Local Green Enterprises – Zero Draft

POVERTY-ENVIRONMENT PARTNERSHIP (PEP)

PEP Working Paper

Local Green Enterprises

Scaling up integrated poverty-environment-climate solutions for the SDGs

Towards a global action agenda

Prepared by:

Chitrangna Dewan

Kanika Verma

Leon Sra

Peter Hazlewood

Shrashtant Patara

Zeenat Niazi

Zero Draft

June 2017

1. Introduction

Global agreement to new universal Sustainable Development Goals (SDGs), the Addis Ababa Action Agenda on Financing for Development (FfD), and the Paris Agreement on Climate Change have reshaped the global development agenda—creating breakthrough opportunities for transforming development policy and practice and achieving sustainable development for all. The Poverty-Environment Partnership (PEP) believes a new and universal poverty-environment-climate (p-e-c) agenda of “zero extreme poverty, zero net loss of natural assets and zero net climate emissions” can unify the ambition of these landmark agreements in ways that leverage synergies, leave no one behind, and ensure sustainability.[1]

PEP members have identified three priority areas for joint work to help jump-start integrated and inclusive approaches to SDG implementation and the p-e-c ‘getting to zero’ agenda:

  • Poverty, environment and climate mainstreaming for the SDGs. Assessing country readiness and measuring success; and p-e-c mainstreaming approaches towards building more integrated institutions (organizations, rules, mechanisms).
  • Poverty, environment and climate local solutions for the SDGs. Assessing key success factors and supportive enabling conditions needed to unleash and scale up local green enterprise innovations and impact—including the roles of local support organizations, governments, the private sector and development partners.
  • Poverty, environment and climate finance for the SDGs. Enhancing finance access, coherence and effectiveness—including public and private and domestic and international sources.

This working paper focuses on the second area and aims to lay the analytical groundwork for a broader effort to develop and mobilize support for a global action agenda on scaling up local green enterprise (LGE) solutions for the SDGs.[2] The working paper builds on earlier PEP discussion and analysis on local organizations and the need to more effectively support and scale up local solutions to poverty, environment and climate challenges. The main objectives of the paper are to:

  • Assess the transformative potential of LGEs to deliver integrated poverty-environment-climate solutions and accelerate the transition to an inclusive and resilient [rural] green economy;
  • Identify key barriers to LGE development and scaling, and a theory of change for unlocking the transformative potential of LGEs;
  • Put forward a framework for a global action agenda to better support and more effectively scale up LGE solutions for the SDGs.

2. Local Green Enterprises – Delivering Integrated Solutions for the SDGs

Bold new approaches are needed to meet the global challenge of overcoming [rural] poverty and achieving the SDGs in the face of growing threats from ecosystem decline and climate change. A significant body of research and practical experience demonstrates the transformative potential of LGEs to generate a mix of economic, social and environmental benefits, and deliver the integrated solutions needed to meet today’s rural development challenges and accelerate the transition to inclusive and resilient [rural] green economies.[3]

Micro, small and medium-sized enterprises

The development of LGEs is crucial for emerging economies, as inequitable and jobless growth continues to be a critical development challenge in these regions. A World Bank Group study suggests there are between 365-445 million micro, small and medium-sized enterprises in emerging markets: 25-30 million are formal small and medium enterprises; 55-70 million are formal micro enterprises; and 285-345 million are informal enterprises.

Formal SMEs contribute up to 60% of total employment and up to 40% of national income (GDP) in emerging economies. These numbers are significantly higher when informal SMEs are included. In emerging markets, most formal jobs are generated by SMEs, which also create 4 out of 5 new positions. [4]

In India, there are 46 million MSMEs, out of which 94% units are informal. MSMEs contribute to 45% of India’s manufacturing output and employ close to 40% of India’s workforce.[5]

Micro, small and medium-sized enterprises have a key role to play in transition and developing countries and are a key instrument in poverty reduction efforts (see box 1). They typically account for more than 90% of all firms outside the agricultural sector, constitute a major source of livelihoods and employment, and generate significant domestic and export earnings. The Asian Development Bank finds that in Asia micro-enterprises (both within and outside micro-credit programs) account for more than 60% of all enterprises and up to 50% of paid employment. Being closer to the natural environment and with limited access to resources compared to larger corporations, local enterprises tend to focus more on environmental protection in their approach to sustainability. <Supporting graphs to be added>

Local green enterprises can be engines of inclusive growth that boost rural job creation, strengthen local capacities, and fuel sustainable rural development. Below are two case studies from India on how LGEs are managing ecosystems, reducing virgin material use, creating jobs and contributing to economic development.



