In response to these obstacles, the research study comissioned by Siemens Financial Services - the results of which form the basis for this report - also identified actions needed to overcome them. In brief, they are: a wider scale of tax incentives from government to encourage green investment; firm enforcement by regulators of legislation such as the WEEE Directive; greater efforts by equipment manufacturers to extend their green product ranges and integrate financing options into their offer, creating a genuine ROI model; and educational effort from the finance sector and government about the financing tools available to make such investments more easily affordable.

To look specifically at statistics, the research quizzed respondents about their perceptions of low carbon emission equipment and technologies and a number of key figures arose from their answers:

• 42 per cent perceived environmentally friendly equipment to be more costly than the traditional alternative
• 38 per cent saw the range of available environmentally friendly equipment to be severely limited
• 35 per cent saw no commercial advantage from investing in environmentally friendly equipment
• 25 per cent said that they simply cannot afford the capital cost of such investments.

Lessons

A number of lessons are immediately apparent; not least that business will not invest unless there is a clear financial benefit or effect upon the customer/supplier relationship. Manufacturers have a critical role to play in developing a wider range of low carbon emission, energy-efficient products in their ranges not widely marketed at a premium price over existing products unless a clear ROI is available, or they add significant value, or the low carbon/environmental aspects are recognised and priced accordingly. This may make the whole low-emission scene of little interest to vendors.

The general economic outlook also has a significant bearing on the issue of environmentally friendly equipment investment. Firstly, the IMF, in its latest report, has opined that credit losses and the liquidity constriction experienced recently by major global and national financial institutions are slowing global expansion. Other authorities also see a slowdown on the horizon this year.

Alternative methods of financing

The availability of business credit -at least in terms of bank loans - is tightening, making it more difficult and/or expensive to replace existing equipment with more environmentally friendly alternatives. This, in turn, means that manufacturers and vendors of eco-friendly and energy efficient business equipment need to look for alternative methods of making their offering competitive with the traditional alternatives.

Some distributors are already taking steps to address the cost/affordability concerns expressed by respondents to the research survey by integrating asset financing options into their sales proposition. Asset finance, usually in the form of some type of leasing arrangement, allows companies to pay for the use of an item of equipment over a given period, rather than have to raise one-off capital to actually buy the equipment outright. This enables distributors and end users to demonstrate the financial benefit of the asset in question against the cost over its useful working life.

Currently in the UK, approaching 30 per cent of all business equipment is financed in this way. At the end of the financing period, some equipment can have a ‘residual value' which the finance company may reflect by way of further discounts to the monthly payments. For the respondents to this research who said they simply could not afford to buy environmentally friendly replacement equipment, these methods of financing make such investment affordable by spreading payments across several years, thereby easily linkable to potential savings.

Equipment vendors are recognising the need to make their products more affordable in this way. According to the study, for instance, the proportion of European Information and Communication Technology (ICT) vendors offering integrated finance options has risen from 28 per cent to 33 per cent in the space of a year.

Tax concessions

Alongside the incentive to invest in, and affordability of, low-emission equipment enabled by increasingly integrated financing options, tax inducements also have a role to play in increasing what our respondents call the ‘commercial advantage' of such investments. Moves have been made by the Treasury to incentivise uptake in this way, but only across a limited range of equipment. Enhanced Capital Allowances (ECAs) enable a business to claim 100 per cent first-year capital allowances (FYAs) on their spending on qualifying plant and machinery. There are three schemes for ECAs:

• Energy-saving plant and machinery
• Low carbon dioxide emission cars and gas/hydrogen refueling infrastructure
• Water conservation plant and machinery

This compares with the normal regime for small and medium-sized businesses, where they can claim 40 per cent FYAs for their investments in most plant and machinery. This means that 40 per cent of the cost may be written off against taxable income of the year in which the expenditure is incurred.

Next, the Treasury needs to restore the tax incentives that used to exist for ‘green equipment' pre 2006, and the range of equipment to which these incentives can be applied needs to be clearly defined and extended. There is an emerging range of energy-efficient, low carbon emission equipment available in fields as diverse as office equipment, vending machines, hospital equipment, commercial vehicles, plant and machinery, lighting equipment, and many more.

Clear policy and guidance is needed to embrace all of these within the umbrella of ECAs. However, some issues remain. Tax incentives - in the form of 100 per cent FYAs for ‘green' products - may easily be abused unless national standards are established to define what just qualifies as ‘green' equipment. Such definitions have been drawn up in terms of motor vehicles. But what about plant and machinery? What about IT? What about office equipment? A collaborative effort is again required from distributors, financiers and government.

Finally, businesses cannot be expected to calculate their return-on-investment models on their own. It is critical that vendors and financiers get together to present British business with an easy means of calculating - when financing options, tax-relief and energy savings are all added together - a tangible return on investment periods.

The business community has already gone a long way down the environmentally friendly route simply on the strength of feelings of social responsibility and peer-pressure. Active initiatives, addressing hard business financials, are now needed to grow the country's green investment trends.

More inducements needed

While 37 per cent of British business claims to have invested in energy-efficient, low carbon emission equipment, such investment appears to remain a minority activity. Moreover, the scale of these investments tends to represent too small a proportion of each company's total equipment investment. Further inducements to invest are needed, in terms of affordability and availability of product range, as well as financing options and tax-relief. Assistance with ROI calculations is also required. If businesses can demonstrate that a low carbon asset has a clear, realistic and achievable ROI when compared to ‘dirtier' alternatives then they will start to go green. For this to happen, joint action is required by equipment distributors, financiers and government alike, especially in an economic climate where the availability of business credit is tightening. Asset finance already occupies a growing role in making business equipment affordable for the majority of businesses, and so is likely to play a key part in the growth of environmentally friendly equipment investment.