Climate Change: Role of Micro & Small Enterprises

Introduction

To put things into perspective on how small new businesses are driving business while keeping the environment as priority as climate change is one of the most pressing challenges of the 21st century, Vishisht Lifestyle, an eco-friendly small business offering skincare products crafted with natural ingredients, can serve as a suitable case in point. The firm has grown a loyal customer base, received appreciation and now expanded its market to various parts of the world by devising innovative methods to lower its emissions. Over the span of three years, starting from 2020 and ending in 2022, the company has not only decreased its CO2 emissions by 5400 kg, approximately equivalent to the carbon absorption of around 2.4 acres of forest per year, but also prevented more than 100 kg of plastic from entering oceans and landfills, and repurposed over a hundred glass jars through recycling and reuse efforts(1). It has also been awarded several accolades for its efforts in fighting climate change like the Facebook Small Business Grants Program among others.

While significant efforts are being made by governments and large corporations across the world to tackle and mitigate climate risks, Micro and Small Entrepreneurs (MSEs) are more at risk due to their size and access to resources. Micro and Small Enterprises account for the majority of businesses around the globe, representing 90% of business and generating more than 50% of employment worldwide yet most of them lack access to formal sources of finance, technology, and knowledge base to embrace sustainability(2). This share increases when the informal MSEs are taken into account. In emerging markets like India, most formal jobs are generated by the MSEs, i.e. 7 out of 10 jobs.

Challenges faced by the MSEs

MSEs can play a crucial role in tackling climate change as they may not be large carbon emitters, but the combined scale of all the small enterprises is more than 90% (as mentioned earlier), meaning that these small businesses are going to be vital in achieving global targets of carbon reductions. Despite the potential of fighting climate change, there are various challenges faced by these enterprises. 

Firstly, time constraints hinder their ability to navigate the complexities of sustainable practices due to their lean operational structures(3). Additionally, many MSEs lack awareness or interest in purchasing carbon credits, viewing them as abstract rather than practical solutions. Moreover, MSEs prioritize straightforward, easily implementable strategies over regulatory complexities, preferring profitable eco-friendly initiatives that align with their business objectives. These barriers underscore the need for tailored support mechanisms to empower MSEs in embracing sustainable solutions effectively. Although making amendments in their business practices can involve high cost and challenges, if a nano-enterprise stays out of the green transitioning, it could potentially face the risk of exclusion from the value chains.

One of the most component of the small businesses are the nano-entrepreneurs which have hyperlocal roots and they have an annual turnover of between Rs 10 lakhs and Rs 1 crore. The market size for nano entrepreneur credit is as large as Rs 2 lakh crore, positioning it as the most significant potential credit segment within the MSME category. The demand for this segment is expanding at an annual growth rate of over 35 percent.

Despite being so critical to the economy, nano-entrepreneurs across the country as well as the globe often lack the expertise and tools necessary to effectively transition to net-zero emissions and to accurately measure and manage their carbon footprint. According to a recent survey by the SME Climate Hub, 63% of small business respondents felt they did not possess the necessary skills to take strong climate action(4). Micro-businesses are still struggling to bounce back from the severe impacts of the pandemic and with the limited funding for sustainable changes, they frequently find themselves in a difficult position.

MSEs: Receptive to Climate Change

Considering MSEs are an integral part of the value chains of big corporations, large firms cannot decarbonize their operations without substantial engagement from the small enterprises. According to SME Climate Hub, MSEs expressed strong desire to act i.e. 80% consider reducing their carbon emissions as high priority(5). The survey done by SME Climate Hub also found that small businesses believed in fighting climate change through changes in their policies as the right thing to do. A study conducted by Ipsos in July 2022, which reviewed more than 37,000 small and medium-sized businesses worldwide, revealed that 80% of these businesses considered embracing eco-friendly business methods as significant to their local communities(6). Specifically, the nano-entrepreneurs which are the smallest among the businesses are critical to the fight against climate change as individual footprint may seem minuscule but together they have a massive impact on the climate. Nano-entrepreneurs need to effectively reach net-zero and assist in limiting the impact of climate change as it disproportionately affects themselves only.

