Development Connect signed a MoU with UNEP-DTU Partnership in November 2016, and is a lead author to write an article for the UNEP DTU Partnership ’s flagship 2017 report on “Medium and Small Micro Enterprises’ Engagement in Climate Change Adaptation”.
The article features how current government approaches and potential entry points to encourage and catalyze MSMEs’ investment in adaptation, how MSME investment and engagement may be catalyzed through different enabling environments and regulatory decisions for MSME adaptation etc.
Governments and public institutions in the Global South play an important role in encouraging and enabling MSMEs to be more resilient towards climate change. While corporations are increasingly investing in making their operations more climate-resilient, many MSMEs, especially those in the informal sector, lack the resources to be able to do without a supporting enabling environment.
The public sector should send the right signals and create the “right” incentives for the promotion of new economic opportunities which are resilient (World Resources Institute 2015), and acknowledge that strategies and actions for resilient development are context specific and dependent on the capacity and leadership of government entities and partners engaging with MSMEs.
While in many developing countries, national and municipal governments may not have the capacity to provide financial support, they do however have the capability to influence the enabling environment through various regulatory and policy instruments by removing obstacles or encouraging climate-friendly activities supporting MSMEs to grow and-or develop operations.
This paper explores and analyses various government approaches that have been implemented to encourage and catalyse MSME adaptation and resilience building to climate change.
While it is acknowledged that the enabling environment is comprised of many elements, this paper will focus on policies and standards, including incentives (pull driver) and disincentives (push driver) based on comprehensive literature reviews, using specific examples from case studies. The paper will also assess the sectors which governments have targeted, identifying whether the driver has been to: i. adapt MSME operations to be better resilient to climate change or ii. innovate to develop and particulate in green technology solutions.
Across the Global South landscape, it was found that governments have prioritised policies in the agriculture, manufacturing and trade sectors, which is logical given that these sectors “contain the highest number of MSME…, so opportunities to green the operations of businesses in these sectors could have considerable impact” (Dalberg 2015). However, governments increasingly realise that confinement to one sector is insufficient and climate change adaptation and resilience building crosscuts other issues of concern including but not limited to infrastructure, food security, basic services and urban planning.
Information silos common in highly decentralised, bureaucratic governments can hinder “whole-picture” perspectives. Governments that have integrated adaptation into their development planning across agencies have had far reaching impacts for MSMEs. Without a clear national policy that describes the government’s intentions and activities regarding climate change, any efforts by MSMEs to mitigate, adapt or innovate can have adverse impacts (Knox et al. 2010).
Pull drivers such as implementation of subsidies and tax relief can stimulate MSMEs to reduce their risk through adaptation or engage in emerging opportunities through innovation, leading to increased profits or making investments more viable. However, these incentives should not increase the vulnerability of people by promoting development in high-risk areas (IBRD 2013). Further, it was found that subsidies for climate compatible developments are often low and disbursement timelines not transparent. For those countries with heavily subsidized utilities such as water, removal or price adjustment can reduce wastage and stimulate investment in alternative technologies such as drip irrigation, which would otherwise have not been viable (IFC and EBRD 2013). Irrespective of the country, it is essential that governments conduct a rigorous assessment of the impacts of policy decisions relating to climate change, as a benefit for MSMEs in the long term may result in a cost for the community in the short term.
Note: The article already underwent an external and UN internal review process and will be published in the UNEP-DTU Partnership flagship report in October 2017.
Download the article
To download the article Government approaches to catalyse MSME resilience, please find the link below.