Climate Change and Micro, Small and Medium Enterprises

The effects of climate change are becoming increasingly pronounced and powerful, taking on an alarming scale and imposing enormous economic and human costs on humanity. However, the burden of these costs is unevenly distributed with the poorest and most vulnerable bearing the heaviest toll. Such a situation requires specific and targeted measures, if the humanity seriously intends to meet the goals of International Sustainable Development Strategy. This is an unprecedented challenge to humanity not only because of the size of financial resources needed to be mobilized, but also because of the tension between socio-economic and political short, mid and long-term goals and aims, tension between the needs to ensure a rapid and quanti-tative economic growth and the needs to reduce mass poverty and social inequality. The article attempts to review policies and measures undertaken by governments and civil society groups to resolve the above tensions by developing integrative adaptation policies and measures, which allow to simultaneously address the problems of environment degradation, natural disaster risks and socio-economic development. It focuses on most vulnerable segments of population: self-employed and employees of micro, small and medium enterprises, both formal and informal. The article highlights prevailing world-wide trends in disaster risk management and risk reduction efforts and tries to identify most innovative and effective programs, which could be adjusted to specific conditions of Russia.

T he increasing frequency and destructive power of natural disasters around the world challenge capabilities and capacities of micro, small and medium enterprises (MSMEs) to withstand and cope with the consequences of global climate change. The MSME function as an employer and as a "safety net" for millions of people throughout the world. In the OECD countries, MSMEs account, on the average, the period 1998-2017: flood -USD 650 billion, storm -USD 1330 billion, volcanic activity -USD 661 billion, extreme temperature -USD 68 billion, drought -USD 124 billion 4 .
One of the leading global professional services firms "Aon plc" estimated that the world economic losses and damage resulted from natural disasters in 2019 amounted to USD 232 billion, of which USD 229 billion resulted solely from weather disasters. The inland flood peril was the costliest of 2019, and its highest year since 2013 ( Fig. 1 and Fig. 2) (Weather… 2020). The awareness among small businesses of forthcoming climatic changes, as well as of the risks of asset and life losses, has significantly improved thanks to efforts of governmental and numerous non-governmental organizations to disseminate relevant information among as many people as possible. According to the "Zurich Insurance Group fourth annual global SME survey", almost 78% of the small businesses (MS-MEs) surveyed in 13 countries in Europe, the Americas and Asia Pacific expect significant losses associated with climatic changes, in particular, as a result of downpours, floods, heavy rains (22% of the businesses), droughts and severe heat (20%). More than one-third (36%) of the surveyed businesses anticipate material losses and business interruption 5 .
Apart from a possible asset damage, which could be caused by a direct strike of climatic event, many MSMEs are also concerned with supply chain interruptions, higher costs for energy and water and the impact of climate extremes on the health of employees 6 .