In the Context of the Asia-pacific Region

The stakes are especially high for the Asia-Pacific region. Due to the increase in frequency and intensity of weather-related natural disasters, there has been a twice as much rise in temperature in Asia as other parts of the world(7). Due to the considerable contribution of Asia to current emissions and its projected rise in emissions in the future, the policies implemented by China, India, and other major CO2-emitting nations to cut down emissions will play a crucial role in the global endeavour. Asia’s coal-powered electricity production and carbon-heavy manufacturing industries, including steel and cement production, motor vehicle manufacturing, agriculture, and household cooking and heating, are not only exacerbating global warming but also causing alarming levels of particulate pollution in the atmosphere(8). MSEs are the backbone of developing economies, representing 96% of business across Asia and their potential to drive environmental impact cannot and should not be overlooked. Asian companies that prioritize ESG typically dedicate 18% of their budget to ESG initiatives, and they anticipate increasing this allocation to 19.8% in the next three years, primarily focusing on environmental projects(9).

Decision makers across five industries emphasize that environmental concerns, particularly waste management, climate change, and carbon footprint reduction, have the most glaring impact on their industries. 

Way Forward

The world, especially Asia-Pacific, can leverage MSEs to fight climate change. Both private as well as public organisations play a pivotal role in creating a conducive environment for these micro and small enterprises to thrive. Public organizations can make better policies, whereas private entities should focus on resolving issues like access to finance, technology and knowledge base. According to Salesforce, there are various ways by which a small business can get involved in tackling climate change, i.e, Building a culture of awareness around environment, Rethinking the waste produced in the production process and reduce it, Reducing the travel as it is one of most carbon emitting activities, Choosing environmentally conscious partners to do business with, Save energy by efficiently using electricity, water etc(10).

Shrey Goyal is a student of Gokhale Institute of Politics and Economics, Pune and interns with Centre for Excellence in Entrepreneurship and Development (CEED).

 

References

  1. SME Climate Hub (2023, November 13), Vishisht Lifestyle puts climate action at the heart of its skincare line. https://smeclimatehub.org/vishisht-lifestyle-puts-climate-action-at-the-heart-of-its-skincare-line/
  2.  (2019, October 16), Small and Medium Enterprises (SMEs) Finance. World Bank. https://www.worldbank.org/en/topic/smefinance
  3.  SMEs and Climate: The Unsung Heroes in the Battle for a Greener Tomorrow. International Council for Small Business.https://icsb.org/smes4climate/
  4.  Salla, S., Saini, A., & Jouven, P. (2022, April 24). What it takes for small and growing businesses to transition to Net Zero. Economic Times. https://economictimes.indiatimes.com/industry/renewables/what-it-takes-for-small-and-growing-businesses-to-transition-to-net-zero/articleshow/91022747.cms?from=mdr
  5.  Jouven, P. (2022, February 23). Survey: Small businesses face recurring barriers to carbon reduction. SME Climate Hub. https://smeclimatehub.org/sme-survey-barriers-to-climate-action/
  6.  Ipsos (2022, September 1). Almost half of small and medium sized businesses globally plan to extend their online reach. https://www.ipsos.com/en-us/news-polls/small-medium-sized-businesses-leveraging-social-media-digital-tools 
  7. DABLA-NORRIS, E., NOZAKI, M., & DANIEL, J. (2022, September 1). ASIA’S CLIMATE EMERGENCY https://www.imf.org/en/Publications/fandd/issues/2021/09/asia-climate-emergency-role-of-fiscal-policy-IMF-dabla
  8. (2020), Climate risk and response in Asia. McKinsey Global Institute. https://www.mckinsey.com/~/media/McKinsey/Featured%20Insights/Asia%20Pacific/Climate%20risk%20and%20response%20in%20Asia%20Research%20preview/Climate-risk-and-response-in-Asia-Future-of-Asia-research-preview-v3.pdf
  9. (2022), Catalysts of Sustainability. Bloomberg Media Studio X DBS. https://www.dbs.com.sg/sme/businessclass/Catalysts-of-Sustainability-ebook.pdf
  10. Murray, A. M. (2019, January 21). 6 Ways Small Businesses Can Fight Climate Change.
    https://www.salesforce.com/blog/small-business-tips-fight-climate-change/

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