Indian MSMEs and ESG

The regulatory landscape for Indian MSMEs has shifted dramatically with the Securities and Exchange Board of India’s (SEBI) Business Responsibility and Sustainability Reporting (BRSR) Core framework. This framework now requires India’s largest listed companies to report not only on their own Environmental, Social, and Governance (ESG) performance but also on the ESG practices of key value chain partners—including MSMEs.¹

Scope and Coverage²

1. Applicability: From FY 2024–25, the BRSR Core value chain disclosure applies to the top 250 listed entities by market capitalization, with phased expansion in subsequent years.
2. Value Chain Reporting: Companies must report ESG data for their top upstream (suppliers) and downstream (customers) partners that individually account for 2% or more of purchases or sales, or collectively represent at least 75% of total purchases and sales by value.
3. KPIs: Reporting covers greenhouse gas emissions, energy and water use, circularity, and social factors attributable to the listed company’s business with each value chain partner.
4. Timeline: Mandatory value chain ESG disclosures begin in FY 2025–26, with third-party assessment or assurance required from FY 2026–27.
5. This means MSMEs that are part of the supply chains of large corporates must now demonstrate their sustainability credentials—or risk exclusion.

The Business Case for MSMEs Going Green

1. Continued Access to Large Corporate Supply Chains: With large companies under regulatory pressure to disclose their value chain’s ESG performance, MSMEs unable to provide relevant sustainability data or demonstrate green practices risk being replaced by more compliant competitors.
2. Market and Export Opportunities: Many global buyers and Indian corporates now require ESG compliance from suppliers. MSMEs with green credentials gain access to new markets, preferred vendor status, and export opportunities, especially as international regulations tighten.
3. Cost Savings and Efficiency: Adopting green practices—energy efficiency, waste reduction, renewable energy—reduces operational costs and improves margins, directly benefiting the bottom line.
4. Regulatory Preparedness: MSMEs that align early with BRSR and other ESG frameworks are better positioned for future regulations, including potential carbon taxes, border adjustments, and mandatory disclosures.
5. Enhanced Reputation and Financing: Demonstrating ESG leadership boosts credibility with customers, investors, and lenders, and can improve access to green finance and government incentives. Companies with strong ESG credentials often enjoy better access to financing and lower costs of capital.

Challenges Hindering MSMEs’ Green Transition³

Despite the clear benefits, MSMEs face significant barriers:

1. High Upfront Costs: Transitioning to green technologies requires capital, which is often scarce for MSMEs operating on thin margins.
2. Limited Access to Green Finance: Only about 10% of MSMEs access formal green finance, mainly due to collateral and credit barriers. A third are unaware of major schemes like ZED certification.⁴
3. Infrastructure Gaps: Many MSMEs, especially in tier II and III cities, rely on outdated machinery and diesel generators due to unreliable power grids.
4. Technological and Knowledge Constraints: Lower technological sophistication and lack of awareness about sustainability frameworks impede progress.
5. Opportunities on the Horizon
6. Sustainable practices are opening new markets and enhancing credibility, especially for MSMEs in global supply chains where environmental compliance is increasingly mandatory. For example, textile MSMEs in Tiruppur have adopted Zero Liquid Discharge systems to meet stringent European export requirements.

The Numbers⁴

1. Solar Adoption: By 2024, 21% of Indian MSMEs were powered by solar energy, and 31% had adopted energy-efficient machinery.
2. Rooftop Solar: Installations reached 11.87 GW, cutting average power bills by 30% and typically paying for themselves within three to five years.
3. Emission Reductions: This shift could potentially reduce CO₂ emissions by 110 million tonnes annually.
4. State Leaders: Textile and chemical industries are leading the transition, with Gujarat, Maharashtra, and Kerala making significant progress, and other states like Uttar Pradesh eager to join the movement.
5. If this momentum continues, MSMEs could contribute up to 50% of India’s 2030 renewable energy goal—a transformative impact for the nation’s sustainability ambitions.
6. However, not all numbers are positive: The Government of India launched two schemes to help MSMEs adopt environmentally friendly technology, the MSME GIFT (Green Investment and Financing for Transformation) Scheme, which focuses on supporting MSMEs to adopt clean and green technologies through concessional finance and risk-sharing, and the MSME SPICE (Scheme for Promotion and Investment in Circular Economy), which aims to incentivize MSMEs to implement circular economy practices such as recycling, reuse, and resource efficiency, primarily through capital subsidies. As of December 2024, MSME SPICE had assisted only six MSME accounts, with one reported beneficiary from Ahmednagar, Maharashtra. The total expenditure was ₹1.31 crore out of the ₹472.5 crore budget⁵… and as for MSME GIFT, as of July 2025, there are no published official numbers from the Ministry of MSME, SIDBI, or other government sources specifying the exact number of MSMEs that have received benefits under the GIFT scheme. The World Bank’s implementation report on the broader RAMP program (which includes GIFT) notes that as of November 2024, the program had disbursed $231 million (about 46% of the total loan) for MSME competitiveness and green technology adoption, but does not break down numbers specifically for GIFT.⁶

The Road Ahead: From Compliance to Competitive Advantage

The SEBI BRSR Core mandate is more than a compliance requirement; it’s a catalyst for a fundamental shift in how Indian MSMEs operate. Integrating ESG principles is no longer just about risk mitigation—it’s about unlocking new business opportunities, future-proofing operations, and contributing to India’s global climate commitments.

For MSMEs, the message is clear: Going green is not just good for the planet—it’s now essential for business survival and growth.

Sources

1. BRSR Core – Framework for assurance and ESG disclosures for value chain
2. SEBI’s Latest ESG Disclosure Reforms: Impact on Indian Businesses and Compliance Strategies
3. The missing link: Why MSMEs need more than just budgetary support for green growth
4. Sustainable development: The rise of green MSMEs
5. MSE-SPICE Scheme
6. Raising and Accelerating MSME Performance (P172226)