Behind the Data – Beliefs and barriers: Climate change and Irish firms’ access to finance
Wendy Disch and Rory McElligott*
July 2025
Survey data reveal that Irish firms are concerned about climate-related risks but have not sufficiently invested to adapt to risks, in part due to financial barriers.
Despite commitments made in the Paris Agreement to limit global warming within 1.5 - 2°C, current global policies are likely to result in a 2.6 – 3.1°C world (UNEP, 2024). Reaching climate targets will therefore require an acceleration in decarbonisation as well as greater resilience to a changing climate. Achieving these goals will require considerable levels of investment. Across the EU, the European Commission estimates additional investments of €477 billion per year are needed in order to meet 2030 targets (Nerlich et al., 2025 (PDF 1.72MB)). While the public sector will play a vital role in fostering green investment, constraints on government expenditure will require the private sector to play a fundamental role in financing the green transition and achieving a climate-neutral economy.
The need for financing is two-fold: both mitigation and adaptation will require investment. Mitigating climate change requires firms to reduce emissions, while adapting to climate change requires firms to build resilience in order to withstand the physical risks caused by climate change. In Ireland, physical risks from climate change include flood damage, intense rainfall, storms with increasingly strong winds and, potentially, extensive power outages. Six named storms affected the country in 2024 alone, while the outbreak of Storm Éowyn in January 2025 set record-breaking wind speeds and is expected to reach nearly €200 million in insurance claims (Climate Change Advisory Council, 2025 (PDF 4.73MB)). The relationship between mitigation and adaptation is invariably linked: delays to investment in mitigation now contribute to a heightened risk of climate events and their associated costs, resulting in greater adaption needs later.
This “Behind the Data” explores the perceptions and preparedness of Irish firms in relation to climate change. It explores Irish firms’ beliefs about climate-related risks, their climate investments and barriers they face in financing the transition.
The Data
The data presented are from a climate-specific pilot survey included in the Q2 2023 survey on the access to finance of enterprises (SAFE) conducted by the European Central Bank. The SAFE survey provides an overview of the financial situation of enterprises, their financing needs, the availability of external financing and firms’ expectations about their business outlook. Firms from twelve countries were included in the survey, including 252 Irish firms. Small and medium-sized enterprises (SMEs) account for the majority of responses in Ireland (90%), in line with the fact that SMEs account for the majority of firms and employment in Ireland.
There is a high degree of concern amongst Irish firms relating to the consequences of climate change on their business models over the near-term.
Firms were asked to rank the importance of various physical and transition risks on their business models over the next five years. Transition risks refers to the implementation of measures required to transition to a net-zero economy, such as carbon pricing and stricter regulations. Physical risks refer to the physical impacts of climate change, such as nature degradation (‘Nature’) or natural hazards (‘Hazards’).
Over 75% of firms that responded reported they were moderately or very concerned about all three risks (score of 4 and above on a scale of 1 to 10). Transition-related risks were the largest concern, with 63% of respondents reporting being “very” (score 7 or higher) concerned about the implications of stricter regulations and carbon pricing. Across euro area firms, concerns about transition risks are highly uniform, with Irish firms largely in line with European counterparts. Meanwhile, physical risks are more likely to vary across regions, with firms located in regions vulnerable to droughts, wildfires or floods (including Ireland), slightly more concerned about natural hazards (see Ferrando et al., 2023 for a full assessment of regional analysis).
Chart 1. Irish firms’ reported concerns regarding climate-related risks
Source: Survey on the Access to Finance of Enterprises, and Central Bank of Ireland calculations.
Note: N = 245. Responses are given on a scale of 1-10. “Somewhat” corresponds to a response of 1-3, “moderately concerned” corresponds to a response of 4-6 and “very” corresponds to 7-10. All responses are weighted by size class, economic activity and country to reflect the economic structure of the underlying population of firms.
