Catalyzing small business engagement in climate change adaptation. Presentation by Lisa Dougherty-Choux and Pieter Terpstra, World Resources Institute.
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Building Climate Resilience from the Bottom Up
1. BUILDING CLIMATE
RESILIENCE FROM THE
BOTTOM UP
Catalyzing Small Business Engagement in
Climate Change Adaptation
LISA DOUGHERTY-CHOUX L.DOUGHERTY-CHOUX@WRI.ORG
PIETER TERPSTRA PTERPSTRA@WRI.ORG
2. PROTECTING THE VULNERABLE
โข Marginalized communities in low-income
countries will experience the effects of
climate change the harshest
โข Policymakers need to find ways to protect
livelihoods of the most vulnerable
โข International organizations, donors, non-governmental
Photo Credit: Flickr/Oxfam International
organizations (NGOs), and
multinational corporations (MNCs) can help
3. VULNERABLE PEOPLE RELY ON MICRO AND SMALL
ENTERPRISES (MSES) FOR THEIR LIVELIHOODS
bit.ly/Z081IF
70%
4. THE IMPORTANCE OF AGRICULTURE IN THE RURAL
ECONOMY
โข Agriculture is one of the most vulnerable and
economically-important sectors in low-income
countries
โข At least 80 percent of the rural poor derive their
primary income from formal or informal
employment in agriculture
โข Agriculture has one of the highest concentration
of small businesses in developing countries
Photo credit: International Maize and Wheat Improvement Center
5. RURAL POPULATIONS MAKE UP A LARGE SEGMENT
OF TOTAL
80
70
60
50
40
30
20
10
0
Rural population (% of total population)
Sub-Saharan
Africa
East Asia &
Pacific
Middle East &
North Africa
Europe &
Central Asia
2000
2012
Latin America
& Caribbean
Source: World Bank, World Development Indicators.
6. WHY FOCUS ON MICRO AND SMALL BUSINESSES
(MSES) IN ADAPTATION
1. MSEs are best suited to reach vulnerable
communities in low-income countries
โ The majority of vulnerable populations rely on MSEs
for their livelihoods
2. If MSEs are resilient, so are communities
โ MSEs are the most direct contributors to economic
stability
3. Vulnerable populations have the fewest
resources to adapt to climate change
โ Climate impacts could have long-term effect on
development
Photo Credit: CGIAR Climate via Compfight (cc)
7. MSES INVEST IN ADAPTATION TO:
Reducing climate risk
Gaining financial or strategic
benefit
Responding to government
regulations
1
2
3
8. BARRIERS FACING MSES TO INVEST IN ADAPTATION
Barrier Description
Availability and knowledge
of cost-effective adaptation
options
Even when small businesses are aware of climate risks, they will
not take action if they are not aware of, or do not have access to,
viable adaptation options.
Institutional factors
(regulations and policies
affecting investment in
climate adaptation)
In many cases, existing policies can frustrate adaptation efforts by
the private sector, such as energy subsidies, water subsidies, or
land use laws. In order to make long-term investments in
adaptation, businesses need a clear national adaptation policy that
describes the governmentโs intentions and activities for the long-term.
Awareness and knowledge
of climate risk
Oftentimes businesses make decisions based off of gut feelings,
leading to poor investments, because they were not aware of what
investments could really benefit their business.
Technical capacity to
implement
New technologies often require technical skills that small
businesses do not have; limited technical understanding in turn
leads to lower adoption rates.
Financial capacity to
implement
Roughly 200 to 245 million formal and informal businesses need
loans, insurance, and credit, but are unable access these financial
instruments. In most cases, adaptation requires a new investment
or investment in new technology or services.
Social attitudes Often, cultural and behavioral factors have an important effect on
businessesโ decision-making.
9. INTERVENTION OPTIONS TO CATALYZE INVESTMENT
Government policies
โข Laws and policies
โข Public utility pricing
โข Subsidies, tax reliefs, and
carbon credits
Access to markets
โข Public spending on
infrastructure
Photo Credit: Evgeni Zotov via Compfight (cc)
Climate
Knowledge
Technical assistance and
training
Partnerships
โข Business partnerships and cooperatives
โข Public private partnerships
Financial Instruments
โข Grants and seed capital
โข Investment
โข De-risking and financial
instruments
โข Loans and microfinance
10. ZIMBABWE: CONNECTING SMALL BUSINESSES
TO LARGE COMPANIES
It can be valuable for larger companies to build resilient value
chains, so that along the production process, all players,
including small producers, have the least disruptions in the
face of climate change.
