he preamble to the Paris Agreement takes into account “the imperatives of a just transition of the workforce and the creation of decent work and quality jobs in accordance with nationally defined development priorities.” At its core, a just transition is about inclusive economic growth that ensures the benefits of the shift to a low-carbon, green economy is equitably shared. In this effort, the private sector is the principal field of action. In the next five years, the global clean energy market is projected to grow to $1.9 billion, offering a critical path from economic crisis to recovery in the wake of the COVID-19 pandemic. In both the near and longer-term, green industries have the potential to help accelerate re-employment, create jobs, and stimulate growth, especially in developing and emerging economies looking to create diversified opportunities for larger numbers of new or returning labor market entrants and small business owners—many of whom will be youth, women, or otherwise disadvantaged workers.
As many as 24 million primarily private sector jobs could be created in the global renewable energy sector by 2030, and 42 million jobs in renewable energy by 2050. The solar sector has the potential to add 20 million jobs to the global economy, while 6 million could be created in the circular economy, and 10 million could be created if at least half of the forthcoming automobile fleet is comprised of electric vehicles. Developing and emerging markets include several of the leaders in employment growth, such as Brazil, India, Bangladesh, Indonesia, and Colombia, but many low-income countries are also growing rapidly. For example, in 2019, employment in decentralized renewable energy solutions—including mini-grids, solar for households and businesses, and systems to power machinery such as irrigation pumps—in India, Kenya, and Nigeria equaled that of the traditional utility power sector and is on pace to quickly surpass it.
Beyond direct jobs created by climate action and green transition in renewables, electric vehicles, waste management, or infrastructure, there is a robust multiplier effect through the indirect creation of jobs in several other sectors such as logistics and supply chains, building, farming and food, and ICT in national, regional and global markets. This dynamic is especially advantageous for lower income countries, where the pace of adaptation, mitigation, infrastructure, private sector development and direct job creation may be comparatively slower. Importantly, these green industries have the potential to be more inclusive than other energy and extractive companies. In 2020, women held roughly a third of renewable jobs for example, compared to only a fifth of fossil fuel sector jobs.
Micro and Small, but Mighty Potential
Within the private sector, micro, small, and medium-sized enterprises (MSMEs)—including small-scale agriculture—are critical actors. They dominate the economic landscape of low- and middle-income economies, accounting for 7 out of 10 jobs. Across developing Asia and Latin America and the Caribbean, they account for an average of 98% of all firms, and 41% and 33% of GDP respectively. In addition, the large informal sector, heavily concentrated in micro and small business which tend to employ a sizeable share of women, youth, or people from other disadvantaged communities, further contributes to the significance of this sector for inclusive growth. Nearly 60% of MSMEs (including agriculture SME) in Africa are owned by women, and in decentralized renewables, for example, it’s estimated there are twice as many informal as formal jobs. Nature-positive services or product value chains and green business models provide fertile ground for entrepreneurship and innovation. At the same time, given the disproportionate impact of COVID-19 on women and youth employment, income-generating MSME growth opportunities that can catalyze women’s work and livelihoods and absorb youth from the labor market should be prioritized in the climate agenda. A late 2020 IFC survey of MSMEs across 13 Sub-Saharan African countries found a higher proportion of women-owned MSMEs lost more than half their revenue and experienced increased costs as a result of the pandemic.
Pandemic-related operating challenges came atop existing supply, demand and information barriers and market failures that MSMEs and small-scale agribusiness in developing countries routinely face—such as managerial capacity, obtaining capital, hiring skilled employees, or navigating administrative processes. In the Middle East and North Africa, SMEs comprise roughly 96% of registered companies, yet they receive just 7% of total bank lending—the lowest level worldwide.
As many as 20 million jobs stemming from the energy transition will require new skills. These challenges can be especially acute in the green sector and compounded by systems level or societal issues that limit inclusion. For example, social-cultural norms may prohibit women’s career choices or entry into “non-traditional” sector enterprise (such as energy or infrastructure), or unbanked or digitally disadvantaged youth are excluded from financing and unable to tap into emerging opportunities in the green gig economy. MSMEs feed innovation in developing economies, yet the UNFCC points out that they receive limited targeted information on instilling more resource efficient and environmentally responsible operations.