Surviving natural disasters
Some studies of the past severe natural events, undertaken by research organizations, found, that the burden of damage from natural disasters born by self-employed, micro and small businesses in most low-and medium-income countries disproportionately high due to their inherent weaknesses. Self-employed and micro-businesses (in both rural and urban areas) suffer most due to their extremely limited capacity (financial and/or physical) and insufficient cognitive capabilities (specific knowledge and skills) to prepare themselves for an approaching destructive weather event on time. In low-income countries, the situation is further aggravated by mass poverty, absence of social protection arrangements, high degree of informality of economic activity and employment. As it is seen from Fig. 3, the prevailing forms of businesses are self-employed and micro-enterprises, teetering on the brink of absolute poverty. Another evidence of high vulnerability of MSME in low-income countries is that a significant proportion of self-employed and micro-businesses operate informally, including informal hiring, thus, complicating ex-ante appraisal of vulnerability of different segments of population and ex-post delivery public and private relief to disaster (Fig. 4).
Furthermore, the ability of MSMEs in many developing and emerging market economies (as well as in some regions in developed countries) to respond speedily to an approaching severe weather event and, consequently, to recover after the disaster strike, significantly undermined by the underdevelopment of local physical infrastructure (transportation, drainage system, water and electricity supply), absence of public early warning system, shelters, medical and emergency services and the shortage of relief funding. Finally, insufficient socio-economic infrastructure and mass poverty in many developing countries, manifested in low quality housing and other constructions, limited access to radio, phone and other communication and information technologies, shortage of food and medical drugs reserves at local food-stores and pharmacies, further aggravate the vulnerability of population. It should be also noted that the poor in many countries tend (or pushed out) to settle down in risk-prone urban and/or rural areas (close to the shore, on the banks of rivers, on the slopes of volcanoes and etc) due to a deficit of affordable housing and/or high market prices of land. All these weaknesses and fragility of the poor explain, at least partly, higher toll of disaster victims in lowincome countries in comparison with industrial ones. Thus, in 2019 more than 10 000 of people lost their lives to natural disaster. 59% of fatalities occurred in the countries of the Asia-Pacific region and 36% in Middle East, Africa and Europe. Cyclone Idai alone in East Africa claimed about 1303 lives, prolonged monsoonal flooding in India cost the lives of 1750 people (Weather... 2020: 10 Global Facility for Disaster Reduction and Recovery (GFDRR) study, each natural disaster pushes almost 26 million people into poverty every year (Halegatte et al. 2017). It should be also taken into consideration that economic activities of self-employed, local micro and small enterprises in many poor developing countries heavily rely on natural resource (e.g., fishing, hunting, timber harvesting, mining, gathering mushrooms, nuts, medicinal herbs, berries, and gardening, horticulture, and/or truck farming). In most cases, such activities constitute the only source of income available to local communities. The UN Food and Agriculture Organization estimates that fisheries and aquaculture, for example, support the livelihood of nearly half a billion people in the world, while almost 1.6 billion people rely on income derived from forestry (the delivery of wood and non-wood goods and environmental services) (Meybeck et al. 2019: VII).
Fishing settlements are usually very small and closely intertwined, forming local value-added chains (fishing, supply of fresh sea food to local markets, shops, small restaurants, eateries, inns and street vendors) or cooperatives. Most of these people are unable to acquire high quality fishing equipment and boats. Loss of equipment or a break-down of value-added chains in consequence of tsunami or typhoon will mean total ruin and misery of fishermen and their families.
MSMEs in most countries are not able to rapidly adjust their operational activities or quickly recover from losses without an external help. According to the US Federal Emergency Management Agency (FEMA), more than 40% of small businesses hit by natural disasters never re-open 7 . Almost 60% of the US small businesses did not have insurance and/or disaster plan 8 . Therefore, national policy makers have to bear in mind these weaknesses and vulnerabilities of MSMEs in the process of development of adaptation policies and preventive measures to reduce their potential losses.

Transformative adaptation
It is of paramount importance to improve the understanding of the systemic nature of environment by the population at large. It is also extremely important to equip people with relevant knowledge and appropriate tools and technologies, as well as other necessary resources, which could significantly improve their resilience. It is not an easy task, especially for poor countries. Nonetheless, this is the only possible way to reduce economic and human losses as climate change accelerates.
Today, the international community embarks on the path of sustainable development. Three policies have been launched simultaneously: adaptation (improving or building up the capacity and ability to adapt to climate change), mitigation (reducing threats associated with climate change) and transformation (implantation of a sustain-able development mode), which complement and reinforce each other. Most countries are in the process of developing strategies, policies and appropriate instruments. The problems they encounter varies, depending on the level of development and, consequently, on the availability of funding, administrative capacity and human resources in terms of scientific and technical expertise. To some extend international organizations and donor-countries, as well as private non-profit and profit-oriented organizations, compensate for the lack of finance and expertise by providing economic and technical assistance.
Another problem, slowing down the implementation of adaptation and mitigation policies, is the complexity and diversity of climatic conditions and topography (landscape) throughout the world regions. Each eco-zone is unique and requires a careful approach, which will not aggravate, but on the contrary, improve its state. This brave endeavor of the international community to withstand climate change is not only highly risky, but also tremendously expensive. According to the United Nations Conference on Trade and Development, achieving the Sustainable Development Goals (SDGs) will take between 5 to 7 trillion USD 9 .
The break-down of data, presented in Table 1, shows priorities, timing and the volume of financial resources needed for implementation of adaptation, mitigation and transformation policies on the global scale. The most expensive measures are those, which aim to reduce CO 2 emission, on the one hand, and to secure energy supply, on the other.
It is expected that necessary resources will come from two sources: public (government budget and official development assistance) and private (businesses, non-profit organizations and individuals). In most cases adaptation policies envisage a mixture of measures aiming to mitigate climate change threats and to transform the prevailing modes of operandi and vivendi (life-organization patterns). Such mixed policies and processes they induce may be qualified as a transformative adaptation (see Fig. 5 and Table 1).
The above measures complement macro-and meta level actions to ensure that transformative adaptation advances smoothly. They include: mobilization and prioritization of public investment in sustainable development; targeting and reforming economic sectors and institutions; strengthening research capacity and setting-up an early warning system; inspection and evaluation of vulnerability of constructions, transportation, and public utilities; promotion of innovation and alternative technologies application; encouraging diversification of livelihoods, modernization of production and facilitation of development of financial and insurance markets; upgrading of housing and physical infrastructure; setting-up emergency services and relief programs, and other measures.

