NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

The latest Intergovernmental Panel on Climate Change global synthesis report has sounded a sobering alarm. The stakes could not be higher in the global struggle to mitigate and adapt to climate change, and time is running out. UN Secretary-General Guterres has urged the world to embrace an “everything, everywhere, all at once” approach to confront this challenge head-on. The enormity of the task is daunting, but we are not without hope.

Given the scope of the crisis, and the extent to which the private sector is driving both its causes and potential solutions, there’s widespread recognition that businesses must be a central part of the global response. And companies of all sizes and sectors can play a critical role, while also generating economic value. For instance, green enterprises can have a positive environmental and/or climate impact either through the process of delivering products/services (e.g., by utilizing clean technologies) or by providing products or services in a green sector (e.g., waste management). And they can also create sustainable employment and livelihood opportunities in the process, particularly for marginalized groups such as women and youth.

More traditional, larger companies also have a significant role to play — not only in mitigating their own emissions, but also in working with the small businesses in their value chains to accelerate their efforts to adopt green approaches and reduce their carbon emissions. The primary components of these value chains are small and medium-sized enterprises (SMEs) and small and growing businesses (SGBs) — companies that need capital and support to thrive. These businesses play a crucial role in job creation and economic growth in both emerging and developed countries worldwide. And they are critical yet underutilized drivers of innovative solutions to address the world’s growing climate-related challenges.

That’s why groundbreaking recent research by the Aspen Network of Development Entrepreneurs (ANDE), undertaken with support from the IKEA Foundation, explores SGBs’ role in advancing the green economy. Focusing on two dynamic emerging markets, India and Kenya, this research aims to help illuminate a path forward — one that allows leaders to act with the urgency and purpose that this crisis demands. By seizing the business opportunities unveiled by these findings, we can take some of the necessary steps to reduce greenhouse gas emissions and ensure we leave behind a habitable planet for future generations. We’ll share some key insights from these reports below.

The Economic — And Environmental —  Impact of Small Businesses

At first glance, and just based on their size, the economies of both India and Kenya could not be more different. In 2022, India had a GDP of almost US $3.4 trillion, while Kenya’s stood at around $113 billion. However, ANDE’s research showed that India and its smaller East African counterpart shared more similarities than differences in their small business sectors. India has the second largest number of SMEs in the world, after China, and these businesses employ over 110 million workers. Similarly, in Kenya, SMEs constitute 98% of all businesses.

ANDE’s research shows that if those countries could guide their small business sectors toward the green economy, either by supporting existing green SGBs or by encouraging green practices in traditional SGBs, they would awaken a giant and largely untapped economic potential totaling over US $120 billion in Kenya and up to US $3.46 trillion in India between now and 2030. If these businesses — which are operating in sectors from renewable energy and water management to sustainable agriculture and ecotourism — can become a focal point in the global response to climate change, they will create countless jobs in the process. The World Economic Forum estimates that India has the potential to create over 50 million jobs by 2070 on its path toward net zero, with many of these certain to be generated by small businesses. And green jobs are a core component of the Kenyan government’s Vision 2030 economic development plan, which aims to establish Kenya as an ”industrializing, middle-income country providing a high quality of life to all its citizens by 2030 in a clean and secure environment.”

Alongside their impact on employment, these growth-oriented enterprises can bring new ideas into practice, introduce technical innovations, and create demand for new environmentally friendly goods and services. In the process, they can contribute significantly to emissions reductions and national climate adaptation goals — but only if they are supported effectively. 

How India and Kenya Can Develop Their Green Ecosystems

ANDE‘s research in these countries has also shed light on which sectors have the most growth potential — and these industries urgently need more tangible stakeholder support. For example, waste management and the circular economy present two of Kenya and India’s most significant market opportunities. Yet more funding, policy and technical support is needed to help ventures in these sectors scale. 

Moreover, efforts to reduce informality and improve pathways for small businesses to partner with government-run systems need to follow suit to unlock the waste management and circular economy sectors’ full potential. And investors and entrepreneurs need to embrace opportunities to provide services that have traditionally fallen within the purview of government. For instance, businesses and funders often overlook water management, as they perceive it as a public sector domain. However, our research reveals that ventures do operate in business segments like water treatment and usage monitoring, and they require more support from the ecosystem across the board.

While some key differences exist between India and Kenya’s green ecosystems, they both have the same pressing need for financial investment. About 75% and 90% of support organizations in India and Kenya respectively reported that access to finance and growth capital is the most significant challenge entrepreneurs in their country’s ecosystem face. And though intermediaries like accelerators and investors in both countries focus primarily on supporting early-stage ventures, there needs to be more investment or grant support directed to ideation and initial launch stages. 

As the world confronts the challenge of climate change, we must adopt a comprehensive approach that considers every facet of the issue. We cannot afford to address this crisis piecemeal. Instead, we must take a holistic view that encompasses both local and global perspectives. ANDE’s research in India and Kenya has revealed a plethora of opportunities for small businesses to participate in the green economy, which can serve as a driving force for economic growth in those countries. And similar opportunities surely exist in developing economies around the world. The onus is on entrepreneurs, investors and other business sector stakeholders to seize these opportunities and take action on a massive scale, everywhere and all at once. We must not let this moment pass us by. It is time for us to step up and embrace our responsibility to drive sustainable development for ourselves and future generations.

To learn more, access the full research reports on ANDE’s website:

https://andeglobal.org/publication/green-entrepreneurship-in-kenya

https://andeglobal.org/publication/green-entrepreneurship-in-india

Abigayle Davidson is Director of Research and Impact at ANDE, and Patrick Obonyo is a Program Manager at IKEA Foundation.

Photo credit: Corrie Wingate Photography/SolarAid