The evidence is clear: The climate is changing. As the world struggles to combat the effects of climate change, the small and growing business (SGB) sector has a vital role to play in developing adaptation solutions. Research shows that climate change hits developing economies the hardest by exacerbating existing inequalities and putting already vulnerable communities at further risk. Since 90% of businesses globally are small businesses, with formalized small businesses contributing up to 40% of GDP in developing economies, it is essential that the SGB sector be at the center of the global fight against climate change.[1]

ANDE carefully reviewed a series recently released reports by the Intergovernmental Panel for Climate Change (IPCC) and found that climate change presents both unique challenges and opportunities for SGBs. These reports include, “Mitigation of Climate Change,” published in April of this year, “Impacts, Adaptation and Vulnerability,” which came out this February, and “The Physical Science Basis,” released in August of 2021. The data shows that SGBs must be a part of the global effort to create necessary climate solutions, but they need support.

Some effects of climate change are irreversible and SGB’s must be involved in mitigation, adaption, and resilience-building efforts. Extreme weather events are far likelier and more severe than ever before. Heavy precipitation or wildfires provoked by drought are pushing entire biomes to a point where they can no longer adapt, and causing destruction and death among communities as seen in Madagascar, Bangladesh, and Brazil.

The fallout of climate change disproportionately impacts already struggling communities in developing economies by “reducing their ability to cope and recover.”[2] Low-income communities become stuck in a vicious cycle of income inequality, lack of resources, rising costs of living, and in some cases conflict and forced migration. The impact on livelihoods posed by extreme weather, including the effects on agricultural productivity and food security, is a serious threat to eradicating extreme poverty and achieving the UN Sustainable Development Goals.

In a world unwilling to take decisive action to lower its dependence on fossil fuels the need for adaptation solutions is more pressing than ever. With every single degree the temperature increases, the effectiveness of these solutions decreases. Adaptation and mitigation must go hand in hand in a self-reinforcing cycle. Communities need to become more resilient and be given a chance to adapt to the changing climate to guarantee their livelihoods wherever possible.

SGBs are uniquely situated to create climate solutions that carry both adaptation and mitigation benefits. For example, wastewater, water, and renewable energy technologies have the highest market share through 2023 for the small business sector, according to a World Bank report.[3]

Source: World Bank Group. 2014. Building Competitive Green Industries: The Climate and Clean Technology Opportunity for Developing Countries.

Distributed Solar PV is a great example of a market that has dramatically expanded over the last ten years, with many SGBs contributing to that expansion by selling pico solar lights and solar home systems.[4] For instance, SELCO, an ANDE member and a solar pioneer offers renewable energy solutions for low income and vulnerable communities in India. They provide tailored solar solutions that support enhanced livelihood opportunities for micro and small businesses, as well as households and larger institutions.

ANDE member, SELCO, at work creating sustainable energy solutions in India.

Agriculture and food systems are also an important part of exploring adaptation and mitigation solutions. Disruptions in climate patterns can negatively affect food supply chains. Additionally, the agricultural sector is also a large emitter of greenhouse gases. Not all agricultural technology provides positive climate outcomes, but climate-smart agriculture is becoming a popular investment sector.

Victoria Msowoya, Founder of Homes Industries in Malawi, trains small farmers on climate smart agriculture and promotes moringa tree planting as a climate friendly income source. Victoria is part of an ANDE project that seeks to strengthen the entrepreneurial ecosystems for women climate entrepreneurs in Sub-Saharan Africa through a partnership with Global Affairs Canada, the Aga Khan Foundation, and World University Service of Canada (WUSC).[5]

Many opportunities for the small business sector are also emerging in ecotourism and agroforestry. This approach to creating climate solutions is what WRI and the Nature Conservancy call “restoration economy,” a “network of businesses, investors, and consumers that engage in economic activity related to restoring land”. Since it is a new activity, there are no estimates of the size of the global market, but in the U.S., it was estimated at $9.5 billion a year in direct economic output per year in 2015, with $15 billion in indirect benefits.

For example, Symbiosis Investimentos is a Brazilian business focused “on planting high-value tropical timber species and restoring permanent protection areas and legal reserves in Brazil’s Atlantic Forest.”[6]  It is important that reforestation businesses like this receive the patient capital they need to sustain their operations until they are able to reach cash flow positivity.

