When applied to droughts, wildfires, hurricanes, floods, or other extreme weather events, the term “unprecedented” is getting old. In August, when the Intergovernmental Panel on Climate Change released its latest report about the dire realities we face, a drought exacerbated by global warming already had been raging for years across much of southern Africa.
It seems as though world leaders are finally ready to take meaningful action, but there’s a critical group regularly missing from key climate meetings like the recent United Nations Climate Change Conference (COP26) in Glasgow: local, climate-focused small businesses that already are making a difference in their communities. Small and medium-sized enterprises (SMEs) working on climate adaptation and mitigation are a crucial but underestimated partner in the fight to reduce emissions.
Even though climate financing options are increasing, SMEs’ role in sustainable development continues to be overlooked. Their predicament is one shared by more than 200 million SMEs of all types in developing countries that cannot get the funds they need to grow, facing an estimated $5.2 trillion annual financing gap. International investors focus on getting dollars out the door through larger deals, while local capital is kept on the sidelines by high collateral requirements and unmanageable interest rates for early-stage businesses.
SMEs represent 90 per cent of businesses and provide more than 50 per cent of jobs worldwide according to the World Bank, so they have a key role to play in creating opportunities in economies struggling to recover from the Covid-19 pandemic. Examples like SELCO India, a pioneering off-grid solar company, and Husk Power, an innovative pay-as-you-go renewable energy provider operating in Asia and Africa, show that with the right amount and type of financing and technical support, small businesses can improve lives through energy access — a key international goal.
Small businesses also have an important role to play in greening agriculture. Land use for crop and livestock production accounts for 24 per cent of global greenhouse-gas emissions, and farms are vulnerable to droughts, floods, and rising temperatures. Financing climate-smart agricultural entrepreneurs is essential for making our food systems more resilient. Here, too, off-grid renewable energy has become indispensable, providing power for irrigation, processing grains, and operating the cold rooms and coolers needed to store dairy products, fresh seafood, and fruits and vegetables. In India, Technoserve is helping small farms withstand and adapt to the climate crisis and raise their productivity without increasing emissions.
As these examples show, when small businesses have the financing and support they need, they can drive economic growth while mitigating emissions and supporting adaptation to climate change. That is because small businesses are more agile and adaptable — and respond to local needs much faster and more effectively — than large organisations. They also offer governments and policymakers an opportunity to try out new ideas, revealing both pitfalls and best practices before initiatives are scaled regionally or nationally.
Achieving the global goal of net-zero emissions requires policymakers, investors, banks, and others to attend to SMEs’ needs much more effectively than they have in the past.
For starters, the world needs far more finance vehicles and instruments that are tailored to small businesses working in the green economy. That means a mix of lower-cost, long-term capital and blended finance, as well as easier access.
@Project Syndicate 2021
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