SDGs: Opportunity Agenda For SMEs

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By WASME EDITORIAL:

Understanding ‘Sustainability’ for Driving Global Goals

The world today is changing faster than ever before; engendered, inter-alia, by the rapid growth of global population. As per the United Nations 2017 Revision (world’s population prospects), the world’s population reached nearly 7.6 billion in mid-2017. The world has added one billion people since 2005 and two billion since 1993. The 2008 revision estimated that the world’s 2.5 billion population would be 9 billion by 2050.

As the population increases, so does the demand for goods and services which in turn gives rise to a lop-sided situation benefiting only businesses much to the detriment of our natural resources. As per the report of the Global Footprint Network, an international sustainability think tank, humanity uses the equivalent of 1.6 earths to provide the resources we use and absorb our waste. The Earth’s capacity to sustainably provide for our needs in the future is dependent on the consumption of our resources at present. The more we continue to use our natural resources, irresponsibly, at the direct expense of the Earth’s ability to regenerate them at the same rate of our consumption, the less will be the Earth’s supply to support the ever-growing population in the long run. The need of the hour is to align our global economic system with sustainable development practices so as to protect and restore our earth’s vital resources from complete destruction as a result of rapid economic growth. The UN defines sustainable development as “development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Sustainability is one of the monumental challenges of our time. There has been the need for a practical approach to coping with this sustainability challenge globally. To that end, at the historic UN Summit in 2015, more than 190 countries adopted the United Nations’ Sustainable Development Goals (SDGs), a set of 17 Goals and 169 Targets, in order to devise the much-needed practical approach to addressing the global sustainability challenge. The world leaders committed themselves to working vigorously towards the achievement of the 2030 Agenda for Sustainable Development, at the core of which lies the SDGs.

From MDGs to SDGs- an attempt to fill the missing link

SDGs are the successors to MDGs (Millennium Development Goals). However, the focus of SDGs, particularly on sustainable development, its approach and structure, importance on the role of businesses towards actualizing the Global Goals make them distinctly different from MDGs. As a matter of fact, when the UN adopted MDGs in 2000, the context of ‘sustainability’ for businesses was just confined to cutting energy costs and funding minor socially conscious projects, to say the least. Despite, MDGs, a set of 8 goals with 21 targets, scored a few successes in terms of halving poverty over 15 years and making clean drinking water more accessible.

Conversely, SDGs, the product of a long deliberative process involving businesses, civil society, and governments, are more ambitious than its predecessor. The emphasis of the global goals on the importance of the role of private sector in the process of socio-economic development is the differentiator. Needless to say, “productive employment” and “decent work” are results of a healthy private sector and a conducive investment environment. Given the fact that the private businesses are largely represented by SMEs worldwide, it is necessary to understand their contributions towards the fulfillment of sustainable development agenda.

Role of SMEs in Reaching SDGs

Though there are many targets of SDGs that need the action of SMEs, Goal 8 assumes significance in the context of SMEs having the potential to ‘promote sustainable growth and ensure decent work for all’. The 8th goal lays emphasis on entrepreneurship, job creation, innovation and small and medium-sized enterprises (SMEs). SMEs already constitute the majority of the world economic activity in both developed and developing nations.  The role of SMEs in the achievement of the new set of global goals is significantly large. SMEs provide employment to both high- and low-skilled people from various geographic areas besides addressing societal needs through various market mechanisms.

‘Building resilient infrastructure, promoting sustainable industrialisation and fostering innovation’ is the Goal 9 that undeniably requires the action of businesses including SMEs and entrepreneurs for its effective implementation. The great economist William Baumol, who passed away on May 4th this year, famously argued that SMEs have played a leading role in driving innovations over the recent decades. This has been possible because, unlike large enterprises, small businesses can operate beyond dominant paradigms and existing products and technologies.

Income inequality is a global issue which, as per reports, is on the rise. SMEs can be engaged in addressing the issue of income inequalities (SDG 10) globally. To that end, SMEs need to be strengthened to provide good-quality jobs. Small businesses also have a significant role to play in achieving gender equality by empowering women through women entrepreneurship.

Propping Up SMEs

Considering the significant role of SMEs towards the actualization of the global goals, there is a need for strengthening the SMEs and maximising their potential. To that end, policymakers around the globe need to address market and institutional failures that impede SME development, provide a business environment and enabling policies to make SMEs more productive, and create mechanisms to bridge productivity gaps between small businesses and large enterprises as well as assist SMEs to catch up with those firms that are close to global technology frontier. SDGs highlight that access to finance and participation in global value chains are two important interventions that can prop up small businesses.

Access to finance is a key impediment to SME development. Without having proper access to capital, SMEs stagnate and weaken. Some of the prominent problems that prevent SMEs from having access to finance are information failures in the credit market, dearth of collateral and fixed costs for banks in processing loan applications. Post the global financial crisis in 2008, in particular, banks have further tightened lending conditions for SMEs. The need of the hour is that governments should consider alternative channels to boost finance for SMEs. Asset-based finance, hybrid debt-equity instruments, equity instruments and alternative debt finance can be some new approaches to improving access to finance for SMEs.

Boosting the participation of domestic SMEs in global value chains (GVCs) is another key intervention that is largely important for developing economies. This provides SMEs with an indirect opportunity to gain access to foreign markets and technology. As domestic suppliers of exporters, SMEs can ramp up their productivity akin to those of exporters, improve managerial skills as one of the targeted measures, enhance product quality standards as per international certifications and meet environmental and social standards.

SMEs’ vital role in building a sustainable future through responsible business practices cannot be refuted. Businesses, small and large, cannot be indifferent to the society and environment where they operate. SMEs can start by aligning their vision, mission, strategy and business model towards more responsible business practices.

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