Why ESG Matters for SMEs and MSMEs
In the dynamic landscape of modern business, sustainability isn't just a buzzword; it's a mandate. From multinational corporations to small startups, the world is awakening to the imperative of Environmental, Social, and Governance (ESG) considerations. As industries evolve, consumer expectations shift, and global challenges like climate change loom larger than ever, the need for responsible and ethical business practices has become crystal clear.
With regulators like SEBI demanding companies to report on ESG policies and RBI recommending banks to include norms for measuring ESG effects in borrowers’ credit evaluation, India is experiencing a significant increase in the adoption of ESG policies.
While ESG principles have traditionally been associated with large conglomerates and Fortune 500 giants, a new narrative is emerging - one that champions the role of Small and Medium Enterprises (SMEs) and Micro, Small, and Medium Enterprises (MSMEs) in driving sustainable change. These smaller players may not have the global reach or vast resources of their corporate counterparts, but they are proving to be vital contributors to a more sustainable future.
In this blog, we will delve into a critical aspect of this journey: ESG performance tracking. For SMEs and MSMEs, it's not just a choice; it's a strategic necessity. We'll explore why measuring and managing ESG performance can be a game-changer, not only in terms of social and environmental responsibility but also for the long-term success and resilience of these smaller businesses.
The Significance of SMEs and MSMEs in India
The ESG framework is still in its infancy in India, and the Indian Government has been steadily implementing ESG regulations over the last decade. Although the current Indian regulations focus on bigger companies, small and medium-sized enterprises (SMEs) and micro, small, and medium-sized enterprises (MSMEs) play a major role in building India’s economy.
Micro, small, and medium enterprises are often recognized as the cornerstone of India's economy. Beyond contributing to nearly 27 per cent of the nation's GDP, they play pivotal roles in fostering job opportunities, driving exports, and influencing the credit landscape within the country. According to Forbes, a staggering 96% of industrial units in the Indian economy are attributed to small-scale enterprises. Remarkably, the MSME sector accounts for the creation of 360.41 lakh jobs out of a total of 11.10 crore jobs. With an average growth rate of 10%, SMEs and MSMEs are the backbone of India’s economy.
There is a strong business use case for SMEs and MSMEs to adopt sustainable practices. Big corporations are starting to base their procurement decisions more and more on sustainability factors, including carbon footprint/emissions, sustainable materials, etc. The need for businesses to be more sustainable is crucial in the current environment, which includes growing climate change uncertainties, widespread supply chain disruptions, rising resource scarcity, and a call to action for companies to address their negative environmental and social impacts.
Sustainability is becoming the main differentiator for large buyers to identify suppliers in their value chains. International initiatives like the EU Green Deal, which must be implemented by 2050, and the follow-up EU Circular Economy Action Plan have broad ramifications and will affect supply chains.
Why is it crucial for SMEs to assess their ESG performance?
ESG is a strategic imperative for SMEs and MSMEs in India. Embracing ESG principles can accelerate growth, mitigate risks, enhance reputation, attract top talent, and foster innovation. As responsible business practices gain momentum globally, Indian SMEs and MSMEs have a unique opportunity to position themselves as dynamic, trustworthy, and influential contributors to the country's sustainable economic development.
Bigger companies are reshaping their supply chains by choosing only sustainable suppliers. Companies that adopt ESG practices can gain a competitive edge by staying ahead of regulatory changes and consumer preferences. By integrating ESG into their strategies, SMEs and MSMEs can identify emerging opportunities and differentiate themselves from their peers.
The Synesgy Advantage
Synesgy is a global digital platform engineered to simplify and enhance the way organizations evaluate their Environmental, Social, and Governance (ESG) performance. The tool is based on a comprehensive set of ESG criteria that are aligned with leading ESG frameworks, such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB).
To use the tool, you simply need to create an account and answer a series of questions about their ESG performance. The questions are designed to assess the company's ESG performance in a variety of areas, such as climate change, energy management, water management, waste management, human rights, labour practices, and corporate governance.
Once the company has completed the self-assessment, they will receive a personalized report that highlights their strengths and weaknesses in each of the three ESG categories.
Synesgy can help SMEs and MSMEs:
- Perform self-assessments to check their sustainability level.
- Get verifiable ESG data.
- Obtain actionable insights to drive improvements.
- Assess ESG compliance through the Synesgy score model, which allows an easy visualization of the score obtained in the 5 macro areas of ESG compliance.
- Evaluate ESG performance.
Synesgy's solutions are designed to help SMEs and MSMEs improve their ESG performance and reap the benefits of ESG, such as attracting and retaining customers and investors, gaining a competitive advantage, and enhancing their sustainability performance. Synesgy can simplify sustainability assessment and make your business ESG-ready.