Having an environment-friendly, sustainable operation is no longer an option today; it is almost a norm. With the way climate change is affecting the world, both large and small businesses are looking to invest in sustainability. Therefore, it’s imperative that India’s small businesses, which contribute 27% to the country’s GDP, must pay attention to this agenda.
Arpita Mukherjee, Professor, ICRIER, says that SMEs are increasingly participating in trade and are trying to link to their customers around the world. “They are becoming increasingly aware that to grow and participate in trade, they have to embrace sustainability. Hence, as environmental, social and governance (ESG) reporting is becoming a need of the hour, SMEs are aware of it and want to align their operations to comply with local and international laws,” she says.
According to a survey conducted by DBS and Bloomberg last year, 92% of Indian SME business leaders view ESG as an important requirement for their company. An equal percentage of Indian SMEs (surpassing the 80% average in Asia) also recognised the significant benefits of the global value chain — encompassing vendors, suppliers and customers — as a strong driving force for greater ESG adoption.
Sudarshan Chari, Executive Director & Head of SME Banking, DBS Bank India, says today, SMEs can implement various energy efficiency measures, from using renewable sources of energy to installing smart meters. “These efforts can help them become attractive options for the global supply chain that needs vendors to abide by sustainable sourcing principles. Additionally, monitoring performance on sustainability metrics and reporting progress to stakeholders enables SMEs to effectively identify opportunities for improvement and benchmark themselves with global peers,” he says.
SMEs can also seek support from industry associations, supplier networks and financial experts which can help expedite the adoption of sustainable practices, mitigate risks arising from climate change and increase competitiveness on the global stage, he adds.
Mukherjee points out that Indian SMEs, especially those exporting, are increasingly facing pressure to measure and manage their environmental impact. “They become part of the global supply chain, where there is a growing demand for sustainability management both from customers and suppliers, SMEs need to ensure they meet ESG requirements.”
Some of the benefits, apart from doing their role for the environment, that SMEs can gain from this include better access to new markets, customers and even reducing cost and material risks. “It goes beyond being a mere moral obligation and presents a strategic opportunity for SMEs to generate value and gain a competitive edge in the global marketplace,” Chari says.
However, with most of the SMEs coming in the micro section, not everyone is looking at sustainability with the same lens and has found it challenging to embrace sustainability.
DBS Bank’s Chari says that one of the main challenges businesses face when adopting sustainable practices is the need for more consumer awareness and demand for sustainable products and services. “Small businesses in particular may face challenges in achieving a satisfactory return on their sustainability investments if consumers or businesses are unwilling to pay a premium for sustainable offerings or do not prioritise sustainability when making purchasing decisions,” he says.
The report by DBS Bank and Bloomberg showed that 57% of Indian SMEs expressed concerns about the cost associated with implementing ESG initiatives, coupled with uncertainties surrounding the return on investment in sustainability; 87% of respondents from India cited a need for more knowledge in effectively measuring the success of their ESG projects as a significant challenge. In addition, approximately 60% of India participants identified insufficient funding as a critical concern when endeavouring to transition towards sustainable practices.
He says even though the government and many other organisations have tried to nudge them in this direction, it’s still a long journey ahead. In addition to the task of educating SME leaders and spreading awareness, implementing incentives based on environmental performance could serve as a compelling driver for adoption.
Mukherjee says that the government can provide support in capacity building and training for raising awareness about the significance of ESG principles for sustainable growth. “It can support in up-skilling and mitigating the knowledge and capabilities and provide incentives to firms to encourage adaptation of ESG and transparent and robust reporting practices. Government incentives can be linked to attaining UN Sustainable Development Goals (UNSDG) and the ILO's Decent Work Agenda,” she adds.
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