Strengthening the resiliency of MSMEs and self-employed: a brief review of national and international efforts
All the measures, instruments and actions aiming to strengthen the resiliency of MSMEs and the population at large at national, regional and international levels may be analyzed within two frameworks: disaster risk management and disaster risk reduction.
Disaster risk management (DRM) refers to legal, institutional and policy frameworks and administrative mechanisms and procedures related to the management of both risk (ex ante) and disasters (ex post), therefore including also the emergency management elements. The DRM elements may include, but not limited to: 1. Risk assessment -diagnostic process to identify the risks for a community; 2. Prevention -activities to avoid the adverse impact of hazards; 3. Mitigation -structural/non-structural measures undertaken to limit the adverse impact; 4. Preparedness -activities and measures taken in advance to ensure effective response; 5. Early warning -provision of timely and effective information to avoid or reduce risk; 6. Protection of people and livelihoods during emergency (immediate assistance, evacuation -temporary mass departure of people and property from threatened locations, provision of assistance during or immediately after disaster);

Fig. 5. Adaptation cycle
Source: The United Nations Framework Convention on Climate Change. URL: https://unfccc.int/topics/adaptation-and-resilience/the-big-picture/what-do-adaptation-to-climate-change-and-climate-resilience-mean 7. Assessing damage and loss -information about impact on assets and loss to production.
Disaster risk reduction (DRR) is a crucial component of DRM and refers to those programs and practices, which are specifically targeted at avoiding (prevention) or limiting (mitigation and preparedness) the adverse impacts of hazards, within the broad context of sustainable development. In effort to improve disaster resilience and mitigate natural disaster risks many countries encourage their population and businesses to apply for weather-and commodity-based insurance. However, households and businesses in low-income countries cannot easily afford commercial insurance schemes without support from extended family or the government. Nonetheless, some poor countries succeeded in widening risk insurance coverage by employing various incentives like, for example, government subsidization of insurance premium or by enforcing obligatory nation-wide insurance schemes.
With regards to MSMEs, many poor countries (with support of international governmental and non-governmental organizations) have developed and utilized different models of disaster-based insurance (Table 2). However, according to Swiss Re estimates, the global all-catastrophe protection gap 10 in 2017-2018 combined was impressively large at US $280 billion, and more than half of that resulted from independent secondary and secondary-effect peril events (see Fig. 6).

Table 2. Types of disaster risk insurance in developing countries
Source: Mechler R., Linnerooth-Bayer J., Peppiatt D. Disaster Insurance for the Poor? A review of micro-insurance for natural disaster risks in developing countries. A ProVention IIASA Study, July 2006. URL: https://reliefweb.int/

