Abstract

This study examines how climate finance, robust government policies, and support for small and medium-sized enterprises (SMEs) can help Sierra Leone mitigate the growing risks of climate change while building a more resilient and inclusive economy. Despite efforts by international donors to fund climate solutions, much of this support fails to reach the local communities and small businesses that need it most. Using data from 1994 to 2023 and applying the Autoregressive Distributed Lag (ARDL) model, the study investigates whether improved access to climate finance, effective policy, and SME support can drive long-term economic growth. The findings reveal a strong positive relationship: when climate finance is accessible and well-managed, SMEs expand. A 10% increase in climate finance led to nearly a 50% rise in the number of businesses supported. Notably, the study identifies a two-way relationship where greater funding boosts SME growth, and growing SMEs, in turn, attract more climate investment. Climate policy, however, has a one-way impact. Strong, clearly enforced policies influence both financing and SME development, but their success is not directly dependent on business performance at first-order levels. The study also shows the role of accountable and adaptive institutions, especially in light of institutional shifts since 2020. Effective climate strategies, measured by how well the government plans and enforces action, not only drive innovation but also build investor confidence and attract external support. Overall, the research shows that including climate finance, national policy, and entrepreneurship can turn climate risks into real economic opportunities for Sierra Leone.