In Zimbabwe, for example, a beer brewing company played
this role with respect to red sorghum farming in the Chiredzi
district. The UNDP partnered with the brewery to ensure that
there would be a ready market for small grains such as red
sorghum, which are more climate resilient than the crops
typically grown in the region. As a result of this partnership,
red sorghum production has grown considerably.
Photo Credit: 10b travelling via
12. CONTACT FOR MORE INFORMATION:
l.dougherty-choux@wri.org
pterpstra@wri.org
THANK YOU
For more on this topic, check out these blogs at wri.org/blogs:
โข 3 Reasons Small Businesses Must Play a Large Role in Climate Change
Resilience
โข Micro, Small, and Medium Enterprises: Key Players in Climate Adaptation
โข 3 Ways Governments Can Involve the Private Sector in Climate Change
Adaptation
Hinweis der Redaktion
Climate change is happening and will only become more severe in the future. This will bring more frequent climate extremes, heightened variability of weather patterns, and long-term changes to the norms of the climate. Those who will experience the social and economic effects of climate change most harshly are the marginalized and poor populations who live in low-income countries, many of which are located in tropical regions and lack the resources to invest in adaptation. These changes could have long-term impacts on development efforts.
Although financial assistance from donors, MNCs, and others, has a central role in planning for adaptation, adaptation at scale cannot be achieved without the involvement of the private sector investing in its own climate resilience. Developing countries rely heavily on the private sector for economic growth and job creation. Therefore, governments in these countries have a strong interest in fostering an enabling environment for the private sector to contribute to this growth. By ensuring that the private sector has a high adaptive capacity in the face of climate change, poor men and women will be able to increase, or at least sustain, their livelihoods.
The majority of the developing world relies on small businesses for employment. They play a huge role for the livelihoods of vulnerable communities. In total, about 60 percent of all employees in developing countries work in micro and small businesses. In Sub-Saharan Africa, these businesses account for 90 percent of all firms and make up about 25 percent of GDP. Some of these businesses are slowly responding to the effects of climate change but many are not prepared for the long-term impacts.
Rural populations make up a large percentage of total populations especially in least developed regions, although they are slowly declining. Still, almost the majority in Sub-Saharan Africa and East Asia and Pacific live in rural areas.
As the pace of climate change accelerates, many farmers are unable to keep up and safeguard their businesses against long-term climate risks. Supporting local farmers to adapt to climate change is important, not only for global food security, but also to sustain livelihoods in these communities.
For more information, check out: http://www.wri.org/blog/2014/10/3-reasons-small-businesses-must-play-large-role-climate-change-resilience
Photo Credit: <a href="https://www.flickr.com/photos/55227776@N04/8570061085/">CGIAR Climate</a> via <a href="http://compfight.com">Compfight</a> <a href="https://creativecommons.org/licenses/by-nc-sa/2.0/">cc</a>
Policymakers need to understand what motivates businesses to invest in adaptation. Economics would tell us that small businesses are motivated to invest in adaptation when they can seek to maximize their returns and make the most of climate conditions. Here are three main reasons why businesses would decide to invest in adaptation.
1. One of the primary ways that businesses manage climate-induced risks, such as floods, droughts, storms, and other climatic events, is to safeguard their operations and processes. Businesses can be affected by direct risks, such as risks related to assets and processes under the control of the business owner, or indirect risks, which usually stem from spillover effects such as quality of infrastructure, availability of finance, and economic and political stability. Ultimately, these risks, if not managed well by the public and private sectors will affect the operations of the business. Risk management is thus not only essential for protecting the business but can also lead to financial benefits and spillover effects that increase the adaptive capacity of the community.
2. Climate change could present an opportunity for businesses, because it could increase demand for new goods and services that help people to adapt. Businesses engaged in developing more resilient products can gain a financial or strategic benefit, while contributing to adaptation and expanding into new markets. Businesses that have taken steps to invest in these adaptation products and services could gain a market advantage.
3. Governments can directly increase investment in adaptation through regulation, provided that there is a well-functioning mechanism to enforce them.
