Innovative green-technology SMEs as an opportunity to promote financial de-risking

Headnote

Abstract

The authors recommend that the G20 target innovative green-technology SMEs as an opportunity to promote financial de-risking while addressing Paris Agreement commitments and UN Sustainable Development Goals. This should be achieved by creating signals for private investors through: (1) a reporting system that can help monitor the scale-up of green-technology SMEs; (2) the use of public funds to signal innovative green-technology SMEs to investors; and (3) the inclusion of SMEs in the design of green finance platforms. By implementing these recommendations, the G20 will ensure that innovative, low-carbon SMEs become attractive, low(er)-risk investment opportunities for the private sector.

(Published as Global Solutions Paper)

JEL O31 Q55 Q58 E60

Keywords Innovation; green technology; eco-efficiency; SMEs; financial de-risking

Introduction

As the G20/OECD High-Level Principles of SMEs Financing state, Small and Medium-sized Enterprises (SMEs), including micro-enterprises, are core engines of innovation, growth, job creation and social cohesion in high-income/emerging economies, as well as low-income developing countries. In the former, SMEs undertake the majority of private economic activity, and account for more than 60 percent of employment and 50 percent of GDP. In the latter, SMEs contribute on average to more than 50 percent of employment and 40 percent of GDP; furthermore, they contribute significantly to broadening employment opportunities, social inclusion and poverty reduction (G20/OECD 2015).1

In this article, we argue that G20 countries need to recognize and engage SMEs, and especially low-carbon technology SMEs, as key economic actors in the effort toward climate mitigation and sustainable development. Failing to bring them on board, or designing strategies that do not take into account the challenges and barriers they face, significantly reduces the chances of successfully attaining UN Sustainable Development Goals and the commitments made at the Paris Agreement.

Green technology and eco-efficient SMEs

Small, medium and micro-sized enterprises are non-subsidiary, independent firms which employ fewer than a given number of employees. This number varies across countries, but the most frequent upper limit designating a medium size enterprise is 250 employees, as in the European Union.2 Small firms are generally those with fewer than 50 employees, while microenterprises have at most 10, or in some cases 5, workers. SMEs are also often defined by relying also on financial assets. For instance, in the European Union, the turnover of...