<Case study examples from other regions to be added>

3. Unlocking the Transformative Potential of Local Green Enterprises

<This section relies primarily on data from India. The analysis will be broadened to make it more applicable to other developing country contexts>

A key measure of successful p-e-c mainstreaming will be empowering local green enterprises to innovate, replicate and scale local solutions to environmental decline, climate change and [rural] poverty. Investments need to reach local economies where resources are scarcest and where there are big risks to the SDGs not being achieved. Particularly important is the need to more systematically support formal and informal enterprises of the poor engaged in agriculture, forestry, fisheries, renewable energy, water and sanitation, waste management and other sustainable production and service sectors.

Unlocking this potential calls for concerted action to address the significant barriers to catalyzing LGE innovation and growth; to create the enabling conditions for scaling up successful LGE innovations and business models; and to build the sustainability and resilience of the LGE sector itself as part of ongoing efforts to address ecosystem decline and climate change.

LGEs in emerging economies face a range of systemic barriers at micro, meso and macro levels that limit their development and potential to scale. Some critical barriers include:

  • Limited capacities, knowledge and business skills of entrepreneurs: There is increasing evidence that despite the presence of entrepreneurial skills, poor access to training systems and low ability to take risks minimizes entrepreneurship development. In India only 22% of aspiring entrepreneurs who plan to start business have access to formal or informal training in India, against an Asia average of 44%.[6] Moreover, support agencies fail to comprehensively approach the drivers and lifecycle of enterprise development. A large number of entrepreneurs are not aware of or weakly connected to support service providers (training institutions, micro-credit organizations, business platforms, and government departments).
  • Poor access to markets, finance and other key business inputs: Growth of MSMEs globally is often hindered by restricted access to key drivers for enterprise development—credit, technology and markets. In India, 22% of entrepreneurs have a low-tech base resulting in low productivity and competitiveness[7] and over 32% of enterprises have inadequate market linkages[8] leading to unsuitable management of irregular revenue cycles. In the case of finance, only 5% of enterprises have access to formal finance[9]as banks view MSEs as risky investments.
  • Lack of a robust support ecosystem: Poor infrastructure and inadequate market support systems are among key factors that constrain the growth of the sector in developing and emerging economies. Government entities and service providers often are restricted in their outreach and nature of support services to micro and small businesses. Inadequate regulatory support with limited outreach and function is primarily the root cause to the problem. Moreover, enterprise support service providers often do not engage with one another to mutually support business development. Civil society organizations have made progress in promoting green and inclusive micro and small enterprises, but typically have limited ability and capacity to support their development at scale due to the lack of a business orientation, inadequate financial resources to provide post-commissioning support and other factors. This is detailed in Figure 1 below.



4. Towards a Global Action Agenda

This time of challenge for rural communities is also a time of opportunity. Local level solutions to managing ecosystems have shown great promise in increasing the ability of communities to generate new economic options, meet environmental threats and adapt to climate change.Instead of being just a “successful” economy, we need to move towards building an inclusive and resilient rural green economy – one that creates decent (green job) employment opportunities, produces green products and services with equitable distribution and sustainable consumption leading to regeneration of the environment, and is resilient to the impacts of climate change.

Tackling the barriers to LGE development and growth requires a more comprehensive, coordinated and multi-stakeholder effort—going beyond the conventional project-by-project approach to adopt a more integrated programmatic strategy at national and sub-national levels to foster the enabling conditions necessary for local green enterprise solutions to achieve significant scale and impact. This means effectively channeling resources and developing capacity at the local level, combined with supportive policy and institutional reforms at higher levels.

Drawing on the significant record of case studies, analytical research and on-the-ground experiences compiled over the years on local enterprise development—and community-driven development more broadly—elements of a programmatic approach could include:

  • Forging an enabling policy environment. A targeted policy reform agenda that identifies the most urgent policy shifts and fiscal reforms necessary to support local enterprise development and promote scaling—such as tenure or regulatory reform—and charts a staged strategy to achieve these reforms.
  • Ensuring equitable access to finance. A national/central finance platform that enhances local access to the various available sources and forms of domestic (public/private) and international finance in a more coherent and integrated manner, including environmental finance (such as payments for ecosystem services; environmental fiscal reform; green commodity supply chains) and climate finance (such as REDD+; community and ecosystem-based adaptation).
  • Building local capacity and providing support services. A clearinghouse for support services to ensure that these services—including capacity development—are accessible and coordinated.
  • Facilitating learning and knowledge sharing. Targeted research, monitoring and analysis to better quantify the benefits of local enterprise solutions, to measure performance and ensure accountability, and to better understand what works and why; nature of support services that improve quality of enterprises, measures for conforming to enterprise solutions; and coordination and support of communication and knowledge exchange platforms to maximize interconnection and speed the learning cycle of best practices

