Helping MSMEs to Become Sustainable

Why is it important for MSMEs to become sustainable?

Global crises such as pandemics and natural disasters take a toll on everyday life and economic activity. Micro-, small- and medium-sized enterprises (MSMEs) along with self-employed people and entrepreneurs are hit the hardest by adversity because of their limited resources and access to finance, skills and information to cope with supply chain disruptions and business downturns. Amid COVID-19, for example, the International Trade Centre (ITC) SME Competitiveness Outlook 2020 found that MSMEs were more adversely impacted than large firms according to business survey results obtained from across 123 countries.

The disproportionate effects global crises have on MSMEs have led international policy fora to take action to help MSMEs transition to a sustainable economy. For instance, country members of the Group of Twenty (G20) have adopted a non-binding policy toolkit for promoting born green via digital MSMEs and entrepreneurship in global supply chains. By providing guidelines on inclusive policies and initiatives that are supportive of resilient entrepreneurial ecosystems, the policy toolkit aims to assist policymakers in supporting MSMEs and new entrepreneurs to embrace the green and digital transformation to drive economic resilience efforts amid future crises.

The toolkit comprises five pillars outlining action areas policymakers can take to support the sustainable and digital transformation of MSMEs. A common denominator across these pillars is the role standards, in particular voluntary sustainability standards (VSS), can have in the adoption of sustainable business models by MSMEs. The following sections of this guide describe brief facts about VSS and their relevance for MSME trade and sustainability transition, so policymakers can learn more about action areas and resources to provide support.

What are voluntary sustainability standards (VSS)?

According to the United Nations Forum on Sustainability Standards (UNFSS), VSS are standards that set various sustainability metrics for producers, traders, manufactures, retailers or service providers, including: respect for human rights; worker health and safety; environmental conversation; community relations; land use and planning; and others. Like standards, VSS are the result of consensus among industry experts on technical guidelines and best practices for businesses to manage their processes, operations and stakeholder relations. As emphasized by the United Nations Conference on Trade and Development (UNCTAD), VSS are mostly designed by non-governmental organizations or private firms and convey a set of standards for products, processes and production methods to mainstream economic, social and environmental dimensions of sustainability. When discussing VSS, the terms “standards”, “certifications” and “labels” may be used interchangeable. But it is important to approach the right term when designing, marketing and monitoring VSS. For more information, UNFSS’s Voluntary Sustainability Standards provides more analytical aspects of VSS-related terms that may be involved in policy-making processes.

Which types of VSS exist?

VSS can come in different types according to the sectors, subject matters, production processes and governance mechanisms they focus on. VSS are mostly governed by non-state actors that include companies, industry associations and non-for-profit organizations. These design well-known standards such as GlobalGap, a farm assurance program, or the Fairtrade Standards that certify producers and traders for meeting a range of economic, environmental and social criteria in their business practices. Public agencies such as the United States Department of Agriculture (USDA) also develop standards, such as to certify whether products are organic. Other standards are the result of multi-stakeholder initiatives, including the Forest Stewardship Council (FSC) and the Roundtable on Sustainable Palm Oil (RSPO). The United Nations Conference on Trade and Development (UNCTAD) provides a summary on VSS types on its Framework for the Voluntary Sustainability Standards Assessment Toolkit.

Why do VSS matter for businesses to trade and contribute to sustainable development?

With more than 500 VSS in existence, public and private sector stakeholders are placing increasing attention to sustainability practices that enable businesses and supply chain actors to engage in international trade and foster sustainable development. UNCTAD and UNFSS have analysed a range of channels through which businesses adopting VSS can seize market access opportunities by adopting sustainability practices in their business operations and supply chain relations. For example, businesses that invest in environmental harm reduction technologies and improve living wages for workers obtain sustainability certifications that enable them to charge price premiums in more lucrative markets. Linkages like this demonstrate the potential effect VSS can have for businesses to engage in trade and contribute to sustainable development. Further examples and analyses have been documented in UNCTAD’s Better Trade for Sustainable Development and UNFSS’s Voluntary Sustainability Standards, Trade and Sustainable Development.

How can policymakers support small businesses to adopt VSS?

While adopting VSS and obtaining their relevant certifications offers potential benefits in terms of trade and sustainable development, it often represents challenges for small businesses. Depending on the nature of VSS and related certification schemes, small businesses can face significant compliance challenges, skills shortages and limited resources that make the certification process costly. These challenges are compounded for small businesses from developing countries which lack adequate institutions, technical assistance and policy regulations in support of business sustainability certification. As a starting point for identifying policy areas where small businesses need support, ITC’s SME Competitiveness Outlook 2016 has outlined a five-point action plan aimed to help VSS work for small businesses to participate more in trade. The action plan includes: a) Facilitating access to information; b) Enabling firms to comply with technical standards; c) Supporting technical infrastructure; d) Strengthening domestic governance; and e) Leveraging international mechanisms on trade facilitation.

Where can I access resources on policy frameworks, guidelines and tools?

• FOLU’s Knowledge Hub: The Food and Land Use Coalition (FOLU) integrates research and analysis on food and land use transformation from multiple organizations, which policymakers can use to design policies for supporting business transitions into sustainability systems. Visit this FOLU website.
• ILO’s Course on SME Productivity for Policymakers: The International Labour Office (ILO) offers this training course to enhance policy analysis skills required for designing policies aimed at improving productivity and working conditions in small businesses. Visit this ILO website.
• ISEAL’s Resources on Sustainability for Policymakers: The INSEAL Alliance is a movement of sustainability standards and assists governments in developing sustainable trade policies and support programs for businesses to engage in sustainability systems. Visit this ISEAL website.
• ITC’s Linking Voluntary Standards to Development Goals: The International Trade Centre (ITC) has developed a report that can help policymakers identify the role VSS can play in advancing progress in national development objectives, such as those related to the Sustainable Development Goals (SDGs). Link to this ITC report.
• UNCTAD’s Framework for the Voluntary Sustainability Standards Assessment Toolkit: The United Nations Conference on Trade and Development (UNCTAD) offers this toolkit to assist policymaking processes aiming to map out motivations, challenges and outcomes related to the adoption and use of VSS. Visit this UNCTAD website.
• UNFSS’s Food-Related Voluntary Sustainability Standards: The United Nations Forum on Sustainability Standards (UNFSS) developed this policy guide in coordination with other agencies to provide policy approaches and frameworks for mainstreaming VSS into national development strategies and regulatory compliance. Visit this UNFSS website.
• WTO’s Environmental Database: The World Trade Organization (WTO) provides a database that contains all environment-related notifications, measures and policies that members notify to the WTO. Visit this WTO website.
• WTO’s E-learning Course on Trade and Environment: The WTO offers a course that explains WTO discussions on trade and environment and how WTO rules intersect with environmental policies. Visit this WTO website.

Where can I access good practices and national examples?

• APEC Compendium of Best Practices: The Asia-Pacific Economic Cooperation (APEC) has compiled global best practices for facilitating VSS as a market development and trade tool aligned with the Sustainable Development Goals. Visit this APEC website.
• Caribbean Community (CARICOM) Export Potential to the European Union: UNCTAD has conducted a feasibility study on the potential VSS can have for enhancing CARICOM aquaculture and agriculture exports to the European Union. Visit this UNCTAD website.
• Governmental Use of Voluntary Standards: ISEAL Alliance has documented case studies of good practice collaborations governments around the world have achieved to use voluntary standards for delivering on public policy objectives. Visit this ISEAL Alliance website.