Environmental policies targeting MSMEs

MSMEs generally do not have sufficient human resources to allow for specialists in green policies or regulation. As such, MSMEs may fall behind their larger business counterparts when complying with green regulation and green practices. Supporting MSMEs to green their businesses, then, often means that there should be policies made with MSME capabilities in mind. This more directed policy approach may be possible for the more sophisticated governments of the Asia Pacific region, but those with lower capabilities might need assistance in this area.

Across the region, most countries have environmental policies that could potentially impact MSMEs, but only a minority have policies that specifically support or target MSMEs. Instead, environmental plans are often included in other planning documents or in environmental laws that regulate industry or specific sectors of the economy. Some countries, notably Malaysia, have national plans on green growth and the adoption of green technology. Here, Malaysia for example, has comprehensive online platform for businesses to promote their green products and services to new markets called  MyHIJAU Mark (See box 15 below).

Box 24. Going green in Malaysia benefits enterprises

The MyHIJAU Mark is Malaysia’s official green recognition of environmentally sound products and services initiated and endorsed by the Government of Malaysia. The Mark brings together certified green products and services that meet local and international environmental standards under one single mark. The criteria for the Mark have been designed taking into consideration not just health and environmental sustainability but also economic feasibility. They are specifically tailored to conditions in Malaysia to ensure that local products and services can actually comply. Companies, which fulfill the requirements and register their products and services, benefit in turn from diverse government incentives, such as Government Green Procurement (GGP) tenders. GreenTech Malaysia, as a not-for-profit organisation under the purview of the Ministry of Energy, Science, Technology, Environment & Climate Change (MESTECC) of Malaysia, is responsible for the promotion, business advice, verification and monitoring of certified green products and services under the label.

Electric mopeds whirring around the streets of Malaysia are just one example of a certified product. While the vehicles are not yet widely purchased by private companies and private consumers, they are being used in fleets of fast food chains and public authorities, such as the police. Indeed, the state is currently the eco label’s biggest advocate. Malaysia has initiated a Government Green Procurement programme in 2013 as the public sector accounts for about 15% of Malaysia’s GDP. Through a lead-by-example from Malaysian authorities, GreenTech Malaysia hopes that the programme would have a trickle-down effect to influence the private sector, creating both supply and demand in the local market.

Source: https://www.myhijau.my/myhijau/

Other countries in the region have environmental legislation but are still developing a strategic approach to supporting green growth. Lao PDR, for instance, is being supported by the World Bank to develop new green growth development policies (see box as follows).

Box 25. First Programmatic Green Growth Development Policy Operation Project for Lao PDR

The development objective of the First Programmatic Green Growth Development Policy Operation Project for Lao PDR is to support the Government in achieving fiscal stability and consolidating its pathway towards green growth. This programme document describes a development policy credit in the amount of special drawing rights (SDR) 28.5 million to the Government of the Lao PDR, the first in a series of three single-tranche programmatic development policy financing operations. Lao PDR has achieved rapid economic growth in recent years and poverty has declined, but inequality has increased and natural resources are being depleted. Economic growth in Lao PDR has relied on the exploitation of its natural resources and is not sustainable because of the depletion of the resources and increasing adverse environmental effects. The reforms program will incorporate green growth principles across the national development strategy and selected sectors. Pillar one will support economic management actions aimed at addressing key macroeconomic risks. Pillar two will provide the cross-sectoral foundation for improved direction, planning, and accountability to make the sectors of growth cleaner, more resource-efficient, and resilient. Pillar three will initiate implementation of targeted actions to reduce the environmental impacts of hydropower, logging, and agriculture, and ensure that growth generated from these sectors is sustainable in the long term. Pillar three will also initiate implementation of targeted actions to control air, water, and soil pollution, and improve environmental quality.

