This chapter discusses the importance of greening SMEs and the opportunities and challenges that it entails. While the environmental impact of individual enterprises may be low, in aggregate their impact is significant. SMEs are also important for green growth as key drivers of eco-innovation and key players in emerging green industries. Reducing the environmental impact of SMEs through achieving and going beyond environmental compliance in both manufacturing and services is a key success factor in greening the economy.

This chapter looks at the challenges facing EaP countries on greening SMEs, and the progress that has been made so far. It begins with an examination of existing regulatory regimes in EaP countries, highlighting ongoing proposals to move away from uniform application of single-medium permitting. The chapter examines some of the environmental considerations that have been introduced into strategic documents from EaP countries on SME support activities, and highlights survey data on how SMEs are informed about regulatory requirements. The chapter notes that EaP SMEs that do undertake efficiency measures mostly do so for economic reasons. The importance of shifting to new regulatory regimes that lessen enterprises’ regulatory burden and are calibrated based on the level of environmental risk is highlighted. In conjunction with that, policy gaps in EaP countries are explored, in particular around technical and financial support for green practices, and effective communication and information tools.

This chapter looks at developments in environmental regulatory tools and how different approaches can more effectively support compliance. It begins with an exploration of changing trends in many OECD countries around simplifying environmental regulatory requirements for SMEs. These countries are doing so by replacing bespoke environmental permitting with standardised requirements (e.g. general binding rules) for specific activities with low environmental risk, provided that they involve a large number of operators and employ similar technologies. The chapter also looks at reducing the administrative burden on SMEs through collaboration between environmental and non-environmental regulators on identifying opportunities to reduce duplication in paperwork and conduct joint or delegated inspections in selected sectors. The increased effectiveness of a sectorbased approach is also explored in the chapter, as part of a broader customer service perspective on the relationship between environmental regulators and SMEs.

This chapter looks at how the type of information and the way it is conveyed can support environmental compliance by SMEs and encourage green business practices. Packaging the information and formulating the right message is crucial for the effectiveness of communication tools. Small businesses have particular needs, with significant heterogeneity across and even within sectors. Informationbased instruments are more effective when messages are tailored to the nature and needs of small businesses. Explaining the economic benefits for SMEs of improved environmental performance is an important component of environmental outreach.

This chapter examines some of the economic tools that governments can use to support the greening of SMEs. This includes tax privileges such as incentives and exemptions. The chapter also examines the role of direct subsidies for consulting services, which can help increase SMEs’ awareness and secure their initial engagement in green practices. At the same time, to both ensure the sustainability of practice, as well as the perceived value of the assistance, the chapter also points to the need to gradually shift to a fee-based system for technical assistance. Greening public procurement is also a powerful tool that governments can deploy. The chapter explores how it can impact entire value chains and provide an important lever to support greening. The chapter also notes that while public financial institutions are an important piece of the puzzle, it is also important to enhance the role of private banks and insurance companies in providing incentives for good environmental performance of SMEs, through better loan or insurance policy conditions to businesses with green credentials.

This chapter looks at the institutional structures that EaP countries need to establish in order to support the greening of SMEs. It begins with a discussion of the need to build the capacity of government actors, especially local and regional government administrations, to help signpost SMEs to where they can get appropriate resources and information (if it is not available at the local level). The role of national environmental authorities in overall co-ordination of efforts to promote green activity of SMEs is also noted. The chapter then discusses the vital place of trade associations and other industry groups in supporting greening efforts, as they are most likely to have effective communication channels with both their members and government authorities. Finally, the chapter addresses the potential role of financial advisors such as accountants, banks and insurance companies. SMEs are regularly in contact with them, and they are a trusted source of information; they could potentially increase awareness of changes to environmental requirements as well as sources for further information.

This chapter examines different strategies to support enhancing the availability finance for greening SMEs in EaP countries. It highlights the importance of access to finance as an enabler for SMEs to take advantage of opportunities to improve their environmental performance. Finance is also important for start-ups that are developing or introducing new green technology. The current situation of green finance in EaP countries is explored, as is the role of public financial institutions’ diversity. Green asset-based finance, soft loans, green microfinance, and green bonds are also briefly addressed.