Supporting SMEs in Sustainability: Policy, Finance, and Collaboration

Governments, investors, and customers are increasingly favoring businesses that align with sustainability goals. Small and medium enterprises (SMEs), which are key contributors to the global economy, require more than policy support to reduce their environmental impact. While regulations and incentives are essential, access to finance, technical assistance, and simplified compliance processes play a crucial role in enabling SMEs to transition to sustainable operations.

Governments and international organizations are helping SMEs adopt eco-friendly practices through financial rewards, technical support, and skill-development programs. In developing nations, SMEs employ a significant portion of the workforce, making them integral to sustainability efforts. Large corporations must also assess their supply chains, which often include small businesses, to ensure sustainable practices across industries.

India’s Initiatives for SME Sustainability

India has introduced multiple programs to promote sustainability and women-led entrepreneurship. The Zero Defect, Zero Effect (ZED) Scheme provides incentives for eco-friendly manufacturing and covers certification costs for women-led SMEs. Additionally, the Raising and Accelerating MSME Productivity (RAMP) Programme includes three sub-schemes aimed at improving environmental sustainability, financial accessibility, and operational efficiency.

One key initiative under RAMP is the MSE Scheme on Online Dispute Resolution for Delayed Payments, which utilizes legal expertise, IT solutions, and artificial intelligence (AI) to resolve payment disputes efficiently. This ensures better liquidity for micro and small enterprises, allowing them to focus on sustainable growth. Another significant program, the Support for the Commercialization of Intellectual Property (MSME – SCIP), helps entrepreneurs scale their innovations and contribute to India's knowledge-driven economy.

Compliance Challenges for SMEs

Despite government initiatives, SMEs face difficulties in meeting compliance requirements due to limited financial and technical resources. Strict regulations and reporting obligations can be overwhelming. To address these challenges, governments and financial institutions provide grants, low-interest loans, and technical assistance. Simplifying reporting requirements and introducing proportional reporting standards, as advocated by the International Sustainability Standards Board (ISSB), can help SMEs comply with sustainability mandates more effectively.

Public-private partnerships (PPPs) are another mechanism that accelerates SME sustainability efforts. The World Economic Forum’s SME Sustainability Accelerator, in collaboration with Schneider Electric, offers strategic guidance for manufacturing SMEs to transition towards greener practices. Similarly, the Organisation for Economic Cooperation and Development (OECD) has established the Platform on Financing SMEs for Sustainability, which facilitates global knowledge-sharing, improves access to sustainable finance, and drives green technology innovation.

The Road Ahead

Achieving large-scale climate finance for SMEs requires a coordinated effort between governments, financial institutions, and private stakeholders. India has made strides in fostering these collaborations, ensuring alignment with global best practices while catering to local needs. A well-defined climate finance framework is essential for providing clarity and consistency in funding sustainable initiatives. While progress has been made in developing such a framework, timely implementation is crucial to sustaining momentum.

To accelerate SMEs’ transition to a low-carbon economy, governments and financial institutions should focus on developing financial instruments tailored to SMEs' capital needs. Capacity-building programs can improve awareness and financial literacy in sustainable investments. Government-backed incentives and risk-mitigation mechanisms, such as loan guarantees and concessional financing, can encourage greater participation in green initiatives. Strengthening partnerships between financial institutions and SME support networks will further enhance access to funding.

Standardizing sustainability reporting frameworks will improve transparency and attract green investments. Additionally, leveraging technology for data collection and reporting processes can streamline compliance efforts for SMEs. With the right financial and technical support, SMEs can play a pivotal role in global sustainability efforts.

Source & Credits:
This article is based on insights from sustainability policies and SME development programs in India, with references to initiatives led by the World Economic Forum, OECD, and ISSB.