Source: World Bank (2019), First Programmatic Green Growth Development Policy Operation Project for Laos

Through a variety of policy tools, governments can support MSMEs’ adoption of greener practices in ways that ensure the green transition is seen as a business opportunity rather than just a compliance cost.286 Governments have a vital role in creating the conditions to support the uptake of green practices by MSMEs. For example, the ASEAN SME Policy Index 2018 found significant variance across countries in support for green MSMEs, and AMS were classified according to early stage, middle stage, and advanced stage based on their progress. Early Stage AMS included Brunei Darussalam, Cambodia, Lao PDR, and Myanmar. Mid Stage included Indonesia, the Philippines, Thailand, and Viet Nam. Advanced Stage included Malaysia and Singapore. The recommendations based on the differences in implementation levels are summarised in the following table:

Table 8. OECD recommendations for greening MSMEs by level of policy development

Policy Stage Challenges Recommendations
Early stage Policy coordination between agencies promoting green practices and those specifically supporting MSMEs; lack of awareness of green options. Develop specific plans for greening MSMEs alongside holistic plans.
Middle stage Less awareness of the advantages of green development; monitoring efforts in place but evaluation still weak. Develop improved outreach for MSMEs; strengthen monitoring and evaluation for improving effectiveness of policies.
Advanced stage MSMEs may not have same access to incentive schemes as larger businesses. Integrate practices to reach MSMEs within all relevant programmes.

Source: Adapted from OECD/ERIA (2018), SME Policy Index: ASEAN 2018: Boosting Competitiveness and Inclusive Growth, OECD Publishing, Paris/Economic Research Institute for ASEAN and East Asia, Jakarta.

Green MSMEs can be divided into two categories: “green innovators”, which are developing new products, technologies and approaches that can have transformational impacts; and “green performers”, which are conventional MSMEs that take steps to make their operations more resource efficient and environmentally friendly in order to enhance their competitiveness.287 Green innovators play an important role in the broader transition to greener economies. MSMEs that focus on green manufacturing and environmental services sectors, such as design and construction firms, agricultural companies, and energy solution providers, contribute to eco-innovation across a broad range of industries. New and young enterprises are particularly important for radical green innovations, as they often exploit technological or commercial opportunities which have been neglected by more established companies or even challenge the business models of existing firms. Among green performers, companies evolve their productions practices as new technology innovations come online. One example is Dalmia Cement in India, that has progressively producing cement with greener alternatives (See the following box).

Box 26. India’s Dalmia Cement

Dalmia Cement’s overarching focus lies in consuming less to manufacture more, while minimising environmental impact. It is its conviction that the most successful, profitable and sustainable companies are ones that hold themselves to the most stringent environmental standards. Dalmia Cement has been progressively producing cement with ‘greener’ alternatives. It has invested in low-carbon technologies that translate into enhanced resources and energy efficiency. It has also increased the proportion of environment-friendly blended cement in its product mix to 80 per cent, reducing its carbon footprint while addressing waste disposal issues of other industries.

Dalmia Cement’s commitment towards environmental protection was reflected in its achievements – It was ranked No.1 in the global cement manufacturing sector by the Carbon Disclosure Project (CDP) for its achievement in transitioning into a low carbon footprint business. It has increased the proportion of alternative materials used, replacing conventional kiln fuels with alternative fuels and bio-fuels. As a company, it has moderated its emissions in line with the International Energy Agency’s (IEA) 2° scenario mandated for 2030. The company became the first organisation globally, to commit to both RE100 and EP100 campaigns. This commitment was reinforced through various ground-level initiatives across its plants and functions. Dalmia Cement has created a cumulative water recharge potential of approximately five times of its annual water consumption. Its consolidated freshwater withdrawal has reduced by 38% with water recycling increasing by 4 times. For the company, water positive cement production is the solution to water-related physical risks of climate change.

Source: https://www.dalmiacement.com/sustainability/

The OECD working with ASEAN has developed a toolkit that provides practical guidance on the wide variety of policy tools that governments can employ to make the business case for MSMEs to adopt green practices. The aim of this toolkit is to better equip governments with information on the benefits of greening for MSMEs, as well as the knowledge and tools to support MSME greening. The expected outcomes are to have more governments include green enterprise targets in regional and national action plans, and take actions to encourage MSMEs to improve environmental performance. Ultimately, going green makes business, as well as environmental and ethical, sense.



287 McDaniels, J. and N. Robins (2017), “Mobilizing Sustainable Finance for Small and Medium and-medium-sized-enterprises/.