1.Disaster micro-insurance
Schemes that facilitate access to disaster insurance products to protect the livelihoods of the poor against extreme events, Examples; Proshika (Bangladesh), Swayamkrushi (India), Network Leasing Corporation (NLC -Pakistan), and the National Smallholder Farmers' Association of Malawi (NASFAM), VimoSEWA (India), Nepal Centre for Self-Help Development (CSD) 2.Agricultural insurance Schemes aim at developing programs for farmers, herds, rural entrepreneurs and agricultural financial institutions (e.g. rural banks, microfinance institutions) to increase their financial resilience to adverse natural hazards. These schemes can be sub-classified as "index-based" or "indemnity-based", according to the type of insurance instrument used.  There is a number of reasons why the penetration of natural disaster-based insurance has been so slow. Many studies underscore the following reasons keeping people and small businesses away from commercial insurance schemes: 1. In many countries, regardless of the level of development, high insurance premium rates were cited as one of the key barriers; 2. Complicated documentation, rules, requirements, losses specification and the lack of understanding when and how the insurance payments will be delivered to disaster victims were among other constraints mentioned by people; 3. Psychological factors were also highlighted, particularly, a widely shared belief, that helping natural disaster victims is sheer Government responsibility (Linnerooth-Bayer et al. 2008) 11 .
To remedy the situation and expand insurance coverage of population, especially, in poor countries, both governments and civil society groups came out with various innovative initiatives, including the creation of: 1. Public nation-wide disaster insurance programs with compulsory participation; 2. Government insurance premiums subsidization programs; 3. Risk-pooling (solidarity) community-centered arrangements (so-called «mutuals»); 4. Insurance schemes covering indirect losses or costs as a result of cascading effects of natural disasters in the list of covered risks; 5. Pro-poor "work-for-insurance" in exchange for some assets improvement (e.g. land, repairing of buildings, roads or irrigation system, vaccination of animals, new crops), "saving-for-change" (e.g. schemes, which may included some incentives to attract the poorest by offering debt waivers and a guaranteed access to credit) or «social protection safety net» programs, specifically designed for the poorest and most vulnerable population groups. gov.uk/dfid-research-outputs/final-report-understanding-the-role-of-publicly-funded-premium-subsidies-in-disasterrisk-insurance-in-developing-countries (accessed: 01.02.2020)

Program
Description "The Goat Trust" (India) The Goat Trust is registered as charitable trust to promote small livestock (Goat/sheep/Backyard birds rearing) based livelihood. It is mandated to grow as a resource organization to work on development of pro-poor small livestock farming systems, technologies and market development through collaboration and networking with various stakeholders. The Goat Trust and its partners have currently offering a community insurance to those households engaged in goat rearing and goat farming in poverty pockets and semi-arid regions of Madhya Pradesh and Uttar Pradesh, Rajasthan & Jharkhand. The goal of this community insurance initiative is mitigate goat loss risk through integration of goat farmers, building institutions of goat farmers (group and larger federation), and making provisions of financial services (insurance). It also provides training and handholding support to Grass root partners & Goat farming communities -Certified Livestock Managers and Livestock Nurses (Pashu Sakhi), participatory training and monitoring tools development for small livestock based livelihoods; micro financing (Micro leasing, Community based Insurance, Livestock Credit card) for livestock; standardisation of pro-poor live body weight based marketing system and Information exchanges; teach and promote the use of Information Technology in Livestock; ethno veterinary practices and promotion of Herbal cure for sustainable livestock management. Source: "The Goat Trust". URL: http://thegoattrust.org/ The distinct characteristics of the bottom-up disaster risk insurance arrangements (mutuals and/or cooperatives) are as follows: 1. "Mutuals" can operate on every level (communal, regional, national and international); 2. They are able to provide services that meet the need of poor and vulnerable; 3. Their proximity to members and shared ownership facilitate claims settlement and self-regulation (Facing Risk… 2018).
4. Such programs can be designed within the framework of sustainable development strategy by combining elements of risk reduction, risk mitigation and transformation of livelihood, production and consumption; 5. They are country specific. It is obvious that many countries still lack the capacity and capabilities to meet all the requirements of effective DRM, including some developed countries. It is also beyond any doubts that concerns with natural disasters intensify. Increasing toll of

