Translating Climate Finance into Climate Action on the Ground

Small- and medium-sized enterprises in emerging economies are key to achieving the Paris Agreement goals. In order to fulfil their role, they need financial support. This report identifies gaps in climate finance by reviewing climate finance projects and the contributions of SMEs to climate action. It provides climate finance practitioners, policy-makers and local financial institutions with tangible recommendations on unlocking the potential of these SMEs.

Accounting for over 35% of GDP contributions in emerging markets and around 50 % of global employment, small- and medium-sized enterprises (SMEs) are fundamental economic actors. Besides that, they are also at the forefront of climate change in several ways. In part, SMEs are vulnerable to the effects of climate change due to their more limited access to resources and capacities to adapt. Simultaneously, many SMEs in emerging markets and developing countries have proven their transformative capacities to adopt and innovate in order to enable communities to better adapt to and mitigate the adverse impacts of climate change.

Gaps in Financing Climate Action

There is a growing commitment to financing SMEs through climate finance flows. Notably the Green Climate Fund and the Global Environmental Facility – both international mechanisms to finance climate actions in emerging and developing countries. Bilateral and multilateral organisations, donors and private institutions are also committed to provide large-scale-capital to SMEs for climate action. But there are gaps in current climate finance flows. These gaps in climate finance include:

• A lack of fund allocation and project volumes dedicated to SMEs within climate finance flows
• Limited acknowledgement of the key climate mitigation roles played by SMEs beyond those in the agriculture sector
• An underrepresentation of local financial institutions such as microfinance institutions as climate finance recipient institutions for the effective and efficient delivery of capital to SMEs

What does the report offer?

The identification of key gaps in climate finance is based on a comprehensive review not only of current climate finance projects, but also of the contributions of SMEs to climate action. It draws on nearly twenty years of SEED experience in providing incubation and acceleration programmes for enterprises that are socially inclusive and environmentally sustainable. It also draws on insights and good practices from the interrelated spheres of SME finance and green finance.