Correcting market inefficiencies for businesses is a direct way to incentivize small businesses to invest in adaptation. Artificially reducing the costs of adapting through subsidies can lead to more firms investing in adaptive measures, although the practice would only be temporary during the early stages of implementing an intervention to correct well-identified market inefficiencies. Other regulations include property rights, zoning laws, regulations imposed on larger businesses, among others. There are a couple of caveats, however. Due to the large size of the informal economy in developing countries, governments should bear in mind that many policies to correct market failures will not be effective. Additionally, governments need to be careful that regulations do not discourage businesses operating in the informal sector from joining the formal sector. Incentives are more likely to encourage small businesses to register their businesses formally than additional taxes and regulation.
The majority of micro and small businesses face many barriers for investing in climate change adaption. We identified six categories of barriers.
1. Even when small businesses are aware of climate risks, they will not take action if they are not aware of, or do not have access to, viable adaptation options. Adaptation options must be cost-effective at a small scale, and competitive against non-adaptation options in regards to price or costs of production. For adaptation measures to be viable, there must be a market and demand for the resilient goods or services. Ensuring market access must therefore be part of the design of adaptation interventions.
2. In many developing countries, government institutions have difficulty executing their intended role in encouraging adaptation practices. In many cases, existing policies can frustrate adaptation efforts by the private sector, such as energy subsidies, water subsidies, or land use laws. In order to make long-term investments in adaptation, businesses need a clear national adaptation policy that describes the governmentโs intentions and activities for the long-term.
3. Awareness and knowledge of climate risk is a very common barrier in rural areas where many do not have access to information. Oftentimes businesses make decisions based off of gut feelings, leading to poor investments, because they were not aware of what investments could really benefit their business. These businesses need access to information in a form that is simple and actionable and related to their specific sector.
4. New technologies often require technical skills that small businesses do not have; limited technical understanding in turn leads to lower adoption rates. Many small businesses in developing countries are severely constrained when it comes to technical knowledge and human capacity.
5. Roughly 200 to 245 million formal and informal businesses need loans, insurance, and credit, but are unable access these financial instruments. In most cases, adaptation requires a new investment or investment in new technology or services. Banks are often hesitant to invest in these kinds of activities as they bear a high risk, are difficult to evaluate and small businesses can often not provide enough collateral.
6. Often, cultural and behavioral factors have an important effect on businessesโ decision-making. Overcoming social and cultural barriers requires a good understanding of small business dynamics in communities.
Governments have a significant role in instituting policies that facilitate adaptation for businesses. Although many of them do not have the necessary capacity to provide sufficient public support for all businesses to invest in adaptation, they have the influence and capacity to work with NGOs, financial institutions and international organizations to address barriers facing micro and small enterprises. The public sector can use interventions to remove barriers, and also create an enabling environment for small businesses to invest in adaptation. There is no one-size-fits-all approach to achieve these objectives, as each country is very different. To have the most impact, the interventions should be tailored to the context of a countryโs economy and natural environment.
Photo Credit: <a href="https://www.flickr.com/photos/23609393@N03/6822424075/">Evgeni Zotov</a> via <a href="http://compfight.com">Compfight</a> <a href="https://creativecommons.org/licenses/by-nc-nd/2.0/">cc</a>
This slide presents an overview of the framework we propose to policymakers to tackle this climate change challenge. It is crucial for businesses and their representatives to be involved early on in the policy design process in order for policymakers to understand the relevant drivers and barriers and design effectiveness policy options.
1. Prioritizing sectors is an important step in the policymaking process, as each country has a diverse base of economically important sectors. Blanket policies that aim to engage the entire private sector of a country are likely to not be as effective as sector-specific policies.
2. Understanding what drives private sector investment in adaptation in a sector is important as it determines the design of interventions and regulation.
3. To even begin designing interventions, policymakers need to identify the barriers to adaptation.
4. Once thatโs done, they can design interventions that create an enabling environment for small businesses to adapt.
5. There are various ways through which interventions can be scaled, either bottom-up starting with several pilot projects or top-down through a nation-wide program of reforms.
For more on this topic, check out these blogs at wri.org/blogs:
3 Reasons Small Businesses Must Play a Large Role in Climate Change Resiliencehttp://www.wri.org/blog/2014/10/3-reasons-small-businesses-must-play-large-role-climate-change-resilience
Micro, Small, and Medium Enterprises: Key Players in Climate Adaptationhttp://www.wri.org/blog/2013/12/micro-small-and-medium-enterprises-key-players-climate-adaptation
3 Ways Governments Can Involve the Private Sector in Climate Change Adaptationhttp://www.wri.org/blog/2013/12/3-ways-governments-can-involve-private-sector-climate-change-adaptation