Program
Description Fondos (Mexico) The first agricultural insurance program in Mexico began in 1942 and was based on arrangements between mutual unions and private insurance companies. It was not until 1961 that the first specialized public company for crop insurance was created, the National Crop and Livestock Insurance Company (ANAGSA). Insurance through ANAGSA was a condition for receiving agricultural credit; policies covered multipleperils and premiums were almost entirely subsidized. Fondos, or farmer mutual insurance funds, developed in response to rising prices and shrinking availability of agricultural insurance. The first Fondo was established in 1978 in order to reduce insurance costs, offer technical support for members, develop financial options, as well as to reinvest any profits back into the community. Fondos are mutual insurance funds that are formed by local growers, and only provide insurance to their members. Their advantage lies in their close connection to farmers and their knowledge of local agricultural conditions. As Fondos are civil associations, they are not intended to generate profits either for the Fondos themselves or the members. Under the law they may only provide agriculture related damage insurance, agriculture related property insurance, farmers' life insurance, and accident/illness related insurance. The Government provides support to the Fondos system through a program of operational assistance and financing to both Fondos and Integrating Agencies (OIs), which are associations formed by Fondos members that oversee the activities of Fondos. The operations of Fondos are regulated by the Agriculture and Rural Insurance Fund Law (2005), and overseen by OIs and a National Integrating Agency. OIs supervise the organization of Fondos' admission, separation, suspension, and expulsion of members; risk retention limits; contracts of reinsurance; functions and operations; constitution and investment of technical reserves and the social fund; and accounting. Any irregularities are reported immediately to the finance ministry (SHCP). Source: The World Bank documents. URL: http://documents.worldbank.org/curated/ pt/197661468281079879/pdf/880990BRI0P1300urance04Pager0Fondos.pdf Takaful Takaful is a co-operative system of reimbursement or repayment in case of loss, organized as an Islamic alternative to conventional insurance. Under takaful, people and companies concerned about hazards make regular contributions ("donations") to be reimbursed or repaid to members in the event of loss and managed on their behalf by a takaful operator. There are several models (and several variations) of how takaful can be implemented: 1) Mudharabah model (profit-sharing): the managers (shareholders) are sharing profit and losses with the policyhoders; used initially in Far East; 2) Tabarru'-based: "donations" (Tabarru'), i.e. premiums, are accumulated into a fund to meet members' losses. Members are not allowed to take back any contributions or profits from investments, a combination of Tabarru losses caused by natural catastrophes has been on rise revealing weaknesses and/or unpreparedness of human physical and socio-economic infrastructure to keep a direct hit of mother nature. Results of efforts to strengthen the endurance and resilience of humanity in the face of raging nature and climatic change have not yet been impressive, as the political elites in many countries have been more often preoccupied with next election campaign or personal political career, rather than with true voters' needs. Business community, as well, has been rather reluctant to rush to join the efforts to mitigate climate change risks. Nonetheless, the International Governance has been pressing countries to accelerate the implementation climate change adaptation and mitigation policies to reduce potential damage of natural disasters to human communities throughout the world. Specific problems of most vulnerable segments of the world population (formal and informal self-employed, owners and employees of micro and medium enterprises) in risk-management programs and adaptation policies have been muted. In developing countries programs a strongest emphasis has been on farmers and rural population, which is understandable due to frequent outbreaks of hunger. In developed countries programs MSMEs are mainly considered from the perspective of productivity and competitiveness, therefore, the emphasis is on transformation, employment and social protection issues.
Review of some instruments applied to promote adaptation to climate change reveal that many experts, policy makers and community leaders have been trying to design effective risk reduction programs, which are suited to the needs of specific social groups. The most popular have been insurance against natural disaster. While there is no definitive conclusion on which of the numerous natural disaster insurance schemes is most effective, some of them are worth to try in Russia. These are primarily mutual insurance funds at the communal (local) level.
Such programs allow to combine risk reduction with diversification of livelihood. Candidates for such programs could be fishermen settlements in Far East, on Caspian Sea and Siberian rivers shores, as well as some close-nit indigenous peoples of the Extreme North. Orenburg region, on the other hand, may be suitable for a program similar to the Indian Goat Trust. Another option could be an all-nation natural risk insurance program with compulsory participation of the population of disaster-prone regions. They should be adjusted and targeted (based on the principle of fairness) and include both primary and secondary losses.
An interesting approach, which also could be tried in Russia, is a diversification of activities of Fund of Small Business Credit Assistance of Moscow by adding disaster insurance component to its activities.
Finally, there is a need to develop an integrative approach to the issues of climate change. This will require a joint effort of scientists and practitioners from different areas.
With regards to climate change preparedness of the population, local governments must: