The Gap of the Missing Middle: finance for local climate-smart SME

With regards to new business models, measures to increase resource efficiency and reduce greenhouse gases have become a separate industry over the last decade. So-called climate-smart enterprises adopt economically viable technologies and business concepts that can help to mitigate climate change or adapt to its impacts. This two-fold focus ensures the future readiness of these enterprises and has helped them to become an increasingly important actor on the playing field. Their innovative approaches operate across all sectors and offer solutions for, for example, renewable energy production, waste management, healthcare, infrastructure, transportation or housing.

Foremost, climate-smart enterprises create a sustainability impact for the local economy. They ensure an important contribution of the private sector to the achievement of the respective climate goals of the country and a replication of successful business models will even multiply their effects. Along their value chain – i.e. suppliers, traders or consumers – it is mainly poor parts of the population who are involved. Therefore, they are of particular importance to disadvantaged women and unemployed 2 young people.

At the same time, climate smart enterprises contribute to environmental protection, mitigation and adaptation to climate change by promoting the sustainable use of local resources and helping local economies to sustain their livelihoods in a quickly changing environment. With this transformative and collective impact potential, the success and growth of climate-smart enterprises is central to achieving a climate friendly economy. A dynamic private sector, driven by climate smart enterprises, creates green jobs, stimulates the local economy, empowers communities and promotes environmentally sustainable business practices. Innovative goods and services developed by climatesmart enterprises not only promote development and market growth, but also preserve the foundations of all economies – natural and social resources.

Therefore, climate smart enterprises can be seen as the exemplary way of doing business in the 21st century.


Within this context, small and medium-sized enterprises (SMEs) play a special role. On the one hand, they are necessary to ensure future economic stability and overall future-readiness. Trends in international energy production are a good example to highlight this issue: as a transition towards renewable energy production goes along with an increasingly diverse energy mix, energy production will also decentralize further and build on more and smaller companies, e.g. smart micro grids. On the other hand, SMEs provide an additional societal and economic benefit. They have a comparatively strong outreach on the local level and amplify the impact of climate change mitigation and adaptation. Moreover, they have proven to be highly innovative in terms of technology uptake and value chain processes. Thereby, they include wide parts of the local society in overall economic growth and improve overall social cohesion.

Despite these various advantages, climate-smart SMEs are facing a common challenge: a shortage of low-end financial products and limited support in capacity building, resulting in an under-representation of smaller climate-smart enterprises on the global as well as national market


Excerpt of: Filling the Gap of the Missing Middle: Innovative Financing for Small and Growing Climate-Smart Enterprises. Input Paper (SEED, 2018)


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