Small businesses are critical yet often overlooked players in climate change adaptation. A new report from WRI and UNDP, Adapting from the Ground Up, 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.

The consequences of a warming planet are already being felt by communities around the world, especially poor and vulnerable populations living in developing countries. Mobilizing financial support to boost adaptation among those already, and soon to be, suffering from climate change is a major goal for the countries negotiating a binding international agreement at the COP21 climate summit. UNEP estimates the gap between available resources and those needed to be $115 billion. Public funding will likely address a large part of this need, but ultimately, filling this gap will require involvement of businesses.

Harnessing the private sector’s role in developing countries can help communities become resilient to climate change. In most countries, the private sector generates more than 60 percent of gross domestic product, and micro and small enterprises (MSEs) in developing countries provide around 60 percent of all jobs. Many of these jobs are in the agriculture sector, which is especially vulnerable to extreme weather changes. Moreover, since billions of people rely on MSEs for their livelihoods, supporting this economic segment is crucial to help communities adapt to climate change.

This report highlights creative, low-cost and sustainable actions national governments, donors and others can take to engage MSEs in poor, rural areas and increase investment in adaptation.

Taking six steps can help boost the resiliency of MSEs:

1. Business-relevant climate information and risk analysis

MSEs typically lack adequate resources to access information needed to guide their decision-making under new climate conditions, but targeted weather and climate information can help them understand particular business risks and opportunities. For example, businesses in rural communities can benefit greatly from early warning systems. In Cambodia, 52 villages including 11,073 households started receiving timely weather forecasts to help them cope with extreme events, enabling them to better plan for extreme weather and to change farming practices to increase and protect their yields.

2. Technical assistance and training

The public sector can help MSEs through sharing information, conducting research and development, and building skills to understand adaptation options that help their businesses become more resilient. In Tanzania, BBC Media Action partnered with local radio stations to broadcast talks on program management and climate-smart agricultural planning. BBC’s research shows that many people have taken action as a result of listening to the broadcasts, improving their livelihoods as a result.

3. Government policies enabling adaptation investments

Governments can integrate adaptation into their development planning across agencies to conserve resources, improve productivity, and strengthen community resilience, with far-ranging impacts for MSEs across countries. To ensure climate change is tackled across multiple sectors, the Government of Rwanda designed a National Strategy for Climate Change and Low Carbon Development incorporating the country’s climate change development projects and policies into one document to guide resilience-building. This integrated approach can benefit MSEs through infrastructure, government programs, and other national or regional adaptation projects supporting the private sector.

4. Market and business development

MSEs have the opportunity to provide products and services to meet consumer demand in a changing climate.  Finding and producing products and services that help consumers build resilience, plus finding ways to better access new markets in general, can greatly help MSEs become more resilient and prosperous. In Tajikistan, local farmers received support from the United Nations to plant climate-resilient Tajik fruit species in a nursery. They then sold seedlings of these species at local markets and fairs. The farmers became very successful and built a great reputation for selling sustainable and well-adapted fruit species in the region. 

5. Partnerships and cooperatives

Partnering with other businesses or public entities is a cost-effective way for MSEs to overcome having limited resources to invest in adaptation. This can enable them to pool resources and funding and to self-insure against weather-related shocks. In Nepal, members of the Garima Farmers’ Cooperative expanded their variety of crops that grow well in shortened seasons. They then developed a saving mechanism to invest in other products to further diversify their incomes.

6. Financial instruments

A lack of available financing options is the biggest barrier facing MSEs trying to invest in adaptation. However, more and more options are becoming available to provide low-risk financial instruments and support MSE adaptation investment, including insurance, loans and seed capital. The African Risk Capacity, for example, is an agency within the African Union using weather data to estimate how many people will be affected by a poor harvest due to weather. These people receive a payout to help them bounce back.

MSEs must adapt to climate change for developing countries to become more resilient, but part of this change needs to come from public support. The success of COP21 depends not only on the high-level agreement among negotiating parties, but also on the implementation of this agreement on the ground, and how well it serves and engages MSEs. By learning from the successes highlighted in Adapting from the Ground Up, all sides of the equation can efficiently adapt to a changing climate.

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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

» Adapting from the Ground Up: Enabling Small Businesses in Developing Countries to Adapt to Climate Change (PDF, 6.18 MB)