Partnership is Key if SMEs are to Greener Business Models

The transition to a low-carbon economy necessitates robust policies and regulations that help SMEs embrace eco-friendly practices. Since they are crucial to global economic systems, it is vital to introduce favourable policies, simplified regulatory compliance and joint initiatives to reach broader sustainability targets.

Government bodies and global organisations can significantly contribute to this shift by offering financial rewards, technical support and skill-development programmes.

Batting for Green Operations

In developing nations, SMEs employ half of the workforce and two-thirds of non-agricultural workers. Large companies must assess their entire supply chain, which often comprises small businesses.

India has introduced several initiatives to promote sustainability and foster women-led entrepreneurship. The Zero Defect, Zero Effect (ZED) Scheme incentivises eco-friendly manufacturing and is free for women-led MSMEs, with the government covering certification costs.

The Raising and Accelerating MSME Productivity (RAMP) Programme has launched three sub-schemes to improve environmental sustainability, financial accessibility and operational efficiency. Of them, the MSE Scheme on Online Dispute Resolution for Delayed Payments employs legal expertise, IT solutions and AI to resolve payment disputes efficiently, improving liquidity for micro and small enterprises.

Ramp also enhances synergy between central and state governments in MSME promotion, advances technology adoption and facilitates financial market access. The Support for the Commercialisation of Intellectual Property (MSME – SCIP) Programme helps entrepreneurs scale their innovations, contributing to India’s knowledge-driven economy.

Compliance Hurdles

While these policies enhance sustainability, SMEs struggle with compliance due to limited resources and expertise. The complexity and cost of adhering to stringent regulations can be daunting. To mitigate these challenges, governments and financial institutions offer grants, low-interest loans and technical assistance.

Simplifying reporting requirements and offering clear guidelines can reduce SMEs’ administrative burden. The International Sustainability Standards Board (ISSB) advocates proportional reporting standards, ensuring scalability to the size and capacity of enterprises, making sustainability reporting more accessible.

Public-private partnerships (PPPs), however, can accelerate SME sustainability, fostering collaboration between governments, corporations, financial institutions and SMEs. Initiatives like the World Economic Forum’s SME Sustainability Accelerator, in partnership with Schneider Electric, provide tailored insights and strategic guidance to help manufacturing SMEs navigate sustainability transitions.

Similarly, the Organisation for Economic Cooperation and Development’s (OECD) Platform on Financing SMEs for Sustainability facilitates global knowledge-sharing, improves access to sustainable finance and drives green technology innovation.

By aligning policy, capital and technical expertise, PPPs enable SMEs to overcome sustainability barriers and integrate climate-friendly solutions.

The Way Forward

Achieving scale in climate finance requires a collaborative, multi-stakeholder approach. India has made progress in fostering synergies between regulators, financial institutions and the private sector.

By developing tailored climate finance frameworks, it is proactively addressing its challenges in conformance with global best practices, ensuring a competitive yet locally relevant ecosystem.

A well-defined climate finance taxonomy is crucial, providing clarity and consistency in financing sustainable initiatives. While the government’s efforts to establish this framework are promising, timely implementation is essential to sustain momentum and translate policy commitments into measurable impact.

To unlock new capital flows, enhance investor confidence and accelerate SMEs’ transition to a low-carbon economy, several strategies must be prioritised. Developing financial instruments tailored for SMEs’ capital needs is vital.

Capacity-building initiatives can enhance awareness and financial literacy on sustainable investments. Establishing government-backed incentives and risk-mitigation mechanisms, such as guarantees and concessional financing, will encourage greater participation in green initiatives.

Strengthening partnerships between financial institutions and SME support ecosystems will improve funding access. Standardising sustainability reporting frameworks will drive transparency and facilitate green investment decisions. Leveraging technology to streamline reporting processes will improve data collection and accuracy.