A fruit vendor hand overs her customer's order at a traditional market in Jakarta on 23 April 2022. (Photo: Bay Ismoyo / AFP)

Small Business and Climate Change: The Last Frontier?

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Helping the world’s smallest businesses to deal with climate change might hold the key to a complete solution for global warming.

Nine months after COP-26, global warming is still proceeding apace despite so many good intentions. Communities, non-profit groups, governments and businesses have all signed on to do their bit, even though quick-fix solutions appear hard to find. Whilst Europe and parts of North America literally continue to burn, we are still working to find the best mix of tools to deal with this clear and present danger.

Yet the last frontier of climate change may be one of the most difficult to surmount. One key piece is still missing from the myriad proposals: the world’s smallest businesses.

Until we include these “micro-enterprises” in the proposed measures to deal with climate change, we will not have a complete solution.

Over 100 million tiny businesses globally employ hundreds of millions of people.  From so-called “micro-enterprises” employing two or three people to self-employed individuals and many informal sector firms, they are a major part of the global economy and regularly overlooked in discussions on climate change.

In Southeast Asia alone, there are more than 70 million such micro-, small and medium-sized enterprises (MSMEs or SMEs), employing over 200 million people.

Most of the region’s and the world’s efforts to help businesses deal with climate change are focused on medium- and large-sized firms. For instance, plenty of structures have been created to help big businesses, such as Climate Action 100+, We Mean Business, Race to Zero, and many more.

At first glance, this focus makes sense. Larger firms are easier to identify, reach, and regulate, and it is easier to publicise whatever outcomes they achieve. However, they are not the only ones that matter. In many countries, large firms represent only a minority of economic activity; MSMEs and SMEs are the more significant forms of business.

Researchers are only starting to understand these smallest of firms, traditionally a poorly researched area. Existing research is limited and overwhelmingly qualitative, based on small samples. This has given us insights into the individual experiences of SME operators but makes it difficult to identify broad behavioural patterns. Nevertheless, some trends repeat across the globe. Researchers have shown that MSME owners are typically quite personally concerned about climate change but largely still passive in their actions to adapt to or overcome climate challenges. They are happy to adopt simple low-cost mechanisms to reduce their emissions, but often find themselves flummoxed by the lack of accessible information and funds. Most remain reactive to extreme weather events, rather than take steps to proactively prepare for future disaster.

Scholars are only beginning to measure the effect of such firms on the climate. Most estimates have been broad guesses, but some recent calculations suggest that even the simplest form of enterprise – a home-based, solo worker in Southeast Asia, for instance — will generate at least 0.145 tonnes of CO2 (tCO2) greenhouse gases per annum. Combined, these emissions account for 29.7 MtCO2 annually (just under 2% of all emissions). It means the SME sector in the region as a whole is already producing more greenhouse gases than the total annual national emissions of small countries like Brunei or Cambodia, at levels close to that of Laos.  

It means the SME sector in the region as a whole is already producing more greenhouse gases than the total annual national emissions of small countries like Brunei or Cambodia, at levels close to that of Laos. 

Some of the tools that could help these firms successfully transition to a green economy are finally becoming clearer, although the research evidence is still inadequate. Access to finance and the provision of simple, effective advice emerge consistently as the most important tools for such small businesses. Business associations and chambers, as well as business peers and personal networks, have shown themselves to be powerful transmitters of useful advice that is most trusted by MSME operators. As different industries generate emissions in different ways, sectoral solutions will also be important. Change may be easiest to implement amongst firms that are part of interlinked distribution channels, such as international supply chains or franchising systems.

Barriers remain. There are sometimes significant variations between firms depending on their national, linguistic and cultural background and industry sector. Lack of digital access can impede the effective diffusion of information. Businesses in rural and regional communities are often hard to reach. Very small firms can be excluded from government consultations, research and assistance programmes, as most business associations tend to be dominated by larger firms.

Perhaps the biggest challenges lie in the informal sector. As ASEAN has recently noted, Southeast Asia has one of the world’s highest proportion of informal workers, most of whom are found in self-employment or small informal firms. Outside of the reach of regulators and administrators and sometimes engaged in “dirty” industries that fail to meet environmental standards, the true size of this group is unknown and hard to educate and assist.

Are MSMEs too small to matter? In the fight against climate change, every step, no matter how small, will contribute to the cumulative solution. Persuading a hundred million business operators to switch to LED lighting might do more than we expect. After all, it’s the little things that count.

2022/228

Michael Schaper is Adjunct Professor with the John Curtin Institute of Public Policy at Curtin University in Western Australia.


Sharon Seah is Senior Fellow and Coordinator at the ASEAN Studies Centre, ISEAS – Yusof Ishak Institute.