Enabling private sector adaptation to climate change: factors supporting and limiting adaptation amongst Sri Lankan SMEs

The capacity of small and medium-sized enterprises (SMEs) to cope with and adapt to climate-related shocks is a major factor in the climate resilience of the local and national economies they are embedded in. In developing countries, SMEs tend to exhibit low adaptive capacities, influenced by their enabling environments. A holistic understanding of how their capacity to adapt is influenced by both the qualities of their enabling environments and their inherent characteristics is needed. This study contributes to this understanding by reviewing the current knowledge of adaptive capacity in SMEs and providing an analysis of the environment for enabling SMEs to adapt to flood risk in Sri Lanka. Data originates from the Building Businesses’ Climate Resilience project, implemented in Sri Lanka between 2018 and 2021. The study finds that deficiencies in Sri Lanka’s enabling environment mean SMEs are unable to attain the information and competencies that would allow them to adopt suitable adaptation strategies for managing flood risk. Simultaneously, the results show that their capacity to cope with the impacts of flood events is not adequately enhanced by the financial services and support available prior to, and in the aftermath of, extreme weather events. Accordingly, it is suggested that the national government play a greater role in enhancing the enabling environment for adaptation. With the support of other prominent actors in Sri Lanka’s enabling environment, they should seek to enhance access to post-disaster finance, the availability of affordable insurance products for uninsured SMEs, and the availability of interventions and resources that fill the information and capacity gaps that SMEs possess.