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Adapting from the Ground Up

Enabling Small Businesses in Developing Countries to Adapt to Climate Change

by Lisa Dougherty-Choux, Pieter Terpstra, Srilata Kammila and Pradeep Kurukulasuriya - December 2015

Small businesses are critical yet often overlooked players in climate change adaptation. This report offers specific policy interventions for policymakers, climate finance providers, and large corporations to engage small businesses in adaptation efforts, enabling them to build their own resilience as well as the resilience of their communities.

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Key Findings

Small businesses are well positioned to build resilience to climate change. They are embedded in communities and have exceptional ability to reach the world’s most vulnerable populations.

  • Small businesses are the key to sustainable development and building resilient communities because nearly 60% of employment in developing countries rely on small businesses.
  • In the developing world, many small businesses work in agriculture, which is especially vulnerable to climate change because of floods and droughts.
  • If small businesses are more resilient, then the communities that rely on them are better able to recover from floods, storms, droughts and other extreme events.

Governments have practical, low-cost options for engaging small businesses to adapt to climate change.  This report outlines six steps decision-makers can use to select the policy options that will work for their business community.  The six steps are:

  1. Engage stakeholders
  2. Prioritize vulnerable sectors
  3. Identify drivers to invest in adaptation
  4. Identify barriers preventing investment in adaptation
  5. Design interventions to catalyze MSE investment in adaptation
  6. Implement and scale up 

The report also offers a menu of interventions that policy makers can choose from to help small businesses build resilience.  The menu includes, among others:

  • Programs to provide businesses with relevant climate risk information
  • Technical assistance and training on managing climate risk
  • Regulatory and fiscal incentives to stimulate risk reduction
  • Subsidies and tax relief
  • Research and development or pilots on climate-related products and services
  • Public spending on infrastructure
  • Incentives or support for partnerships and cooperatives
  • Public risk transfer or risk compensation instruments

Recommendations

Developing country governments should:

  • Maintain the development paths of their countries by supporting the resilience of vulnerable communities, including by building up innovation
  • Develop policies, processes, and activities to engage MSEs in their countries’ adaptation planning, while making sure to:
    • Be inclusive and transparent with national adaptation planning
    • Involve the private sector, especially MSEs and their investors and regulators, from the beginning
  • Educate MSEs about climate risks and about the potential assistance they can receive from public institutions with the support of policymakers
  • Work with multilateral development banks and NGOs with the capacity to provide support and knowledge, in order to:
    • Encourage multinational corporations, financial institutions, and investors to engage MSEs
    • Delegate responsibility to the city and local levels, where public officials have more direct contact with MSEs

Large private sector actors should:

  • Support MSEs in the supply chain by providing financing and technical assistance to strengthen their resilience
  • Provide MSEs in low-income countries with better access to finance for adaptation efforts
  • Form strong partnerships with public actors to effectively scale up adaptation efforts, given proper planning, implementation, and monitoring

Multilateral and bilateral partners should:

  • Provide financial and technical support for national
  • Act as knowledge banks and facilitate the transfer of information about successful business practices, initiatives, and pilots to other appropriate contexts
  • Support the process of catalyzing engagement in adaptation by ensuring market access for products developed by MSEs in developing countries.
  • Work with their own companies that operate in developing countries and provide financial incentives for them to invest in building resilience of small-scale suppliers in their supply chain
  • Serve as communicators to inform the global community about the multiplier effect of investing in MSEs for climate change adaptation

Special climate funds should:

  • Play a catalyzing role by funding programs for MSEs
  • Act as matchmaker and clearing house for private sector adaptation ideas
  • Support and complement national efforts by creating regional or national networks that:
    • Help MSEs develop product ideas into bankable projects
    • Support capacity development for implementation
    • Link businesses to possible investors

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