MSMEs should focus on sustainability measures

It rings true that there has been a higher level of perception towards sustainability with regard to Indian MSMEs. But the brouhaha over sustainability practices, notwithstanding, a mindboggling 65 per cent of them are yet to have any defined sustainability targets; nearly 68 per cent have not established policy and procedures for sustainability, while 64 per cent do not have sustainability related compliance measures in place. One should not ignore the fact that the MSME sector contributes around 30 per cent to India’s gross domestic product and employs around 120 million people. At the same time, it generates around 110 million tonnes of CO2. Ironically, the sector is challenged with a lack of awareness and a formal financing structure while implementing sustainability practices. Although, these may be nothing to write home about, things have recently started looking up and there are certain bright spots as well.

A recent study (Q1-2023) report SPex (Sustainability Perception Index) by Dun & Bradstreet India and SIDBI, suggests a higher level of perception towards sustainability by Indian MSMEs. When it comes to intentions of adopting sustainability practices, during the period (Q1-23), the index value for awareness increased the most, from 40 to 62 while willingness witnessed a minor increase from 61 to 63.

The index value for implementation, however, remained consistent. The good thing is that MSMEs view sustainability initiatives to be a useful guide for responsible governance across all SPeX leadership categories. A higher share of businesses in the SPeX leadership category has activated the sustainability initiatives due to customer demand. Nearly 50 per cent of MSMEs claim to be fully aware of the improvement in brand image, cost reduction and attractiveness to various stakeholders due to adoption of sustainability measures and nearly 41 per cent of MSMEs claim to be fully aware of its impact on profitability. What are now prompting them to move towards actually embracing and executing sustainability practices? A staggering 90 per cent of MSMEs view cost reduction as the most crucial factor, motivating them to implement sustainability initiatives. Regulations are second most important (80 per cent), and 69 per cent view willingness to support sustainability as the most important factor. Peer pressure (28 per cent) and external factors (5 per cent) have the least influence on MSMEs adoption of sustainability measures. And it has been the increase in the awareness level which has driven the change in the Index as the level of implementation remained stagnant and willingness amongst SMEs saw a minor increase compared to last quarter.

Significantly, awareness about availability of low-cost funding (green financing) is low among MSMEs. Nearly 67 per cent have limited or no awareness of low-cost green finance options. Besides, three out of four also stated that they lack the internal expertise to create a sustainable business strategy. Availability of technical know -how (88 per cent) and capital (81 per cent) are the two biggest challenges faced by MSMEs.