ILO and Sida Champion Market Systems Approach to Drive Green Jobs and Just Transition

Developing economies remain on the front lines of climate disruption despite contributing the least to global greenhouse gas emissions.

As climate change intensifies and its impacts on workers and enterprises deepen, the International Labour Organization (ILO) is calling for renewed global action to create “more and better jobs” through innovative market-based solutions. During a two-day learning event held on 30–31 October 2025, the ILO highlighted the transformative potential of the Market Systems Development (MSD) approach in promoting climate resilience, green enterprise growth, and decent work worldwide.

The event — organized in collaboration with the Swedish International Development Cooperation Agency (Sida) — convened more than 100 stakeholders, including policymakers, donors, UN agencies, private sector leaders, and development experts. Together, they explored how the MSD approach can bridge the worlds of climate action, private sector development, and labour market inclusion in developing economies that face disproportionate climate burdens.

Climate Change and the Labour Market: A Growing Crisis

Developing economies remain on the front lines of climate disruption despite contributing the least to global greenhouse gas emissions. Rising temperatures, erratic rainfall, droughts, and extreme weather events are eroding productivity and livelihoods, particularly in labour-intensive sectors such as agriculture, manufacturing, and construction.

The ILO estimates that by 2030, 2 percent of global labour productivity will be lost due to heat stress — equivalent to tens of millions of full-time jobs. These losses threaten to deepen poverty, inequality, and displacement unless countries adopt a just transition that aligns environmental sustainability with economic and social justice.

“By 2030, an estimated 2 per cent of global labour productivity will be lost due to heat stress,” warned Moustapha Kamal Gueye, Director of the ILO’s Priority Action Programme on a Just Transition. “This is why a just transition is imperative. We cannot advance the environmental agenda unless it delivers economic and social benefits. Enterprises are crucial to this transformation, and the MSD approach has a vital role to play in advancing sustainable enterprise development.”

Harnessing the Market Systems Development Approach

The Market Systems Development (MSD) approach focuses on understanding and addressing systemic barriers within markets to foster inclusive and sustainable economic growth. Instead of isolated interventions, MSD works through public-private partnerships to improve the resilience of micro, small, and medium enterprises (MSMEs), strengthen value chains, and influence market incentives toward sustainability.

The ILO emphasized that MSD can be a powerful catalyst for climate action by:

• Supporting small businesses to adopt cleaner production methods and resource efficiency;

• Reducing environmental impacts across entire industries through policy and innovation;

• Facilitating reforms that align labour markets with green growth and decent work objectives.

The event showcased evidence from over 25 global projects implemented in partnership with more than 30 organizations, demonstrating how systemic approaches have enabled local markets to evolve toward greater inclusivity and environmental responsibility.

Linking Market Innovation with Policy Reform

Participants at the learning event underscored that climate action cannot succeed in isolation from economic and labour market reform. Achieving the goals of the Paris Agreement and the 2030 Agenda for Sustainable Development requires integrating environmental objectives into the very fabric of economic governance — from financial systems and trade to education and employment policies.

The discussions emphasized that linking market innovation with policy coherence is essential to accelerate progress toward green and decent job creation. Furthermore, a people-centered approach must underpin all efforts, ensuring that environmental goals do not come at the expense of livelihoods or equity.

“MSD can help us adapt in the current context of shifting development financing — to do more with less — while driving growth and competitiveness for micro, small, and medium enterprises,” said Dragan Radic, Chief of the ILO’s Micro, Small and Medium Enterprises Branch. “By working closely with ILO’s social partners — trade unions and employers’ organizations — MSD ensures that interventions reflect the needs and interests of both workers and employers.”

Beyond Numbers: Rethinking Impact and Inclusion

Participants also discussed the need to redefine how development success is measured. Traditional indicators focused on short-term outputs often overlook long-term sustainability and social equity. The ILO advocates moving beyond purely quantitative measures to include the well-being of people and the health of ecosystems as fundamental dimensions of progress.

This broader vision calls for stronger collaboration between governments, financial institutions, and development partners. Enhanced coordination among donors and international agencies — including Sida, the UN system, and regional development banks — was identified as a key driver for scaling up successful pilot projects and embedding climate-smart employment strategies into national development plans.

Strengthening Partnerships for a Just and Green Transition

The event reaffirmed the strategic partnership between the ILO and Sida, which has been extended through 2027, to jointly advance climate action and inclusive growth. The collaboration focuses on developing national strategies that connect the green transition with job creation, enterprise competitiveness, and social inclusion.

Under this framework, the ILO will continue to provide technical assistance, policy guidance, and capacity-building to governments, employers’ organizations, and workers’ unions. Together, these partners aim to ensure that climate transitions are not only environmentally sound but also socially just and economically viable.

Towards a Human-Centered Green Economy

The ILO’s approach to the green transition remains anchored in its human-centered model of development — a vision that places people, rather than profit, at the core of transformation. The organization’s Decent Work Agenda calls for a balance between productivity, equality, and sustainability, ensuring that environmental policies also deliver quality jobs, income security, and social dialogue.

As Gueye emphasized during the event, the challenge ahead is not merely to protect jobs from climate shocks, but to create new ones that sustain both people and the planet. “Enterprises are on the front lines of this transformation,” he said. “A systemic approach like MSD helps us link environmental and economic priorities in a way that makes the green transition work for everyone.”

The event concluded with a shared commitment among participants to intensify cooperation, knowledge-sharing, and joint programming to ensure that the path toward a net-zero economy also leads to inclusive prosperity and resilient communities.