Action from many different quarters will be necessary:

  • Governments that empower local communities by continuing the responsible devolution of resource rights and responsibilities to the local level and by emphasizing the role of government agencies in supporting and developing local capacities
  • Donors and international development agencies that build local approaches into their efforts to increase aid effectiveness, and directly contribute to scaling by emphasizing knowledge-sharing efforts and South-South exchanges, recognizing the need to connect local initiatives to each other and to sources of policy and financial support.
  • The NGO community—and especially NGOs that function as intermediary support organizations—that act as a bridge between local enterprises, government, and international organizations, essentially localizing the capacity building and support services that LGEs need.
  • Private sector actors that provide new business models (for example, business that work with LGEs in their value chain) suitable for small social and environmental enterprises, and reconfigure value chains and markets so that these small businesses can succeed.


References and Additional Reading

  1. Anbumozhi, V.,C.Bak, J.Ruetand E.Verdolini. 2017. Innovative green-technology SMEs as an opportunity to promote financial de-risking. G20 Policy Brief.
  2. Creech, H., L. Paas, G.Huppé, V. Voora, C.Hybsier and H.Marquard.2014. “Small-scale social-environmental enterprises in the green economy: supporting grassroots innovation.”Development in Practice. Vol. 24, Issue 3.
  3. Hazlewood, P. and G. Mock. 2011. Enabling Local Success: A Primer on Mainstreaming Local Ecosystem-Based Solutions to Poverty-Environment Challenges. Prepared for the UNDP-UNEP Poverty-Environment Initiative.Nairobi: UNEP.
  4. DFID (UK Department for International Development), European Commission, United Nations Development Programme andWorld Bank. 2002. Linking Poverty Reduction and Environmental Management – Policy Challenges and Opportunities. Washington, DC: World Bank.
  5. OECD (Organization for Economic Co-Operation and Development). 2012. Green Growth and Developing Countries A Summary for Policy Makers.
  6. Hazlewood, P. and G. Mock. 2010. Ecosystems, Climate Change and the Millennium Development Goals (MDGs): Scaling Up Local Solutions. Draft Working Paper
  7. WRI (World Resources Institute) in collaboration with United Nations Development Programme, United Nations Environment Programme and World Bank. 2008. A Guide to World Resources 2008: Roots of Resilience-Growing the Wealth of the Poor. Washington, DC: WRI.
  8. IFC (International Finance Corporation). 2011. Telling Our Story—SMEs Small & Medium Enterprises. Vol. 5: Issue 1.
  9. Shahidullah, A.K.M. and C. EmdadHaque. 2014.Environmental Orientation of Small Enterprises: Can Microcredit-Assisted Microenterprises be “Green”?Natural Resources Institute, Sustainability 2014, 6, 3232-3251; doi:10.3390/su6063232
  10. Smeaton, D.,M. Hudson and M. Deranyigala. 2011. Impact of BIG Funding of Community Enterprise Overseas. Policy Studies Institute and School of Oriental and African Studies.
  11. Seed Initiative. 2012. Three Year Investigation into the Triple Bottom Line Performance of Small and Micro Social and Environmental Enterprises in Developing Countries.
  12. OECD (Organization for Economic Co-Operation and Development). 2004. Promoting Entrepreneurship and Innovative SMEs in A Global Economy: Towards a More Responsible and Inclusive Globalization.
  13. Yu,D and Tandon Y. 2012. India's Big Problem: Nurturing Entrepreneurs : Gallup Business Journal: August Edition.

1

[1] Poverty-Environment Partnership. 2016. Getting to Zero: A Poverty, Environment and Climate ‘Call to Action’ for the SDGs, available at:

[2]Encompassing formal and informal micro and small enterprises engaged in sustainable agriculture, forestry and fisheries; renewable energy; sustainable water and sanitation; and other sustainable production and service sectors.

[3] Seed Initiative. 2012. Three Year Investigation into the Triple Bottom Line Performance of Small and Micro Social and Environmental Enterprises in Developing Countries. Available on

[4] World Bank. 2015. Small and Medium Enterprises (SMEs) Finance. Brief on Understanding Poverty

[5] Ministry of Micro, Small, and Medium Enterprises, Government of India. 2015.

[6] Yu,D and Tandon Y. 2012. India's Big Problem: Nurturing Entrepreneurs : Gallup Business Journal: August Edition

[7]Yu,D and Tandon Y. 2012. India's Big Problem: Nurturing Entrepreneurs : Gallup Business Journal: August Edition

[8]International Finance Cooperation. 2012 Micro Small and Medium Enterprise Finance Market in India

[9]International Finance Cooperation. 2012 Micro Small and Medium Enterprise Finance Market in India