Climate Action to Maximize MSMEs in a Just Transition
From emerging evidence and experience, we have learned what MSMEs need to succeed and to be part of the more-just journey to net-zero. For example, dedicated green blended or microfinance, fintech, savings groups or other inclusive instruments that serve the unbanked, uninsured or credit constrained and better mobilize and channel climate funding to them—especially those owned by and employing youth, women, or other disadvantaged populations (including in the informal sector)—are hugely beneficial. Beyond financing, green supply chain integration or simplified certification processes, firm networks or low-emission digital marketplaces, and trade facilitation all can help lower transaction costs for MSMEs in this evolving sector and increase sales, revenue and profits.
To be more innovative and productive, MSMEs also require equitable access to green technologies, adaptation tools, and knowledge resources or inputs, including how to adopt sustainable business models, circular economy or design for environment approaches, or climate-resilient agricultural practices. As in all sectors, MSME owners and operators in green industries need business skills to thrive. However, MSMEs and their employees will also need technical, vocational, and digital competencies relevant to new market demands—from compost coordination to fuel cell maintenance to solar panel installation.
Aligned with SDG8, leaders from the private sector, government, multilateral institutions and civil society gathered in Glasgow for COP26 have a remarkable opportunity to advance an agenda that harnesses the inclusive growth potential of MSMEs and promotes decent work for all, for generations. Getting there will also require meaningfully engaging diverse women, youth climate, agriculture and business stakeholders in policy reforms, initiative design and implementation. International climate financing and development assistance commitments—and timely action—aimed at ensuring lower income countries can sufficiently support MSMEs will be pivotal to realizing a just transition with sustainable, inclusive and resilient green gains.
a global affairs media network
Maximizing Micro and Small Business for a Just Transition
Photo via Unsplash.
November 2, 2021
Green industries have the potential to help accelerate re-employment, create jobs, and stimulate growth, especially in developing and emerging economies looking to create diversified opportunities for larger numbers of new or returning labor market entrants and small business owners.
T
he preamble to the Paris Agreement takes into account “the imperatives of a just transition of the workforce and the creation of decent work and quality jobs in accordance with nationally defined development priorities.” At its core, a just transition is about inclusive economic growth that ensures the benefits of the shift to a low-carbon, green economy is equitably shared. In this effort, the private sector is the principal field of action. In the next five years, the global clean energy market is projected to grow to $1.9 billion, offering a critical path from economic crisis to recovery in the wake of the COVID-19 pandemic. In both the near and longer-term, green industries have the potential to help accelerate re-employment, create jobs, and stimulate growth, especially in developing and emerging economies looking to create diversified opportunities for larger numbers of new or returning labor market entrants and small business owners—many of whom will be youth, women, or otherwise disadvantaged workers.
As many as 24 million primarily private sector jobs could be created in the global renewable energy sector by 2030, and 42 million jobs in renewable energy by 2050. The solar sector has the potential to add 20 million jobs to the global economy, while 6 million could be created in the circular economy, and 10 million could be created if at least half of the forthcoming automobile fleet is comprised of electric vehicles. Developing and emerging markets include several of the leaders in employment growth, such as Brazil, India, Bangladesh, Indonesia, and Colombia, but many low-income countries are also growing rapidly. For example, in 2019, employment in decentralized renewable energy solutions—including mini-grids, solar for households and businesses, and systems to power machinery such as irrigation pumps—in India, Kenya, and Nigeria equaled that of the traditional utility power sector and is on pace to quickly surpass it.
Beyond direct jobs created by climate action and green transition in renewables, electric vehicles, waste management, or infrastructure, there is a robust multiplier effect through the indirect creation of jobs in several other sectors such as logistics and supply chains, building, farming and food, and ICT in national, regional and global markets. This dynamic is especially advantageous for lower income countries, where the pace of adaptation, mitigation, infrastructure, private sector development and direct job creation may be comparatively slower. Importantly, these green industries have the potential to be more inclusive than other energy and extractive companies. In 2020, women held roughly a third of renewable jobs for example, compared to only a fifth of fossil fuel sector jobs.
