource the change. There is some literature about the problems between landlord and tenants in regard to energy efficiency, and this phenomenon is referred to as the “landlord-tenant or user-investor dilemma” by Schlomann and Schleich (2015, p. 4). For example, Levinson and Niemann (2004) found tenants that paid energy costs within their rental agreement consumed more energy than those who paid their own energy accounts. These types of issues have given rise to calls for policy changes and electricity market reform in the USA (Gillingham et al. 2009). Moreover, these problems have been described as causing “a circle of inertia” as tenants receive the benefits from the investment but the landlord may not be able to recover costs through lease agreements and the like (Rawlings 2004). From discussions with the SMEs about changes within the business during this study, this inertia was evident. Rawlings (2004) discusses a number of possible solutions to this issue including green leases, loans for SMEs, funding changes via energy bills, and smart grids and some of these options are or have been available in different states in Australia. Further exploration of this may be necessary to assist SMEs; otherwise, investing the time and resources conducting energy audits may ultimately be ineffective.

Apart from the evidence of the landlord/tenant “circle of inertia”, the study participants outlined other issues with implementing the recommended changes. These are perhaps best explained by the statement of Backlund et al. (2012, p. 3) that “cost-effective energy measures are not always implemented. This discrepancy between optimal and actual implementation is often referred to as the energy efficiency gap …” Backlund et al. (2012) extended this idea by looking at the role of good energy management practices and formed the notion of an “extended energy efficiency gap” that included the need for consideration of not just implementing technology change but also following this with good monitoring and maintenance regimes. However, considering that many SMEs are already limited in their capacity to make changes due to lease arrangements and resources, it is reasonable to assume that they may also lack capacity to monitor and maintain efficient energy technologies. In this research, there was some evidence that when making environmental decisions, Australian SMEs were thinking about the initial outlay and return on that investment plus other sustainability factors such as ongoing monitoring and maintenance routines that would continue to cost the SME. This adds to the discussion by Catarino et al. (2015) that other factors than profit need to be considered when analysing business investment. These outlays could contribute to some of the hidden costs discussed by Sorrell cited in Fleiter et al. (2012) and Bomqvist and Thollander (2015). They also raise questions about how deep and how long economic barriers may impact SME environmental decision-making/implementation and suggest that further consideration of these life cycle costs is necessary.

It is clear that while it is important to continue to identify SMEs that want to make changes, ongoing support will be needed for energy auditing to be effective. Whereas Warren (2014) points out that a recent EU directive calls for auditing of all large firms, it seems it would be more appropriate to include all sized firms or at least those with high energy consumption. This research supports the view of Catarino et al. (2015) that financial support is needed for SME energy auditing and Agan et al. (2013 p. 23) who advise that SMEs “need and want assistance from their business partners and government”. The need to change government policy and direct funding to energy auditing requires urgent action in Australia as new policies are being developed and as audit practices become more wide spread. Such changes could have a significant impact as energy efficiency targets suggested by the Australian government, to be implemented nationally, aim to achieve “up to 40 % improvement by 2030” (Energy White Paper 2015).

Bomqvist and Thollander (2015) strongly recommended that developing an international industrial energy efficiency standard, which is available online for use by policy makers, auditors and industry, may be of great importance in improving energy efficiency worldwide. In this research, data was collected that met some of the parameters outlined by Bomqvist and Thollander’s (2015). For example, it always uses kilowatt-hour and outlines saved energy results. Further improvement would include other suggested items such as investment cost, return on investment, types of energy used and the unit of measure related to each data value. Harmonisation to this standard would both meet the Bomqvist and Thollanders call and also allow higher comparability and quality of data across countries.

Eventually, those that develop policy may also need to come to the view that SMEs that do not want to make any voluntary changes may require legislative action to be enacted, so as to ensure compliance, as most SMEs will respond to legislation (Lynch-Wood and Williamson 2013).

To build on the current knowledge of environmental management practices and outcomes within organisations, this research has shown that further consideration of the impact of spreading the cost of environmental management by providing SMEs with externally funded audits may offer new areas of research.

Conclusion

This study focused on Australian SMEs reluctance to engage in environmental management practices and sought to determine if funded energy audits could attract them, as they had overseas SMEs, to make savings and improve their energy efficiency. The results of the study confirm that energy audits can both attract and achieve these benefits for Australian SMEs and support the extension of their use in Australia.

One significant influencing factor in attracting the Australian SMEs was shifting the cost associated with them obtaining an energy audit from the business (i.e. free auditing and in situ provision). This implies that changes to government policy that support similar initiatives may be critical to the further engagement of SMEs and Australia’s future energy efficiency outcomes.

Some Australian SMEs remained unwilling or unable to change their business practices and this concurs with previous research that shows a gap between environmental attitudes and environmental behaviour (see for example, Tilley 1999) and the energy efficiency gap referred to by Backlund et al. (2012) and others. Although attitudes and behaviour can be changed through education or legislation, more research into these gaps is necessary to determine the best methods to reduce or eliminate them. However, it is increasingly clear that there is no one simple solution to getting SMEs to engage in better environmental management practices.

Several limitations are evident in the study. The first one being that it was a relatively small sample and participation was voluntary, so only SMEs with an interest in making change participated, thus the research was in effect “preaching to the converted” to an extent. The second limitation was that only a single set of data is presented here (other publications from this piece of research do expand out on the longitudinal aspect of the study), and the data collection did not include all the standard parameters now being called for by Bomqvist and Thollander (2015). This is important as when standardisation is achieved, it will allow more reliable international comparison and improve information retrieval by policy makers, auditors and industry.

Accepting these limitations, it is clear that a more integrated approach is needed but how can we get all parties to the table? First, attention and pressure needs to be applied by governments and other stakeholders (including customers) to continue to highlight the importance of energy efficiency. Other businesses in supply chains are then needed to work together to make good environmental practices the norm, not the exception, as larger businesses are in the main far more advanced than SMEs. Education remains only part of the solution, as often entrenched behaviour is unlikely to change unless there is some real benefit (or a converse penalty) to the business. The ultimate is obviously legislation, which is always politically unpopular, but will become unavoidable if significant changes do not occur. With “global energy consumption on a path to grow “30–50 % over the next 25 years” (Gerarden et al. 2014, p.2), a range of effective methods to engage SMEs, including expansion of energy auditing, are needed along with the cooperation of all stakeholders if businesses are to be engaged in implementing energy efficiency measures to achieve the required reduction in global energy consumption.