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How India’s MSME landscape can be better equipped to transition to a greener future

Sustainability for MSMEs: Embracing sustainable business processes may be one of the most pressing issues for MSMEs because it is the only way to future-proof themselves.

How India’s MSME landscape can be better equipped to transition to a greener future
'Green trucking' is a fast-emerging concept for sustainable supply chains, and this goes beyond just EV and hydrogen fuel-based fleets.

By Rahul Garg  

Sustainability for MSMEs: It is no secret that we find ourselves amidst a climate crisis that demands our attention and action. With many nations committed to attaining net zero emissions by 2030, time is of the essence. It is one of the primary reasons why there is a pressing need for organizations across the globe to prioritize their ESG Goals. Net zero goals are ambitious but possible. Among other things, organizations must strive to assess and re-imagine their supply chains. According to a research report by McKinsey, the supply chain of a company offering consumer goods is the major contributor to its aggregate environmental impact. For example, 80 per cent of an organization’s greenhouse gas emissions and 90 per cent of its overall effect on the ecosystem result from run-of-the-mill supply chains. 

Why Sustainable Supply Chains Are the Key to Attaining ESG Goals 

Since it constitutes a significant component of its overall carbon footprint, it is critical to analyze every layer in the supply chain and determine ways to make it more sustainable. Not only will it help future-proofing a business, but it’ll also enhance brand equity. Today, 83 per cent of consumers believe companies must prioritize ESG best practices. According to a research report by McKinsey, the supply chain of a company offering consumer goods can account for over 80 per cent of greenhouse gas emissions. For MSMEs, unsustainable supply and sourcing practices may also be one of the primary reasons behind their significant contribution to carbon emissions. 

Partnering with suppliers who follow sustainable practices is one of the more effective ways to reduce the carbon footprint of small business supply chains. MSMEs can also identify the points in their supply chain that lead to maximum wastage or emissions and focus on making these weak points greener and more eco-friendly. Optimizing logistics can also work wonders because it directly impacts the carbon emissions of an MSME. 

Cost benefits aside, such an approach can ensure resilience against various disruptions. Not only is ushering in sustainability in supply chains conducive to organizations’ ESG goals and pivotal to the more significant cause of fighting climate change and protecting our planet. From many suppliers causing data availability and visibility issues to global events such as the recent Covid-19 pandemic stalling the supply of essential raw materials, from the rise in international freight charges to the restriction on the movement of goods across borders, there are gaps aplenty in the supply chains of most companies as they stand – gaps which can be sewn together with the glue of sustainable practices and solutions. 

Future-proofing MSMEs with sustainability 

With our sights set on a net zero emissions economy in India by 2070, we may have a more liberal timeframe to achieve our target. Nevertheless, with our carbon emissions increasing yearly, we will no doubt have to fast-track our journey toward a more sustainable future. The role of MSMEs in contributing to this green target cannot be stressed enough.  

With India being home to around 63.05 million micro industries, 0.33 million small businesses, and approximately 5,000 medium-sized enterprises, the role of MSME is integral to a sustainable economy. On the one hand; the MSME sector contributes about 30 per cent of India’s gross domestic product. But on the other hand, as a report by the Centre for Study of Science, Technology & Policy (CSTEP) revealed, the sector also generates around 110 million tonnes of CO2 equivalents. 

Given these two dichotomous details, keeping the MSME industry running effectively while supporting small businesses to adopt more sustainable business practices is essential. Here is how we can make India’s MSME landscape better equipped to transition to a greener future.  

Facilitating easier availability of capital 

Many sustainable practices may be capital-intensive, at least initially. While large organizations may have the funds to support the transition to greener business practices, MSMEs may need help to raise the necessary capital to fund sustainable operations. A recent National Institute of Rural Development and Panchayati Raj study revealed that 90 per cent of MSMEs rely on informal and unsecured loans for their working capital requirements. With such constraints, it can be more challenging for MSMEs to switch to sustainable economic practices.  

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A practical workaround can be increased green financing and better access to capital for sustainable MSMEs. In addition, support from public financial institutions in the form of green loans can help medium-sized and small businesses accelerate their journey toward a more environment-friendly business model.  

The good news is that we are making noticeable progress because, in June 2021, the World Bank approved a $500 million program to support the Indian government’s attempt to revive and strengthen the MSME sector. And around a year later, in July 2022, the Indian government sanctioned over 10 million loans under the Pradhan Mantri MUDRA Yojana (PMMY) for developing MSMEs. This financial support can help overhaul the MSME landscape and transform it into a future-ready industry capable of taking on the larger conglomerates.  

Technology to the Rescue 

Another critical element of the transition to a sustainable supply chain is leveraging technology. Digitalization has brought about unprecedented reforms in all major sectors of the economy, and it holds the potential to optimize supply chains. Moreover, with real-time visibility and centralized databases, supply chain bottlenecks and pain points can be successfully addressed. 

For instance, Blockchain solutions can strengthen the supply chain with workflow mechanization and multi-layer visibility, providing data integrity and quicker reconciliation between the business partners to the organizations. In addition, the service is based on accelerators such as possible governance standards, software assets, algorithms, and recyclable technology designs. 

Companies are also leveraging Supply Chain Control Towers (SCCT) to optimize their existing frameworks. SCCT being a central hub that provides end-to-end visibility of operations leads to faster information flow and integration of timely restorative procedures to decrease or eliminate disruptions. 

Also read: What does cash flow-based lending mean for the future of underwriting credit for MSMEs

Further, ‘Green trucking’ is a fast-emerging concept for sustainable supply chains, and this goes beyond just EV and hydrogen fuel-based fleets. Apart from this, more straightforward solutions such as FTL (Full truck load) are the first step towards supply chain optimization. In addition, reducing empty miles and decreasing fuel waste contributes to overall efficacy. 

Technology is also transforming packaging solutions, with companies switching to reusable pallets and containers built for decades and meeting all performance guidelines of spillage-proof, chemical-spills, chemical-resistance, and insulation during harsh shipping ecosystems. For instance, Dow Chemical uses reusable and collapsible drums and containers. 

For MSMEs, the road to the future is the path of sustainability. Even without adopting greener practices, MSMEs have many challenges to tackle. However, embracing sustainable business processes may be one of the most pressing issues for MSMEs because it is the only way to future-proof themselves. Fortunately, with the right action plan, MSMEs in India can embrace more environment-friendly business practices without compromising their profitability. This formula will undoubtedly help MSMEs not just survive but thrive in the net-zero future we envision for India. 

Rahul Garg is the CEO and Founder of Moglix. Views expressed are the author’s own.

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