Research shows that climate finance is mostly directed towards mitigation and more finance for adaptation and building resilience is needed. While climate finance has increased in recent years, it has historically been geared towards mitigation. We must recognize that adaptation needs are increasing, and that public financing alone will not suffice. It is important that the private sector redirect finance to fill adaptation gaps while also using a range of financial tools such as “grants, guarantees, equity, concessional debt, market debt, and internal budget allocation as well as savings in households and insurance.”[7] Public-private partnerships are useful mechanisms that can help de-risk investments and ease investor concerns about “real and perceived regulatory, cost and market barriers,”[8] especially in less mature market sectors.

Funder motivations and approaches vary but there is agreement that all financial tools, both public and private, should be leveraged to support green entrepreneurs piloting innovative solutions or introducing existing solutions to untested markets[9]. Climate tech accelerators and incubators are case in point. As recent as 2018 there were only 25 climate tech accelerators and incubators outside OECD countries. There must be a greater focus on the development of incubation and acceleration programs across the Global South. We need an array of green solutions across key priority areas, especially ones that focus on adaptation and building local resilience.

Adaptation solutions are increasing, but more are needed. The IPCC report on adaptation provides a list of adaptation solutions, such as: coastal defense and hardening, sustainable aquaculture and fisheries, improved cropland management, green infrastructure and ecosystem services, and disaster risk management.[10] The report mentions that at least 170 countries have included adaptation goals in climate policies and planning processes. While this focus on adaptation is promising and more adaptation solutions are emerging, the spread remains uneven, and in many cases large adaptation gaps exist.

Source: IPCC, 2022: Summary for Policymakers, “Impacts, Adaptation and Vulnerability”

One of the barriers to creating adaptation solutions is that measuring their impact is more difficult than measuring mitigation. Successful mitigation is measured by the level of greenhouse gases reduced or avoided; whereas there is no single way to determine whether climate risks have been effectively addressed. While more literature is needed to establish that adaptation works as intended, there is consensus that more adaptation finance and solutions are needed.

The benefits of adaptation include, “agricultural productivity, innovation, health and well-being, food security, livelihood, and biodiversity conservation as well as reduction of risks and damages.”[11] Pursuing adaptation solutions is also urgent because a delay in investment can increase costs in the future or render adaptation solutions useless as they become no longer effective. SGBs can play an important role in providing needed adaptation solutions because they understand the local contexts better and represent large portions of the economy in key countries.

Beware of maladaptation. The IPCC warns about the risks of maladaptation, which are measures that do harm even if they do not appear harmful. The report describes several examples, such as building seawalls to protect from flooding that end up destroying coral reefs or suppressing fires in ecosystems that are well adapted to handle them. Maladaptation is dangerous because it locks-in vulnerabilities that are difficult and expensive to change.

Avoid the trade-offs that climate action involves by maximizes synergies. This is particularly relevant in contexts of vulnerability, limited resources, and existing inequalities. Maximizing synergies and avoiding trade-offs requires “giving emphasis to capacity building, finance, governance, technology transfer, investments, and development and social equity considerations with meaningful participation of Indigenous Peoples and vulnerable populations.”[12] SGBs need to be properly resourced and supported to unleash their potential to provide solutions that help communities tackle and adapt to climate change.

As the world prepares for COP27, the SGB sector must come together to elevate small businesses as climate solutions providers, especially in the Global South, and put entrepreneurs front and center in the fight against climate change. Global, national, and local policymakers must resist the urge to lump SGBs within one overarching category of ‘the private or business sector’ and create dedicated spaces for small businesses that are seeking to grow to be heard when outlining climate plans and allocating resources. Funders, donors, investors, and policy makers need to create specific mechanisms to enable climate finance, particularly adaptation finance, to reach and be tailored to the needs of green entrepreneurs working on areas such as clean energy, transportation, energy efficiency in buildings, climate smart agriculture, conservation, and reforestation.

To learn more about the challenges and opportunities that climate change presents the SGB sector, visit andeglobal.org/climate-and-environmental-action.

Keep the conversation going by registering to attend ANDE’s annual conference happening in Leesburg, Virginia September 13-15, 2022.

