In January 2020, few people would have predicted that a virus would bring the world to a standstill. Over a year later, the world is only starting to recover from the devastation brought about by COVID-19 with greater appreciation for the need to build resilience. And not just to pandemics, but also to the looming climate crisis.
I believe that fostering sustainability is key to addressing the world’s largest environmental threats, while building firm resilience. Micro, small and medium-sized enterprises (MSMEs) are critical in ensuring the green transition is both inclusive and effective, as small firms generate over 50% of jobs and account for over half of industrial emissions worldwide.
Yet all too often MSMEs in developing countries are portrayed solely as passive victims of climate catastrophe. Evidence from the International Trade Centre’s SME Competitiveness Surveys shows that this is not the case. Sixty-eight percent of the companies interviewed in Africa said that environmental risks were significant for their businesses. At the same time, 42% said they had invested in climate-conscious measures in the preceding three years.
Small businesses are important agents of change for green growth. They are reducing waste, investing in renewable energy, greening buildings, creating sustainable packaging, gaining green certifications and going digital.
The latest edition of ITC’s flagship publication, the SME Competitiveness Outlook 2021, highlights why and how small companies are going green. New environmental regulations will require it and consumers are demanding it. Green finance markets seek it. And it yields benefits for both the bottom line and the planet.
Leveraging green opportunities for small business competitiveness
Making green business the default is one of the defining challenges of our time. And we can see that there is a huge opportunity for small firms. Fifty-nine percent of African companies surveyed by ITC that had made green investments said they led to new, higher-quality and more products, access to new markets, or lower input costs.
Environmental investment gains
Source: ITC SME Competitiveness Surveys of 1,359 companies in Zambia (Year 2018, 242 businesses), Botswana (Year 2019, 615 businesses) and Benin (Year 2019, 502 businesses). See ITC’s SME Competitiveness Outlook 2021: Empowering the Green Recovery for more details.
Data from ITC’s work on resource efficiency shed light on the dividends of environmental investments. On average, firm-level investments in resource efficiency can yield 15 tons of C02 equivalent emissions reductions and $14,700 in savings per year.
Measures to reduce firms’ environmental footprint that cost nothing or very little, such as changing management of water, electricity and chemicals, can pay off quickly. Changing chemical management practices, for example, cost on average less than $1,000 per company, and savings through reduced waste mean that the initiatives can pay off within two years, on average.
Although these “quick wins” can mark the first step in the greening of MSME business practices, larger investments deliver much more significant benefits for the company and for the planet. That is, measures that are most costly to start are more effective in reducing future costs and greenhouse gas emissions.
For example, the costliest measures adopted by MSMEs supported by ITC were installing solar panels and electricity equipment, which required significant initial investments. These initiatives, however, are expected to deliver the largest total financial benefits after 10 years and the biggest environmental dividend in reduced greenhouse gas emissions.
Resource efficiency measures benefit business, environment
Note: The size of the bubble is proportionate to the CO2 emissions reduction. Figures are averages based on 202 resource efficiency measures selected for implementation by 56 firms in Ethiopia, Jordan, Kenya, Peru and Viet Nam. Selected categories shown. Dark blue colour indicates measures related to renewable energy; light blue - thermal energy; medium blue - other measures. (Source: ITC Resource Efficiency and Circular Production interventions).
Assisting small businesses in their green transition
I come from Jamaica. My region is threatened by an increasing frequency and intensity of hurricanes, rising sea levels, ocean warming, and loss of local biodiversity. These jeopardize the survival of MSMEs, and the livelihoods that depend on them.
By “going green” small businesses in the Caribbean and elsewhere can lower costs, and reinvest savings in ways that increase their productivity. In addition, it is so important for MSMEs to know that these interventions can also grow their businesses. This can happen through access to new markets, since consumers demand sustainably produced products and lead firms demand proof that suppliers are compliant with environmental standards.
But it’s hard for small companies to know how to start on this environmental journey. Often, they have a personal commitment to sustainability, but the costs and expertise required can seem prohibitive. Many would-be green champions don’t get off the ground.
To help small businesses overcome these hurdles, ITC launched GreenToCompete, our activator for the transition to a green economy. Through GreenToCompete, we are providing knowledge, expertise and our networks to MSMEs in developing countries, so that they can develop a competitive advantage by going green.
In the Middle East and North Africa, for example, we are implementing the Global Textiles and Clothing Programme (GTEX/MENATEX) with funding from the State Secretariat for Economic Affairs of the Swiss Confederation and the Swedish International Development Cooperation Agency. The project encourages textiles and clothing exports to promote employment and income generation, while supporting companies to go green to compete.
Take for example the textiles and clothing company ITEX in Morocco. The company’s management knew that water and energy shortages might be on the horizon because of climate change, so they asked ITC for support to look at the company’s water, fuel and energy use. Together with local experts, ITC assessed the different production stages, conducted a cost-benefit analysis and suggested measures that could reduce input use. Two energy-reducing solutions – installing a photovoltaic system and thermal insulation of hot surfaces – are completed, and others that reduce energy, fuel, water and chemical use and generate less waste are in the works.
ITEX’s technical director Hachmi Chenik says that making production more resource efficient is increasing the company’s resilience and helping it lower input costs. “We can decrease the price of our products, become more competitive and attract new buyers,” he says. “Sustainable production also allows us to retain customers that are becoming more concerned about the environmental footprint of the goods they buy. Not only does it have a positive effect on the environment, but it also lowers costs and increases profits.”
The Green Recovery Plan to support small businesses
ITEX is an apt reminder that MSMEs need support to transition. As small firms seek assistance to recover from the COVID-19 pandemic, all stakeholders should provide them with the means to become more competitive, resilient and sustainable.
To ensure that the green transition materializes, we need coordinated action and targeted support. Small firms must be at the centre of a green transition, as investing in them generates a “double-dividend” of private and social gains. Business-support organizations, lead firms in international value chains, governments and international institutions must assist MSMEs in adapting to and mitigating climate change.
ITC’s Green Recovery Plan, as set out in the SME Competitiveness Outlook 2021, maps out a set of recommendations for how these stakeholders can help MSMEs embark on a green transition. It highlights a policy agenda to incentivize the green transition and empower small firms to be competitive, resilient and sustainable.
COVID-19 taught the world hard lessons. Without action, climate change will teach even harder ones. By acting now and placing MSMEs at the core of a green transition, it is possible simultaneously to address the climate crisis and build the competitiveness and resilience of the businesses on which a large percentage of the global population depend.