Micro and Small, but Mighty Potential
Within the private sector, micro, small, and medium-sized enterprises (MSMEs)—including small-scale agriculture—are critical actors. They dominate the economic landscape of low- and middle-income economies, accounting for 7 out of 10 jobs. Across developing Asia and Latin America and the Caribbean, they account for an average of 98% of all firms, and 41% and 33% of GDP respectively. In addition, the large informal sector, heavily concentrated in micro and small business which tend to employ a sizeable share of women, youth, or people from other disadvantaged communities, further contributes to the significance of this sector for inclusive growth. Nearly 60% of MSMEs (including agriculture SME) in Africa are owned by women, and in decentralized renewables, for example, it’s estimated there are twice as many informal as formal jobs. Nature-positive services or product value chains and green business models provide fertile ground for entrepreneurship and innovation. At the same time, given the disproportionate impact of COVID-19 on women and youth employment, income-generating MSME growth opportunities that can catalyze women’s work and livelihoods and absorb youth from the labor market should be prioritized in the climate agenda. A late 2020 IFC survey of MSMEs across 13 Sub-Saharan African countries found a higher proportion of women-owned MSMEs lost more than half their revenue and experienced increased costs as a result of the pandemic.
Pandemic-related operating challenges came atop existing supply, demand and information barriers and market failures that MSMEs and small-scale agribusiness in developing countries routinely face—such as managerial capacity, obtaining capital, hiring skilled employees, or navigating administrative processes. In the Middle East and North Africa, SMEs comprise roughly 96% of registered companies, yet they receive just 7% of total bank lending—the lowest level worldwide.
As many as 20 million jobs stemming from the energy transition will require new skills. These challenges can be especially acute in the green sector and compounded by systems level or societal issues that limit inclusion. For example, social-cultural norms may prohibit women’s career choices or entry into “non-traditional” sector enterprise (such as energy or infrastructure), or unbanked or digitally disadvantaged youth are excluded from financing and unable to tap into emerging opportunities in the green gig economy. MSMEs feed innovation in developing economies, yet the UNFCC points out that they receive limited targeted information on instilling more resource efficient and environmentally responsible operations.
Climate Action to Maximize MSMEs in a Just Transition
From emerging evidence and experience, we have learned what MSMEs need to succeed and to be part of the more-just journey to net-zero. For example, dedicated green blended or microfinance, fintech, savings groups or other inclusive instruments that serve the unbanked, uninsured or credit constrained and better mobilize and channel climate funding to them—especially those owned by and employing youth, women, or other disadvantaged populations (including in the informal sector)—are hugely beneficial. Beyond financing, green supply chain integration or simplified certification processes, firm networks or low-emission digital marketplaces, and trade facilitation all can help lower transaction costs for MSMEs in this evolving sector and increase sales, revenue and profits.
To be more innovative and productive, MSMEs also require equitable access to green technologies, adaptation tools, and knowledge resources or inputs, including how to adopt sustainable business models, circular economy or design for environment approaches, or climate-resilient agricultural practices. As in all sectors, MSME owners and operators in green industries need business skills to thrive. However, MSMEs and their employees will also need technical, vocational, and digital competencies relevant to new market demands—from compost coordination to fuel cell maintenance to solar panel installation.
Aligned with SDG8, leaders from the private sector, government, multilateral institutions and civil society gathered in Glasgow for COP26 have a remarkable opportunity to advance an agenda that harnesses the inclusive growth potential of MSMEs and promotes decent work for all, for generations. Getting there will also require meaningfully engaging diverse women, youth climate, agriculture and business stakeholders in policy reforms, initiative design and implementation. International climate financing and development assistance commitments—and timely action—aimed at ensuring lower income countries can sufficiently support MSMEs will be pivotal to realizing a just transition with sustainable, inclusive and resilient green gains.
