3 ways we can help small business drive climate-smart inclusive growth

It’s too early to understand the long-term economic impact from Hurricane Helene’s devastating drive through Florida, Georgia and North Carolina in September, but the impacts of Hurricane Harvey provide some troubling clues.

In 2017, Harvey spawned catastrophic flooding in Houston, Texas, damaging or destroying more than 200,000 homes and businesses. A survey of affected businesses along the Texas Gulf Coast found that 90% were still losing revenue a year later due to employee disruptions, lower demand, utility outages and supply chain issues. For businesses in the areas hit the hardest, the storm increased delinquent credit balances by 86% compared to their pre-Harvey levels.

Small businesses play an outsized role in driving economic output on the local and global levels — they represent 90% of all businesses, generate more than half of global gross domestic product and employ as much as 70% of the world’s workforce. But with smaller margins and fewer resources than larger companies, they are far more vulnerable to climate shocks. We must reduce the climate risks facing smaller enterprises — but we can also accelerate their ability to deliver climate solutions and play a central role in the transition to a low-carbon, regenerative economy.

In fact, smaller businesses have the opportunity to think big about their potential contributions to the climate transition. As a significant portion of large corporations’ supply chains, they can play a major part in addressing today’s sustainability and social challenges and scaling solutions. Adopting greenhouse gas reporting and climate mitigation strategies in their operations can help them retain, expand or attract new corporate buyers seeking to reduce their supply chain emissions.

But they can’t do it alone. A 2023 survey by the SME Climate Hub, which focuses on enterprises under 500 employees, found that 41% of small and medium-size enterprises are taking action on climate, but “are struggling with insufficient finance and knowledge to cut emissions as fast as they would like.”

A new report, produced by Christensen Global and supported by the Mastercard Center for Inclusive Growth, reveals three things small businesses need to unlock their power to accelerate climate-smart inclusive growth: data, capital and wrap-around support.

01
Data

Data plays a vital role in both helping small businesses adapt to climate change and mitigating the emissions driving it. For instance, better data insights can increase their ability and capacity to handle climate shocks in different markets. Data tools can help them track and report greenhouse gas emissions, which is increasingly the expectation of corporate buyers and government regulators. Intermediaries often access and collect this data, so more collaboration is needed to ensure small businesses can take part in this flow between the NGOs, government agencies and corporations that want to engage with them. When collecting data from small businesses whose owners are not steeped in climate terminology, it’s also important to ask clear and simple questions — such as whether and to what extent an intervention has increased savings or access to insurance or ability to recover from an extreme weather event. The social impact measurement firm 60 Decibels gathers data from customers and suppliers with 15-minute, standardized phone surveys built for repetition and comparability. In one initiative to advance resilient  agriculture, it surveyed farmers regarding their adoption of resilient and regenerative practices and the resulting impacts on farmers' own perceptions of resilience.

02
Capital

Everyone should have access to capital and effective risk management tools. Emerging economies need nearly $3 trillion annually by 2030 to adapt to the changing climate, according to the IFC. But some small businesses may not be able to afford insurance premiums or be offered insurance at all based on their vulnerabilities. The industry could expand more accessible insurance offerings for both pre-disaster mitigation and post-disaster recovery. The Women’s Climate Shock Insurance and Livelihood Initiative, for example, combines an individual parametric insurance product and cash assistance to pay out when temperatures exceed a pre-set threshold to help women — at greater risk from extreme heat from men — recover their losses, keep their families safe and fed and protect their own health. Transition capital in the form of patient, risk-tolerant and often blended finance from donors, impact investors and corporations can help small businesses adopt mitigation practices and pursue new business opportunities.

03
Wrap-around support

Trusted institutions, including community development finance institutions (CDFIs), chambers of commerce and other business services organizations, can use their established presence and relationships to provide technical assistance, market access and training, including programs that uplift small businesses as vital solution providers for both climate adaptation and mitigation. For example, the SME Climate Hub is providing climate education to enable small businesses to measure and report their greenhouse gas emissions, and Inclusiv, a network of CDFIs, is training lenders on solar loan origination and design. Critically, these small businesses should be prioritized and at the table to design solutions — they should be tailored to account for the limited resources and capacities of these enterprises so it’s not an undue burden to adopt them.

Climate action that is inclusive can be even more powerful. That means prioritizing small businesses in climate strategies and incorporating a climate perspective into economic development work. The private sector, philanthropy, investors, service providers, NGOs and governments need to collaborate to support, scale and replicate solutions, preparing small businesses for climate impacts and promoting climate-smart inclusive growth.

Ali Schmidt-Fellner is a vice president at the Mastercard Center for Inclusive Growth, leading the Insights team. David Eichberg is a vice president for Sustainability at Mastercard.