FAIR PLAY FOR MSMEs: Making ESG a gateway, not a gatekeeper

SYNOPSIS

ESG standards are essential for businesses but often burden India’s MSMEs due to high costs, complex rules, and financing hurdles. With simpler norms, support, and incentives, ESG can become a growth opportunity—helping MSMEs access markets, stay resilient, and grow sustainably.

Empowering MSMEs by turning ESG into an enabler of growth, not a barrier.

Environmental, Social and Governance (ESG) criteria have in recent years gone from being an option to being a minimum standard expected of companies across the world. Investors, regulators and consumers are increasingly looking for transparency and accountability in the way businesses operate.Certainly, ESG has transformed from an entry point to international markets to a potential obstacle/barrrier – especially for MSMEs (Micro, Small and Medium Enterprises). MSMEs are the backbone of economies like India, accounting for more than 30% of GDP, 45% of exports and with the MSME sector following agriculture as the second largest employer in India, creating jobs and facilitating entrepreneurship. Nevertheless, many MSMEs miss out on opportunities routinely, including opportunities that support ESG frameworks designed in relation to big companies.

ESG as a gatekeeper:

 • Elevated expenses: Compiling comprehensive reports or funding audits and certifications demands financial resources and labor that most small companies lack.

• Complexity: ESG frameworks are typically designed for large multinational corporations with dedicated sustainability teams, rather than for first-time entrepreneurs or family-owned businesses.

• Financial obstacles: Lenders and investors are progressively requesting ESG disclosures prior to providing loans. For companies already facing cash flow issues, this can close off access to essential funds.

ESG as gateway 

For many MSMEs, ESG (Environmental, Social, and Governance) rules can feel like a burden. But if seen differently, they can actually open doors for growth. The following are the reasons.

Simpler rules: 

Instead of assuming that small businesses can do extensive reporting like large businesses can, regulators can simply say "we care about the basics".Simple tools and education: The inexpensive apps and education can help MSMEs gather and report ESG data without having to hire expensive consultants.Rewards, not penalties: rather than penalizing small companies for being non-compliant, small companies would receive motivation to make early moves on ESG through low-cost loans, tax relief and better access to markets.Guidance from larger businesses: large companies can assist smaller businesses within their supply chain through knowledge, resources, and, sometimes, even capital.

Why It's Important

For MSMEs, ESG is not just about checking boxes but rather future-proofing their business and their competitiveness. Global buyers are extensively looking for sustainable partners and climate-related risks often have a larger impact on smaller firms. By adopting ESG in a way that fits their size and capacity, MSMEs can:Enter new markets, stay resilient against sudden changes in rules or climate andBuild a stronger reputation that also attracts good talent.

Conclusion:

ESG should not leave small businesses behind. Done right, it can help them grow responsibly and sustainably. The onus is on policymakers, investors, and larger companies to make ESG practical, supportive, and inclusive for MSMEs.

Hardi Dodia