OPINION: How India can empower MSMEs to achieve Net-Zero

The potential for achievement through collective action often surpasses individual effort. In the face of increasingly complex global challenges, chiefly those precipitated by climate change, the same notion holds true for Indian and international micro, small and medium enterprises (MSMEs). As we celebrate International MSME Day, it is important to recognise the role that these businesses must play in combating climate change, the initiatives they are already taking, and how policy, finance and technology can facilitate their journey further to being more sustainable.

MSMEs collectively account for approximately 90 percent of businesses worldwide. In India alone, they are responsible for about 30 percent of the country’s GDP, employ 110 million workers, and have a 49 percent share in exports. Concurrently, Indian MSMEs generate around 110 million tonnes of carbon dioxide annually, as per a 2018 report published by the Centre for Study of Science, Technology and Policy. Undoubtedly, these businesses will have to be critical drivers towards achieving India’s goal of carbon neutrality by 2070. They are also a pivotal piece in meeting global decarbonisation targets.

At the same time, the MSME sector is extremely vulnerable to climate change risks and other external shocks such as the pandemic and market downturns. The domino effect of such risks impacts infrastructure, operations and resources, leading to financial crises, job losses, and migration.

Furthermore, MSMEs are facing increasing buyers’ demands, and tightening international and national regulations, necessitating stronger action in terms of sustainability. Prime Minister Narendra Modi has pledged India’s commitment toward carbon neutrality by 2070 at COP26 in Glasgow, propelling the government to implement new laws, affecting businesses of all sizes. These include a ban on the use of diesel gensets, and the use of fossil fuels by industries in Delhi NCR with effect from May 2023. These have affected MSMEs, necessitating support and assistance to enable their transition to sustainable products and processes. It is in the best interest of MSMEs in India – and globally – to take action.

The race to net-zero emissions is a global effort, with countries, cities, and businesses committing to reduce their carbon footprint. However, the transition to carbon neutrality for MSMEs needs to be seen in the context of the existing challenges that are distinctive to these businesses, such as those related to global competitiveness, small scale production capacity, access to technology upgradation and credit, and building a skilled workforce. Despite these barriers, many MSMEs are taking significant steps to reduce their emissions in the transition to a low-carbon economy.

A survey carried out by the SME Climate Hub (a global initiative to support MSMEs action on reducing GHG emissions) reveals that small businesses are conscious of their role in fighting climate change and are not averse to changing tack in order to take climate-positive actions in their operations.

The easiest way is to start small, with steps that do not require overhauling the way they currently operate, making the transition smoother, and leading to far greater impact in the long run. For example, a business engaged in the design and manufacture of mechanical fluid systems and process equipment has opted to construct LEED platinum rated green buildings. These incorporate cutting-edge technologies, sustainable materials, and innovative design strategies to minimise their ecological footprint through energy efficiency and other resource efficient practices.

An increasing number of Indian MSMEs have joined the race by embracing changes to reduce emissions. Indian MSMEs are contributing to reducing GHG emissions through a wide range of measures, such as the use of clean energy, establishing energy-efficient manufacturing processes, promoting recycling and waste reduction, and adopting sustainable transportation practices. These efforts have not only helped in reducing emissions but also lowered costs, improved productivity, and increased competitiveness.

Numerous Indian MSMEs and start ups are also now offering climate friendly products and services. For example, an India-based water, sanitation and hygiene (WaSH) company is offering sustainable WaSH infrastructure while focusing on the issue of access. Their WaSH solutions have circularity built in – leading to resource recovery from waste water. The decentralised nature of the solutions helps in reducing the organisation’s carbon footprint and avoiding high capital expenditures.

Research in circular apparel and sustainable food systems has identified many innovations, digital solutions and SME offerings that reduce, repurpose and recycle waste; thus helping reduce carbon emissions.

Several positive developments are facilitating the transition in the MSME sector. Digital solutions such as the SME Climate Hub offer a suite of free innovative online tools and services that allow MSMEs to measure and track their carbon footprint. Government initiatives, such as the Ministry of MSME (MoMSME) sustainable energy programs in collaboration with the United Nations Industrial Development Organisation (UNIDO) demonstrate technological solutions for decarbonisation that offer strong potential for mass scaling among Indian MSMEs.

Financial institutions are also stepping in to assist MSMEs in their sustainability journey. The journey towards a climate-smart MSME future requires finance and lending windows to be available at concessional rates. This will help MSMEs overcome the incremental cost of clean technologies with adequate technical handholding support. Some of the initiatives include green finance products, risk mitigation tools, investments in micro artisanal clusters, and solar rooftop programs amongst others.

While there have been advancements in the decarbonisation of the Indian MSME sector, capital constraints are relatively higher for smaller businesses, rendering some MSMEs more risk-averse compared to larger businesses. The onus must be on governments and stakeholders to further arm these businesses with sound support in the form of policy incentives, adequate financing, access to training and expertise, relevant research and development and access to markets. Additionally, an overarching climate action plan for the Indian MSME sector can be designed by the government to provide strategic direction and build the impetus required to facilitate change on a larger scale. Financial institutions must prioritise sustainable financing for the MSME sector and develop innovative and affordable financial products. Ambitious and stable policies can go a long way in building momentum.

Embedding sustainability in business operations is now inevitable. MSMEs should take proactive steps towards carbon neutrality as well as climate resilience. They must take ownership with respect to building capacity and knowledge using publicly available tools and resources in order to ensure their resilience and enhance their competitive edge. The only way MSMEs can future-proof themselves is by significantly stepping up their ambition to forge their way to a carbon-neutral, sustainable future.

[This piece was authored by Devyani Hari and Pallavi Ahuja

  • Published On Jun 26, 2023 at 11:24 AM IST

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