By Lakshmi Venkataraman Venkatesan
Sustainability for MSMEs: Over the past three decades, the United Nations has been forging cooperation and collaboration among countries to address climate change, one of the most challenging issues facing humanity in the 21st century. Globally, stakeholders have adopted ESG, a framework that helps countries and organisations manage risks and opportunities related to environmental, social, and governance issues. It takes the holistic view that sustainability extends beyond just environmental issues.
India has set clear-cut targets for sustainability as part of its national and global commitment to combat climate change and support ESG goals. In 2021, the Prime Minister of India announced the country’s aim to reach net zero emissions by 2070. Furthermore, realising a sustainable future is incomplete without the involvement of citizens, the Government of India announced the ‘LiFE’ (Lifestyle for Environment) campaign. Recently, the United Nations lauded India’s G20 Presidency for highlighting sustainability goals.
Countries however cannot meet their ESG targets without active partnership with the private sector. The United Nations’ 193 member states place responsibility on businesses to achieve sustainable development. In turn, large corporations, cannot meet their ESG targets without helping the micro, small and medium enterprises (MSMEs) implement sustainable business practices as the latter form an integral part of business value chains.
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A key reason to help MSMEs become inclusive and sustainable is their sheer size – representing about 90% of businesses, 50% of GDP and more than 50% of employment worldwide in 2020, as per the World Bank.
MSMEs also play a critical role in their local business ecosystem. We need more and more socially aware small businesses such as coffee shops and restaurants to share their sustainability stories and connect at a deeper level with local communities. In turn consumers are willing to pay extra for socially conscious brands according to a 2021 survey of more than 25000 respondents across 22 countries, conducted by Accenture.
Larger SMEs are leading the way in sustainability impact, with a strong willingness to prioritize ESG. According to a DBS Bank-Bloomberg Media Studios SME Survey conducted in August 2022 across six markets, 83% of SME business leaders in Asia and 92% of Indian SME business leaders emphasized the high priority of ESG for their businesses. The global value chain, including vendors, suppliers, and customers, along with government schemes and incentives from financial institutions, play a significant role in driving ESG adoption among SMEs.
Despite the willingness displayed by SMEs, they remain on the sidelines due to a lack of resources such as finance and technology, challenges in implementation, and reporting.
The Bloomberg study reiterates that in India, over 50% of SMEs find it challenging to engage with government bodies for clarity on reporting standards. They also find the cost of deployment of ESG initiatives and measuring RoI of ESG investments an obstacle. Over 80% SMEs feel the lack of implementation knowledge about ESG solutions hampers their prospects.
Large corporates are actively working to reduce their carbon footprint and green their supply chains due to public opinion and regulations. One way they take responsibility is by encouraging their MSME suppliers to adopt sustainable practices through training and capacity building. IKEA, for instance, appointed 100 auditors globally under their IWAY initiative to educate and train over 1,000 direct suppliers and 18,000 registered secondary suppliers, ensuring compliance with their sustainability guidelines.
Coca-Cola collaborated with World Wildlife Fund (WWF) to educate sugarcane farmers to reduce water consumption by adopting drip irrigation for their fields – this helped to reduce overall water usage in the production of their bottled beverages by 20%.
Public-private collaboration is crucial for MSMEs to access sustainable finance. Regulators worldwide are working to align with market dynamics and facilitate funding for sustainable activities. Countries like Mexico, Nigeria, India, and Malaysia have introduced Sovereign Green Bonds. In Ireland, Local Enterprise Offices offer vouchers ranging from €2,500 to €10,000 with a 50-50 funding match. India can expand its Emergency Credit Line Guarantee Scheme (ECLGS) to support climate-related investments.
Public procurement drives significant demand, representing around 30% in OECD countries and over 50% in developing countries, providing an excellent opportunity for greening businesses. Enhancing the involvement of MSMEs in public procurement is crucial to expedite this transition. Governments can globally exchange best practices, such as South Korea’s streamlined processes and reduced administrative burden through limited onsite inspections.
Technology and digitalisation are bringing transformation across sectors and MSMEs should leverage these in their green initiatives. They must be enabled to invest in new technologies, materials, and processes to increase efficiency and improve competitiveness – using digital platforms to track orders, manage warehouses, and optimise production and transportation.
A 35-year-old entrepreneur’s unit in rural Pune in India exemplifies ESG adoption. His water-saving agricultural mulching film generates economic value while promoting environmental sustainability. The product benefits 200,000 farmers, conserving water, preserving soil health, and contributing to sustainable agriculture. Moreover, his unit, which started in 2011, has created 255 local jobs, fostering economic growth and community development.
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Another 40-year-old woman in Chennai is an innovative small entrepreneur, manufacturing biodegradable organic cotton sanitary napkins. These pure cotton napkins are user-friendly, prevent allergies and infections, and do not add to synthetic waste in drains and landfills.
There are many such budding young grassroots entrepreneurs who demonstrate green business practices and by the nature of their business are green.
To create a sustainable and inclusive future, supporting MSMEs in adopting ESG practices is essential. Governments and international bodies should provide supportive policies and financial incentives. Corporations must take responsibility for greening supply chains and offer resources and training to MSME suppliers. Financial institutions should develop sustainable finance options, while technology providers need to offer affordable digital solutions. Business networks, associations, mentors, and advisors should facilitate knowledge sharing and tailored guidance. Consumers and stakeholders should actively support socially conscious MSMEs.
MSMEs can adopt ESG practices through small, manageable steps: educating employees, suppliers, and customers, promoting local sourcing, investing in employee welfare, reducing waste, adopting sustainability practices, developing green solutions, and improving operations. Starting small enables a meaningful sustainability impact. Nurturing the sector now is vital for its resilience, sustainability, and alignment with the global ESG movement, ensuring a better future for the planet and their own survival.
Lakshmi Venkataraman Venkatesan is the Founding and Managing Trustee at Bharatiya Yuva Shakti Trust. Views expressed are the author’s own.