Micro, small and medium enterprises popularly known as MSMEs are present everywhere and their definition varies from country to country based on the numbers of employees and turnovers. According to the United Nations Department of Economic and Social Affairs (UNDESA), there are around 365-445 million MSMEs in emerging markets. They are an integral part of larger value chains. They are said to be the backbone of the respective nation’s economic and social development. They contribute 50 per cent of the global GDP.
On the sustainability front, MSMEs can play a huge role towards achieving Sustainable Development Goals (SDGs). Presently, according to the data from International Finance Corporation (IFC), women constitute a fifth of the total workforce in the MSME sector. However, there is a large scope for MSMEs to be the flag bearers of gender equality and women empowerment as women can be given equal footing in several sectors that MSMEs have a hold of. MSMEs also have the potential to become more energy efficient. Even though the carbon footprint of an individual MSME is not much, the combined impact of numerous MSMEs can beat the carbon footprint of large businesses. According to the Bureau of Energy Efficiency (BEE), MSMEs can contribute up to 60-70% of pollution levels in developing economies. Further, they can play a crucial role in water and waste management, building sustainable infrastructures and sustainable cities, helping combat climate change and its impacts urgently and protecting and restoring all ecosystems. There is a large sustainability market for MSMEs out there.
However, a common thought process that runs across the majority of MSMEs is that ‘sustainability’ is for larger corporations.
MSMEs lack of awareness
The majority across the MSME spectrum carries a negative perception of sustainability. Where the main focus of MSMEs does not lie in creating an impact but in generating profits, they feel that sustainability would hamper their number game. They think that adopting sustainability would run against their business interests. But this is where their lack of awareness compels them to think so.
Another area where they fall behind is their lack of knowledge of the needed information and technology. They have limited access to the sustainability market as not many of their peers are in the sustainability game. Due to this, they are not aware of an array of clean alternatives that exist out there. Because of the limited knowledge of MSMEs, they are also unable to provide training in sustainability-related practices to their personnel.
MSMEs also hold an opinion that sustainability is expensive and arranging credit to adopt sustainable practices is not worth the money. They think that the cost of sustainability compliance is quite high. MSMEs are known to prefer economical solutions. But low-cost options may not always be the best for them.
Time to break the myth
It is time to break the myth that sustainability and profitability cannot coexist. The reality is far away from this and rather quite the opposite. Experts believe that integrating sustainability within a company’s business is a better business model. MSMEs need to learn and keep themselves updated on emerging technologies in their domain and market innovations. There are several green options ranging from energy efficiency, waste management, green construction and others. MSMEs need to identify which green alternatives work best for them. Even though welcoming sustainability can be a bit cost-bearing at the start, it will surely reap profits and benefits in the long run.
Another obstacle that MSMEs think of is that credit is not readily available. But on the contrary, many financial institutions have exclusively launched a new set of loans ahead of promoting sustainable practices. These sustainability-linked loans or ESG-linked financing options are a golden opportunity for MSMEs to let sustainability into their businesses. These loans have low-interest rates and are provided to companies that wish to incorporate sustainability and plan to take action on this.
It is time for MSMEs to realise that sustainability is the future. Sooner or later all companies will have to make their business models sustainable owing to regulatory changes, market demand and a shift in consumer preferences. Now, a company that realises and acts upon this at an early stage will be ahead in the game, leaving its competitors behind. Integrating sustainability will thus give a competitive edge to MSMEs in the market.
Promoting the growth of MSMEs in line with ESG can be a game-changer for a country. Thus, a lot of initiatives and workshops by the government, media, non-government organisations and social groups on sustainability education should be carried out for MSMEs to spread awareness among them. The government should come up with the idea of incentivising MSMEs if they resort to ESG-friendly practices in the form of tax benefits or something else. They should feel motivated and driven enough to adopt sustainability practices.
You can learn more about the same through an accredited ESG Expert Certification from Directors’ Institute.