Micro, small, and medium enterprises (MSMEs) contribute 30% to India’s GDP and employ over 200 million people. They are essential links of supply chains and provide larger businesses with raw materials, components or targeted services. While the sector is a vital engine for economic growth, its significant aggregated environmental impact is cause of concern. Moreover, with limited resources at their disposal, the MSMEs often face multiple obstacles in achieving the desired sustainability goal.
The Decarbonising the MSME Manufacturing Sector in India report by the Center for Study of Science, Technology and Policy (CSTEP) estimates that these enterprises emit approximately 150-200 million tonnes of carbon dioxide equivalent annually, making up a significant portion of larger businesses’ total carbon footprint. Since reducing Scope 3 (or value chain) emissions is an integral part of large companies’ decarbonisation programs,
supporting their MSME supply chain partners to be more sustainable can prove instrumental in achieving environmental goals.
Barriers to Sustainability for MSMEs
MSMEs face multifaceted challenges in controlling their emissions. Energy consumption in manufacturing processes represents a primary area of concern. The report by CSTEP also finds that a substantial 80% of their total energy consumption is required for heating (operating boilers and furnaces). These demands are typically met from fossil fuels. Material sourcing and waste management present another challenge. Traditional linear production models, which follow a take-make-dispose approach, generate significant waste and consume resources unsustainably. When raw materials are not sourced locally, it adds to the carbon footprint of companies due to long-distance transportation and increases exposure to geopolitical disruptions and challenges in quality control.
Financial constraints also limit the capital available for green technology investments. Many small businesses operate on thin margins, making substantial environmental upgrades financially prohibitive. Specialised knowledge about sustainable technologies and environmental management systems presents another hurdle.
Complex regulatory landscapes further complicate their efforts as the required resources to comply might not be readily available. For instance, Extended Producer Responsibility (EPR) regulations hold manufacturers accountable for managing waste generated by their products. However, many MSMEs lack the financial and operational resources to comply
effectively.
Where do Large Businesses Step In?
Large corporations can play a transformative role in supporting their MSME supply chain partners transition their businesses towards sustainability. By integrating suppliers into green initiatives, these corporations can drive industry-wide adoption of eco-friendly manufacturing public processes. Providing structured frameworks and programmes and capacity building on energy efficiency, water conservation, greenhouse gas emissions computation and management, waste management, and renewable energy equips suppliers with the
knowledge and tools to implement sustainability measures effectively.
Assessment and feedback mechanisms are crucial in driving sustainable transformation. Transparent sustainability scoring systems provide clear, constructive guidance to suppliers and help them check the right boxes. These systems should evaluate environmental practices holistically, covering important parameters related to resource consumption and
overall carbon footprint.
By creating certification programmes or collaborating for third-party certifications such as GreenCo by Confederation of Indian Industry (CII) that provides holistic and robust approach to driving sustainability across business processes and recognises sustainable efforts, businesses can incentivise meaningful environmental improvements across their supply chains. Support during certification and implementation phases further ensures suppliers can meet evolving environmental regulations while conserving resources and reducing their environmental impact and operational costs.
Financial support can go a long way in helping MSMEs adopt greener technologies. While the banking and financial industry can create financial products that enable their suppliers to decarbonise, there is also an immense potential for cross-industry collaborations.
Partnerships between financial institutions, technology companies, environmental consulting agencies and think tanks can help create a favourable ecosystem where smaller organisations are encouraged to adopt sustainable practices and technologies. Tailored roadmaps that enable small and medium-sized suppliers incorporate practices like 5S, quality improvement, and productivity enhancement helps ensure that supply chain partners retain their competitiveness and quality even as they switch to greener processes.
Minimising Environmental Impact with Localisation
Eventually, the future of sustainable business lies in creating shorter, localised supply chains that prioritise resilience, efficiency, and environmental responsibility. This approach offers multiple strategic advantages, including reduced carbon emissions from transportation, enhanced supply chain robustness, lesser vulnerabilities for disruptions and greater support for local economies. By encouraging domestic manufacturing capabilities and diversifying vendor bases, corporations can create more adaptable and environmentally conscious supply networks.
As the climate crisis intensifies, all businesses – whether large or small – must view sustainability as a collaborative journey of mutual growth and environmental stewardship. Sustainable supply chains present an opportunity to drive innovation, improve operational efficiency, and create long-term value for all stakeholders. It is the responsibility of all businesses to come together and ensure that the nation’s progress follows sustainable pathways.
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