Successive energy crises in recent years have driven sharp increases in gas, oil and electricity prices that have affected both private households and businesses. Small and medium enterprises (SMEs), which play a vital role in economies and communities across the globe, are often among the least equipped to manage these price shocks.

In today’s volatile energy landscape, improving energy efficiency offers SMEs a practical way to reduce energy bills and emissions, improve profitability, strengthen resilience to future price shocks and enhance their long‑term economic competitiveness.

Despite these benefits, SMEs continue to face structural barriers that limit their ability to invest in energy‑efficient solutions, and targeted government support to address these challenges remains insufficient in many parts of the world. This commentary explores the economic importance of SMEs, the scale of their untapped energy efficiency potential, and the policy measures that can help unlock it.

SMEs account for over 90% of businesses globally, contribute around 50-60% of value added in high-income and emerging economies, and represent more than 60% of employment worldwide. In lower-income countries, this employment figure rises to more than 80%. In India, for example, more than 78 million micro-, small and medium-sized enterprises (MSMEs) employ over 340 million people, account for around one-third of the country’s GDP and manufacturing output, and nearly half of all exports.

Beyond their economic role, SMEs provide essential goods and services for local communities, where larger firms are often absent. As deeply rooted actors in local economies, they play an important role in supporting employment, economic resilience and community development.

Energy often represents a major operating expense for SMEs, which typically pay much higher prices than large firms. As a result, a greater share of SME sales revenue is spent on energy: in 2025, SMEs in the European Union spent an estimated 4.5% of their average revenue on gas and electricity, compared with 3.1% for large firms.1

SMEs can struggle to manage such cost fluctuations effectively, often lacking the scale, bargaining power, skills and expertise to manage energy price risks. This can erode profit margins, reduce financial resilience and constrain growth.

Additionally, SMEs are generally more vulnerable to wider economic shocks and uncertainty than other sectors, making it harder for them to manage periods of instability. This is partly because SMEs face many structural barriers that reduce their ability to respond to rising costs.

Access to finance is often a challenge for SMEs, which typically face higher borrowing costs and more limited credit availability than larger firms. Administrative and regulatory complexity add to the burden: 35% of SMEs cite complex procedures and 28% cite high upfront costs as key barriers to implementing resource‑efficiency measures. In times of crisis, SMEs are also more exposed to supply chain disruptions, due to limited inventories and fewer alternative suppliers.

Price increases and volatility can hit SMEs especially hard. In 2022, when Russia’s full-scale invasion of Ukraine led to sharply higher fuel costs, 8% of SMEs in the European Union reported that declines in productivity and revenue threatened their survival. In the same survey, many SMEs reported absorbing rising energy costs by accepting lower profits (58%) or raising consumer prices (52%). These pressures can ripple through employment, supply chains, local economies and household purchasing power worldwide.

The impacts of energy price volatility continue to be felt today, with SMEs once again facing rising costs amid the current energy crisis. This is particularly challenging for businesses that already operate on thin profit margins.

Surveys conducted following disruptions to oil and gas flows through the Strait of Hormuz show that these renewed price pressures are affecting SMEs across multiple regions. One survey found that almost half of business leaders in the United States say current energy costs are affecting their operations, with 13% describing the impact as significant. Meanwhile, more than 80% of SMEs surveyed in Malaysia said they faced double-digit cost increases and stalling demand, while over 20% of SMEs surveyed in Thailand reported being at risk of permanent closure within three months.

While SMEs are particularly exposed to high and volatile energy prices, relatively few adopt energy efficiency measures that can reduce this exposure. For example, only 15% of smaller companies surveyed by the IEA in 2025 had implemented an energy audit compared to 40% of large companies, with only a quarter of SMEs investing in digital technologies compared to over 50% of larger companies.

It follows that, energy performance can vary widely even among SMEs producing similar products. Analysis of over 4 500 industrial facilities in the United States shows that, within the same industry subsector and at a comparable level of sales, the least energy-efficient SMEs can face energy costs up to six times higher per unit sold than the most efficient SMEs. While some of this variation reflects differences in products, processes and operating conditions, the scale of the gap suggests that significant energy-savings opportunities remain across most SMEs using existing technologies and practices.

When SMEs do invest in efficiency, the returns can be substantial. Data from the same industrial facilities shows that SMEs improving processes such as cooling, space heating or demand management saved 50% more on average of their annual energy costs per implemented efficiency measure than larger facilities. This likely reflects several factors. SMEs often pay higher energy prices and have greater untapped efficiency potential. They are also less likely to implement efficiency measures, have dedicated energy management systems or be covered by mandatory energy audits.

At the firm level, implementing more than one efficiency measure can compound savings, with each additional measure contributing more than the first measure. A typical SME adopting four measures can save nearly five times as much on annual energy costs as one adopting only a single measure. Across facilities, SMEs can save more: around 12% of annual energy costs on average, compared with about 8% for larger facilities.

At the global level, these savings can add up to significant economic benefits. For example, if all SMEs matched the efficiency level of today’s top quarter of firms, the sector would use around 60% less energy. Even under a more conservative scenario, where SMEs outside the top-performing quarter improved only to the level of the next most efficient group of firms, total SME energy consumption would still fall by around 30%.

Because SMEs are particularly exposed to macroeconomic shocks, smaller firms tend to be disproportionately affected by policy uncertainty. Yet policies focused on SMEs remain relatively rare. Of the 85 countries and jurisdictions that announced or implemented new energy efficiency policies in 2025 and 2026, only 9 included measures targeting SMEs, compared with 36 targeting industry more broadly.

This matters because policies designed for larger firms are often less effective for SMEs, unless they address the specific obstacles they face – including limited staff capacity, lack of information and difficulty accessing finance. Successful SME energy efficiency programmes tend to share several common features.

First, they make participation easy. More than one-third of SMEs in the European Union identify complex administrative requirements as a major barrier to adopting resource efficiency measures, highlighting the importance of simple application processes and practical support. Programmes in Switzerland, Ireland and the United Kingdom have demonstrated that reducing administrative burdens and providing hands-on energy advice can significantly improve participation and outcomes.

Effective programmes also tailor support to the needs of different SME groups. Targeted approaches based on sector, size or location have helped maximise impact, from bakery-focused initiatives in Ecuador to India's Market Transformation in Energy Efficiency programme for MSMEs.

Delivering support through trusted channels can further increase engagement, whether through business associations and advisory networks, as seen in Belgium, or through supply chain relationships, as demonstrated in Mexico.

Finally, access to finance through programmes and partnerships that integrate technical assistance, incentives and financing, such as Mexico's Eco Crédito Sustentable programme, or that work with financial institutions to combine funding with administrative and technical support, as in Brazil, can help SMEs overcome investment barriers.

Putting these elements in place can help more SMEs invest in energy efficiency, reduce their exposure to future energy price shocks, lower costs and emissions and ultimately strengthen their long-term competitiveness.

Governments can support SMEs by creating a predictable operating environment, in addition to providing clear, consistent communication on policy changes and long‑term policy direction. To help governments learn from best practices around the world, the IEA launched a new policy package designed specifically for efficiency in SMEs at the 11th Annual Global Conference on Energy Efficiency in 2026, combining regulation, information and incentives for maximum effectiveness of energy efficiency policies.