While Irish firms are similar to European peers in terms of investment for transition risks, they report lower levels of investment towards mitigating physical risk.
There is a contrast between firms’ views on whether sufficient investments have been made to mitigate transition risks compared with physical risks. In reference to transition risks, firms were asked whether they have invested to mitigate the impact of their own business operations on the environment. Just over half of Irish firms affirmed that sufficient investments had been made, with a further 29% reporting that sufficient investments would be made by 2030. This is largely in line with European peers, 50% of which reported that sufficient investment had been made to mitigate these risks.
However, the opposite is true when asked if sufficient investments have been made to adapt to physical risks. Just 21% of Irish firms reported that they have sufficiently invested to mitigate the impact of natural hazards compared to 32% of European firms surveyed. Nearly half of Irish firms have not invested and do not have plans to invest in the next five years in order to mitigate natural hazard risks.
The difference in investment activities to date may be explained by the differing levels of concern regarding climate risks. Given that more firms indicated being “very concerned” about transition risks such as climate standards and regulations, this may explain a preference for investing in reducing their environmental impact prior to investing in mitigating natural hazard risks. It is likely that the role of stricter standards has led to an incentive for firms to invest in mitigating transition risks prior to investing in other climate-related activities. While the survey does not ask firms about their knowledge of risk exposures, it is likely that investing to mitigate regulatory risks is more straightforward than mitigating the effects of natural disasters, as exposure to regulatory risks are relatively uniform across firms whereas exposure to physical risks are dependent on a number of factors.
Chart 2: Irish firms’ stated investment on climate-related risks
Source: Survey on the Access to Finance of Enterprises, and Central Bank of Ireland calculations.
Note: N=252. All responses are weighted by size class, economic activity and country to reflect the economic structure of the underlying population of firms.
High financing costs are among Irish firms’ most significant barriers to finance but other factors constrain climate-related investments.
When asked about the importance of obstacles to securing climate-related finance, 71% of Irish firms surveyed expressed that high interest rates were a significant barrier to investment. This is in line with prior evidence demonstrating high costs of financing for SMEs, which account for the majority of firms surveyed. Across Europe, even when access to finance is not a barrier, SMEs typically face poorer financing conditions compared to larger firms, such as higher interest rates (Koreen et al., 2018). Historically, this has been particularly acute in Ireland: for many years, Ireland experienced both a larger interest rate gap between small and large loans to companies than European peers as well as higher interest rates on small loans in comparison to peers (Central Bank of Ireland, 2019 (PDF 2.05MB)). However, reported concerns about interest rates may be partially explained by the point in time at which the survey was conducted. The reporting of the SAFE pilot corresponds with peaking interest rates, which have since declined. Therefore, concerns about interest rates are likely to have eased somewhat as policy rates have fallen and passed through to non-financial corporation (NFC) lending rates. The most recent NFC lending rates in Ireland, for example, have fallen 116 basis points year-on-year (Central Bank of Ireland, 2025 (PDF 660.35KB)).
While the high cost of finance is the most commonly stated barrier to climate related-investment, firms also reported other material obstacles. These include:
- 58% of Irish firms surveyed viewed available subsidies as insufficient and reported this as a significant barrier to investment. The financial return to an individual firm from adaptation projects can often be uncertain. Public sector support can often be an important factor in de-risking or ensuring financial viability of adaptation projects.
- Availing of these financial supports and products frequently requires that specific criteria are fulfilled and documentation is provided to prove that activity is eligible for green finance. This reporting requirement is considered too high and a significant barrier to finance by 49% of firms surveyed. This highlights the importance of removing non-financial barriers to climate action including simplification of reporting where appropriate.
- 40% of firms believe that a significant barrier is a lack of willingness by investors to fund climate-related investments.
Chart 3. Share of Irish firms stating that barriers are a ‘significant barrier’ to climate investment
Source: Survey on the Access to Finance of Enterprises, and Central Bank of Ireland calculations.
