Are SMEs left behind in a just transition?

In the lead up to the UN Climate Action Summit and the UN General Assembly in September in New York, IOE takes a look at how a just transition may be more aspirational than achievable for small and medium enterprises without additional support.

As the hurricane season gets off to a tragic start in the North Atlantic, the climate agenda takes centre stage in the US presidential elections. Farther afield youth activist movements across the globe are urging governments to act to reverse climate change, the raging Amazon fires are also catalysing worldwide public outcry for action and heat waves and record temperatures are hammering the point home on the impact of climate change in a very relatable way.

Amid these developments and the mounting pressure to reverse current climate-related trends in an accelerated manner, the concept of a just transition is consolidating as an overarching framework for tackling climate change and achieving sustainable development through a socially just and acceptable process (for a good historic overview of the concept see here). Investors and investment institutions are also starting to heed this agenda and detailed guidance is already being produced to make sure the just transition becomes a reality through appropriate investment.

The just transition offers the tantalizing promise of achieving economic gains through protecting the environment and reducing climate change all the while ensuring workers and companies are sufficiently protected in this transition. The concept has been officially included in the Paris Agreement on climate change as an important principle. It gained traction and several years later over 50 member States expressed their commitment to a just transition in the Silesia Declaration at COP24 in Katowice.

It is quite a broad concept with many stakeholders using it through different lenses and as such doesn’t have a single, fixed definition; rather it is seen as not “a fixed set of rules, but a vision and a process based on dialogue and an agenda shared by business, workers, and governments that need to be negotiated and implemented in their geographical, political, cultural and social contexts” according to the IISD.

It is supposed to be implemented through guiding principles; when dealing with employment aspects of “just transitions”, the International Labour Organization's guidelines for a just transition are often used in this context and seen as legitimate due to the tripartite consensus that produced them. However, it is definitely not an easy task; while progress is mounting and many actors are pledging action, committing resources and outlining principles there are some that are pointing to cracks in the system (see here, here and here).

However, it is very often forgotten that “just transition” applies not only to those large multinational corporations; the just transition is above all about the small players, the small and medium enterprises (SMEs) who struggle to adapt -­ without help, incentives and support.

IOE believes that not enough focus is being placed on SMEs in the just transition and the conversion to sustainability. SMEs account for about 90% of all businesses. According to the World Bank, SMEs contribute significantly to GDP and play a crucial role in creating employment. Formal SMEs contribute up to 45% of total employment and up to 33% of GDP in emerging economies (source). They are the world’s economic heart. Therefore, much more ambition is required on setting up the institutional arrangements and enabling environments to make sure SMEs can also adapt and thrive.

International action to support SMEs

The ILO is aware of their importance in the economic fabric; it is working on creating a framework for increased support to SMEs. Some key points and recommendations are outlined in an ILC 2015 document produced by the Committee on SMEs and Employment Creation. Several obstacles exist for SMEs and these are often informational, financial and/or institutional. The OECD also recognizes the importance of SMEs in attaining the SDGs and their key role in the just transition; its SME Policy Index tracks policy frameworks and explicit support for SMEs with a dedicated dimension for environmental policies.

A crucial component of success in the just transition of SMEs is capacity building; governments and civil society actors need to do their utmost to provide the appropriate framework, incentives and capacity building for SMEs in order to ensure they can thrive through the transition. Some evidence so far points to SMEs struggling to implement any measures, which makes sense considering the difficult economic environment of many local contexts and the realities of a small business. A 2010 survey of North American and European found that “one-third of smaller companies have a defined sustainability strategy, and a further 23% intend to develop one in the next two years”. Access to finance is often assessed as the most significant barrier and considerable analysis has already been published on the state of this issue (an excellent example with a wealth of information is ITC’s SME Competitiveness Outlook).

However, data for ongoing efforts and actual progress and actions SMEs are performing worldwide is lacking. There are many case studies and individual examples but aggregate statistics relating to SDGs in particular is scarce. Nevertheless, the ASEAN region is deploying exemplary efforts to support SMEs in making a “just transition”. One highlight is Singapore: more than 100,000 SMEs, 70% of the country’s total SMEs, use business support programmes organised by the governmental enterprise development agency and centres. The Singaporean government has developed a national plan on green growth - the Sustainable Singapore Blueprint 2015 – that includes the environmental impact of SMEs. Another success story and a practical example of how SMEs can be assisted is that of incubators and business accelerators in Africa; they provide funding, business advice and follow-up, training and have contributed to a growing and vibrant start-up and SME environment in Africa.

IOE has been working on these issues for a long time and has provided business inputs and perspectives for the ILO’s just transition Guidelines (Employers’ participants can be seen at the end of the document); this is reflected in the many points of the document mentioning the importance of SMEs, an enabling environment for business, and the role that the private sector can play.

Furthermore, IOE has also provided inputs to the UNFCCC technical paper on a just transition; many of the points in those inputs still stand today. Finally, IOE is at the origin of the Bahrain Declaration which calls for government action to support the transition to sustainable enterprises and has recently released, along with ITUC, a joint call to governments for accelerated action on SDGs.

Ahead of the UN Climate Action Summit we need to make sure that dialogue around just transition focuses more on supporting the small and medium-sized enterprises of everyday life which make up the bulk of the world’s economy and how we can make them more resilient, aware of the necessary changes and ready and able to take on the challenge.

IOE address

71 Avenue Louis-Casaï
1216 Cointrin
Geneva, Switzerland

T: +41 22 929 00 00
F: +41 22 929 00 01