As a city planner for the Kenyan government, David Kuria often worked on water and sanitation projects in low-income communities. With this experience and motivated by his “burning desire to…make a difference in improving the urban landscape for low-income communities,” David founded Ecotact, a company that operates pay-per-use toilets and shower facilities in disadvantaged communities in Kenya. 
These facilities rely on water-saving technology and bio-digestion systems; so, in addition to improving access to public sanitation, they have reduced environmental impact. Ecotact’s facilities also double as ‘kiosks’ that are leased out to micro-entrepreneurs who sell different goods and services (e.g. magazines, shoeshine services, etc.). As of 2010, Ecotact had served 50,000 customers and created jobs for around 260 people. By providing essential services to underserved communities, creating jobs for micro-entrepreneurs, and doing so in an environmentally friendly way, Ecotact is a prime example of why small and medium enterprises, commonly known as SMEs, matter for green and inclusive growth.
What do we mean by green and inclusive growth? Green growth means achieving economic growth without sacrificing the health of our environment. It also means addressing the fact that seventeen of the eighteen warmest years occurred in the twenty-first century, that air pollution is estimated to contribute to over 6 million deaths annually, and that every year, 8 million tons of plastic enter our oceans (according to UN Environment Annual Report 2017 and UN Environment Climate Change Annual Report). Inclusive growth means achieving economic growth that is widely shared in a society. Providing jobs for the 200 million people – many of whom youth – that were unemployed and actively seeking jobs as of 2013; and tackling the unmet needs of neglected communities, whether that means improving access to water, energy, or finance. To put it simply, it means improving living standards for all.
Inclusive growth and green growth are entangled policy objectives. They can reinforce one another. For example, since climate change is the primary cause of agriculture productivity loss, threat to food security and growing hunger, tackling climate change can also contribute to reducing poverty. However, green growth and inclusive growth can also be conflicting goals. Greening policies – whether environmental regulation or taxes– can impose economic costs on businesses, do so unevenly, and thus, limit their ability to create jobs. So, how do we harness the synergies between these two objectives while minimizing the potential trade-offs?
SMEs, like Ecotact, are important stakeholders in this question. The definition of SMEs often vary by country, but a useful rule-of-thumb definition is that they are businesses with less than 250 employees. They are also a very diverse group of businesses; for example, whereas some SMEs are innovative start-ups, others are more akin to “mom and pop” shops. This makes it particularly challenging to generalize the opportunities and challenges facing SMEs.
What we do know, however, is that despite being individually small, SMEs represent a large share of businesses globally. In OECD countries, they account for about 99% of all enterprises. SMEs also employ a significant share of people, especially in low-income countries, where they contribute to, on average, 78% of employment compared to the 65% in high-income countries. Similarly, while the individual environmental impact of SMEs may be small, on aggregate, they account for roughly 60-70% of industrial pollution in Europe. Nevertheless, SMEs – due to their small and flexible nature – are also uniquely suited to pioneer green innovations and contribute to green growth, especially in local and emerging markets that may be neglected by large corporations. Given their economic and environmental importance, SMEs are vital players in achieving both inclusive and green growth. Thus, we must ask the all-important question: how can we green SMEs and simultaneously empower them to contribute to quality job opportunities and inclusive growth?
One way to tackle this question is to ask how greening measures affect SMEs’ business performance - the premise being that SMEs have a stronger capacity to provide jobs and improve living standards if their business performance is strong. Greening measures affect SMEs’ business performance in both positive and negative ways. In terms of the positives, by going green, SMEs can tap into the green market niche of environmentally conscious consumers and thus increase their market share and commercial revenue. At the same time, by becoming more eco-friendly, they can also reduce their costs. An example of this is switching to recycled materials, which tend to be cheaper.
On the flip side, greening SMEs can impose a burden on their limited resources. Going green usually involves costs associated with investment in technology and infrastructure, compliance with regulation, and innovation. These costs vary by sector and country, and in the end, these costs may be small compared the potential benefits of greening. But, since SMEs generally have trouble accessing adequate finance (e.g. credit from banks), the financial costs of greening can be particularly tough on SMEs. Likewise, implementing green measures also requires a certain degree of managerial skills, technological understanding, and learning ability, which SMEs are often lacking.
There is clearly a balancing act for policymakers when designing policies to promoting SME greening; they must ensure that the perceived burden does not exceed the potential benefits. However, there is still much that we do not know. For example, while there are some examples of SMEs’ creating jobs because they have reaped business benefits from going green; these examples are far from conclusive. The question of how many SME-related jobs would be destroyed because of greening measures is still under-researched. We also do not concretely know what the impacts of greening SMEs will be across different sectors, countries (e.g. developed vs. developing), and time frames (long run vs. short run). But, there are clearly opportunities for SMEs to deliver both green and inclusive growth. The puzzle, now, is in deciphering how, exactly.
The role of SMEs was a key consideration of the Sixth GGKP Annual Conference, held in conjunction with the 2018 OECD Green Growth and Sustainable Forum on the theme of "Inclusive Solutions for the Green Transition". The latest state of knowledge on the opportunities and challenges for SMEs to enable green and inclusive growth is reflected in the Issues Note on SMEs prepared for this conference.