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To learn more about how ANDE members are tackling the climate crisis, read “Climate Entrepreneurship in Developing Economies: A Look at ANDE Member Support for Climate Entrepreneurship”.

To learn more about climate entrepreneurship and the barriers, needs and trends of the sector, read Climate Entrepreneurship in Developing Economies: Supporting Entrepreneurs Tackling Climate Change”

To learn more about how funders are supporting green entrepreneurship solutions, read “Climate Entrepreneurship in Developing Economies: Funder Perspectives on Approaches, Challenges, and Opportunities”.

[1] “Small and Medium Enterprises (SMEs) Finance”. World Bank, https://www.worldbank.org/en/topic/smefinance

[2] IPCC, 2022: Summary for Policymakers [H.-O. Pörtner, D.C. Roberts, E.S. Poloczanska, K. Mintenbeck, M. Tignor, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem (eds.)]. In: Climate Change 2022: Impacts, Adaptation, and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [H.-O. Pörtner, D.C. Roberts, M. Tignor, E.S. Poloczanska, K. Mintenbeck, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem, B. Rama (eds.)]. Cambridge University Press. In Press.

[3] World Bank Group. 2014. Building Competitive Green Industries: The Climate and Clean Technology Opportunity for Developing Countries. Washington, DC. © World Bank. https://openknowledge.worldbank.org/handle/10986/20684 License: CC BY 3.0 IGO

[4] Oraftik, C., McGregor C., Guttentag M., & Hume, V. (2021, March). Climate Entrepreneurship in Developing Economies: Supporting Entrepreneurs Tackling Climate Change. Aspen Network of Development Entrepreneurs. https://www.andeglobal.org/publication/climate-entrepreneurship-in-developing-economies-a-look-at-ande-member-support-for-climate-entrepreneurship/

[5] Jones, L., Boyer, D., Turner, K., Akite I., Gathecah S., & Mateyo B. (2021). Strategies for Incubators and Accelerators: Strengthening Ecosystems for Women Climate Entrepreneurs in Sub-Saharan Africa. World University Services of Canada.  https://www.andeglobal.org/publication/strategies-for-incubators-and-accelerators-strengthening-ecosystems-for-women-climate-entrepreneurs-in-sub-saharan-africa/

[6] Idem

[7] IPCC, 2022: Summary for Policymakers [H.-O. Pörtner, D.C. Roberts, E.S. Poloczanska, K. Mintenbeck, M. Tignor, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem (eds.)]. In: Climate Change 2022: Impacts, Adaptation, and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [H.-O. Pörtner, D.C. Roberts, M. Tignor, E.S. Poloczanska, K. Mintenbeck, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem, B. Rama (eds.)]. Cambridge University Press. In Press.

[8] Idem.

[9] For more information, read ANDE’s report “Climate Entrepreneurship in Developing Economies: Funder Perspectives on Approaches, Challenges and Opportunities”.

[10] For more information on adaptation solutions you can read the FAQ section of the most recent IPCC report or this piece by Carbon Brief.

[11] IPCC, 2022: Summary for Policymakers [H.-O. Pörtner, D.C. Roberts, E.S. Poloczanska, K. Mintenbeck, M. Tignor, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem (eds.)]. In: Climate Change 2022: Impacts, Adaptation, and Vulnerability. Contribution of Working Group II to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [H.-O. Pörtner, D.C. Roberts, M. Tignor, E.S. Poloczanska, K. Mintenbeck, A. Alegría, M. Craig, S. Langsdorf, S. Löschke, V. Möller, A. Okem, B. Rama (eds.)]. Cambridge University Press. In Press.

[12] IPCC, 2022: Summary for Policymakers. In: Climate Change 2022: Mitigation of Climate Change. Contribution of Working Group III to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change [P.R. Shukla, J. Skea, R. Slade, A. Al Khourdajie, R. van Diemen, D. McCollum, M. Pathak, S. Some, P. Vyas, R. Fradera, M. Belkacemi, A. Hasija, G. Lisboa, S. Luz, J. Malley, (eds.)]. Cambridge University Press, Cambridge, UK and New York, NY, USA. doi: 10.1017/9781009157926.001