Bhoomika Singh
“MSMEs in India have huge technology and investment finance needs and gaps compared to the developed world and large companies in India need to move towards green and low carbon pathways,” points out Sivasubramanian Ramann, Chairman & Managing Director of SIDBI in the report.
This is a rather concerning thought at a time when sustainability is a crucial topic, as we continue to face environmental and social challenges that threaten our planet’s future. It is crucial for businesses, especially small and medium-sized enterprises (MSMEs), to adopt sustainable practices to ensure their long-term success and to contribute towards creating a more sustainable world.
Meanwhile, India’s recent announcement to reduce 45 per cent of its emissions, achieve 50 per cent renewable energy, get to 500 GW of non-fossil fuels by 2030, and reach the goal of net zero by 2070 has put it in the right direction towards achieving low carbon emissions and green transitions across various sectors of the economy including the MSME sector.
A recent report by SIDBI and D&B named The Sustainability Perception Index of MSMEs in India sheds light on sustainability awareness among the MSMEs in India. According to the report, the Sustainability Perception Index for MSMEs in India is 46. This is considered as a lower middle range on the index. This also means that there is a lack of awareness and understanding of sustainability issues among the MSMEs in the country.
Commenting on how MSMEs are lagging in their awareness of sustainability, SIDBI’s MD, Sivasubramanian Ramann asserts that the affordability and accessibility of cutting-edge technologies and the availability of low-cost finance play an enabling role in facilitating the economic transition towards a low carbon/ net zero trajectory while maintaining sustainable growth.
While there has been an increase in the number of MSMEs focusing on sustainability, the report has some interesting findings on the still significant gap between awareness and action. Let’s go through some of the interesting key takeaways from the report.
Three dimensions of sustainability perception
The Sustainability Perception Index (SIDBI – D&B SPeX) is the first Index which measures perception across the three dimensions of sustainability (willingness, awareness, and implementation).
Amongst the three stages of sustainability (willingness, awareness, and implementation) perception, the sub-index for willingness is the highest at 61. This suggests that MSMEs are willing to adopt sustainability measures. On the other hand, implementation and awareness perception is in the lower middle range, with a sub-index value of 41 and 40, respectively.
According to the report, the gap between “talk” and “walk” points to issues of time and resources. The committed and defined steps require an investment from senior management. However, the implementations, such as training, incentives, measurement systems, and disclosures of sustainability policies and practices require greater commitments of time and resources including funding.
Awareness of opportunities arising from implementing sustainability measures
The report indicates that the awareness of sustainability measures is low amongst MSMEs. 69 per cent are only partially aware of the opportunities for implementing sustainability measures and of the relevant sustainability factors for their business, sector, and geography. Also, only 13 per cent of MSMEs are fully aware of the opportunities for implementing sustainability measures, and 18 per cent are completely unaware.
MSMEs are also only partially aware of the sustainability factors that are relevant to their operations and sectors or of the factors that are pertinent to their areas of operations and the geographies in which they are located.
Awareness of sustainability factors
The majority of the MSMEs surveyed are partially aware of the sustainability factors relevant to their business, sector, and geography. 69 per cent are partially aware, only 11 per cent are fully aware and 19 per cent are completely unaware.
Outcomes of sustainability adoption
According to MSMEs the top 3 positive outcomes from sustainability initiatives are a positive impact on the bottom line (23 per cent), an impact on employee retention (21 per cent) and positive outcomes on lives/communities (20 per cent).
Only 19 per cent of MSMEs consider their sustainability initiatives to have an impact on client retention or acquisition.
How are MSMEs implementing sustainability measures
When it comes to implementation, MSMEs prioritise their economic goals followed by their social and environmental goals:
66 per cent of MSMEs do that by paying taxes, while 51 per cent considered complying with legal regulations.
The report also says that 42 per cent of MSMEs target sustainable growth considering future generations and 26 per cent make investments to create a better life for the future generations. While 31 per cent of MSMEs participate in activities to protect and improve the environment, only17 per cent implement special programmes to minimize their negative impact on the environment.
Factors enabling implementation of sustainable practices
Many MSMEs are aware of the benefits of sustainable practices such as the reduction in costs, the increase in efficiency, and the improvement in brand reputation, but are still struggling to implement them.
When asked about what factors would enable MSMEs to implement sustainable practices, 35 per cent of MSMEs cited cost reduction as the most important enabling element in the poll.
This was followed closely by internal management motivation (34 per cent), and government laws and regulations (33 per cent). MSMEs do not see incentives or consumer demand as major factors driving them to adopt sustainable practices.
Challenges in implementation of sustainable practices
There are several reasons for why the MSMEs in India may be struggling to incorporate sustainable practices into their operations, such as a lack of resources, limited access to information, and a general lack of understanding of sustainable practices.
The most major obstacles identified by 23 per cent and 22 per cent of MSMEs, respectively, are the availability of technical know-how and established operational processes.
18 per cent of MSMEs saw the clarity of the advantages as a challenge, and 18 per cent felt that the internal desire to change is challenging. While 18 per cent believe that the availability of funding is an equally tough challenge that might hamper implementation.
Awareness of green finance policies
Green financing is financial aid that promotes environmentally positive activities. Simply put, it is a loan or an investment from banks, PPP modes or from other institutions.
If MSMEs are aware of green financing, it will help them to overcome some of the barriers to implementing sustainability measures, such as a lack of technical know-how and established operating procedures, or a lack of buy-in from the leadership team to adopt the measures.
Only 11 per cent of MSMEs are fully aware of green finance policies, while 52 per cent are completely unaware about them. 35 per cent are partially aware of them and only 3 per cent have availed themselves of such a scheme.
The survey was conducted on a sample database of MSMEs with annual revenues ranging from Rs 5 crores to Rs 250 crores across different sectors and regions in India, to gauge their awareness and adoption of sustainable business practices. Overall, the report emphasizes the need for a greater collaboration between government, industry, and civil society to promote sustainable business practices in MSMEs.
It also calls for greater investment in research and development, capacity-building, and technology transfer to enable MSMEs to adopt sustainable practices more effectively. By doing so, India can ensure that its MSME sector remains competitive, resilient, and sustainable in the long term.
Managing Director & CEO of Dun & Bradstreet, Avinash Gupta says, “The survey findings indicate a large disparity between “speak” and “walk”. Willingness is an essential and natural first step in demonstrating the importance of a sustainable agenda and the process of integrating principles into strategy and operations. Equally important is ensuring that actions are taken to bring the aims and values to life, that the company’s strategy is updated based on results and the lessons learnt, and that progress is successfully communicated.”
“There is much room for advancement in areas such as conducting impact and risk assessments. Monitoring the changes in perception, adoption and quantification will allow the development of a strategic framework to nudge MSMEs to integrate sustainability initiatives into their overall business strategies, thereby assisting India in meeting its sustainability goals,” he further adds.