Note: Responses are given on a scale of 1-10. “Very important” corresponds to responses between 7-10. Results exclude those reported as “don’t know” or “not applicable” (61-66 firms). All responses are weighted by size class, economic activity and country to reflect the economic structure of the underlying population of firms.
Irish SMEs show strong preference for internal funding for climate-related investment and less likely to use loans relative to peers.
Firms were asked to identify the financing sources that they have used or plan to use for climate-related investments. Given the particular challenges facing SMEs in accessing finance, we compare Irish SMEs to their European counterparts. In general, Irish SMEs show a clear preference for using retained earnings as their primary source of financing. This is not unique to climate-related investment, as Irish SMEs have long preferred self-financing for investment activities and rely on internal funding more than European peers (Lawless et al., 2020 (PDF 1.66MB)). Low levels of credit applications amongst Irish SMEs have been linked to demand-side factors, such as a preference for using internal funds and a belief that internal funding is sufficient for investment needs.
In contrast, many other countries are more likely to fund climate-related investments via loans (both subsidised and non-subsidised) and few countries reported a high share of debt or equity to meet their financing needs. Sources of finance are important in the context of climate-related investment, as an over-reliance on a single funding source may limit overall investment activity. Instead, a mix of internal and external funding resources is associated with higher climate investment (Bacchiocchi et al., 2024).
Chart 4. Financing sources used for climate-related investment
Note: Countries included in the Euro Area include the 11 other countries included in the Pilot survey - Austria, Belgium, Germany, Greece, Spain, Finland, France, the Netherlands, Italy, Portugal and Slovakia. All responses are weighted by size class, economic activity and country to reflect the economic structure of the underlying population of firms. N= 177 for Ireland.
Access to sustainable finance is key in building firms’ resiliency to climate change and reaching decarbonisation goals. For firms, providing clear commitments to reducing emissions may be an important step in addressing these barriers, particularly in regards to interest rates. Interest rates charged by euro area banks to firms that have committed to reducing emissions have been lower than those charged to high-emitting peers (Altavilla et al., 2024 (PDF 2.19MB)). Public-private partnerships can also play a key role in bridging the climate finance gap. More broadly, progress towards a Savings and Investments Union would help expand diversity in financing sources and lower financing costs for SMEs. Continued action to unlock funding sources for firms and mobilise financing towards objectives aligned with the EU’s climate goals can provide a critical opportunity in shrinking the climate investment gap.
Conclusion
The transition to a net zero economy requires a significant acceleration in climate action in order to meet targets. The costs associated with this action have given rise to a substantial funding gap, of which the private sector plays a critical role. The insights provided by the SAFE survey reveal that despite clear concerns about both physical and transition risks, Irish firms report lower levels of investment towards mitigating physical risk compared to European peers. Traditional barriers to investment, such as high costs of financing, are seen as an obstacle to investment, as are climate-specific barriers such as high reporting costs, insufficient public subsidies and investor interest in green financial products. More broadly, Irish SMEs are highly reliant on internal funds for investment. A limited ability or willingness to access external funding may slow further climate investment.
Closing the climate finance gap will require an acceleration in firms’ investments in decarbonisation. The barriers highlighted by the SAFE pilot study reveal an urgency to assist firms in understanding the importance of resiliency and the risks of inaction, as delays in green investment now will lead to higher adaptation costs later. Expanding the availability of sustainable finance to meet firms’ needs in building climate-resilience, greening their operations, and developing sustainable products and services is pivotal to the achievement of our climate goals.
*Email [email protected] if you have any comments or questions on this note. Comments from Jane Kelly, Michael Mahony, Barra McCarthy, David Duignan, Jean Cassidy and Vasileios Madouros are gratefully acknowledged. The views expressed in this note are those of the authors and do not necessarily reflect the views of the Central Bank of Ireland or the ESCB.
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