At the United Nations Framework Convention for Climate Change’s (UNFCCC) 26th Conference of the Parties (COP26) in Glasgow last year, Hon’ble Prime Minister Narendra Modi outlined a five-point strategy to drive positive climate action.

Besides committing to increase non-fossil energy capacity to 50GW by 2030 and meet half of all energy needs from renewable sources; India also put forward its goal to reducing at least one billion tonnes of total projected emissions between now and 2030. This eventually would place India on the path to achieving Net Zero emissions target by 2070.

India has the lowest per capita emissions at just 1.9 tonnes of carbon dioxide per head, compared with 15.5 tonnes in the US and 12.5 tonnes in Russia, as per 2019 data. Thus, the new roadmap for a cleaner future has strong implications for the business sector. Our new roadmap is underpinned by the new Environment, Social, and Governance (ESG) reporting requirements for the business sector. The Securities and Exchange Board of India (SEBI) has called for mandatory disclosures through the new Business Responsibility and Sustainability Report (BRSR) format from FY2022-23 for the top 1,000 listed companies.

However, to ensure that India’s businesses are future-proofed for the pivotal shift to ESG reporting, an inclusive approach that encompasses the micro, small and medium enterprises (MSME) sector is needed.

With over 6.3 crore MSMEs that contribute to about 29 percent of the country’s GDP and create jobs for some 110 million people, its role in achieving India’s mission to becoming a US$5 trillion economy by 2025 is extremely significant.

MSMEs also have a key role in achieving the climate action goals of the country, integrating ESG best practices into their operational and organizational framework. I believe, we have an incredible opportunity to support their ESG transition and deliver a workable model for developing nations where SMEs are the backbone of their economies.

The need for ESG capacity building

A strategic shift to a more ESG-driven MSME sector needs comprehensive support. ESG reporting is an extra burden on these enterprises, and with several of them challenged by the impact of the COVID-19 pandemic, prioritising ESG standards, especially for companies in the manufacturing sector, calls for committed in-house capacity building.

ESG practitioners can support this transformation through MSME-specific ESG reporting protocols and frameworks.

From corporate to social to ESG

For a long period, corporate reporting centered on governance measures followed by an emphasis on social responsibility. In both these, the country has set an exemplary model, with India probably being the only one where CSR spending is mandated by percentage profits, specific areas of action, and annual reporting.

ESG reporting, not too surprisingly, is still in the nascent stage, with just about 125 companies – representing mostly the construction and building materials, metals and mining, oil and gas, and chemicals sector – disclosing their sustainability performance.

For example, the environmental pillar calls for commitments regards energy usage, reducing the carbon footprint, waste management, pollution monitoring, natural resource conservation, managing hazardous waste, and toxic emissions. While the social pillar must factor in employee welfare, vendor relations, gender equality, and social welfare programs. Likewise, the governance pillar underpins the need for business ethics and legal best practices.

ESG is fundamental for long-term value creation

Transitioning to this broad ESG framework is fundamental to long-term value creation and in meeting stakeholder expectations – which is key to future-proofing Indian businesses. For MSMEs, specifically, proactive ESG reporting will bring an added incentive of being able to attract new investments, especially from ESG-focused funds.

To build businesses fit for the future that the nation envisages, it is important that we commence an inclusive ESG journey now.

We must support the sector take that first decisive step without delay to map out grassroots level strategies for carbon footprint reduction and achieving carbon neutrality across their operations. The challenge is humungous; what is needed is stronger awareness, knowledge sharing, and governmental support to help MSMEs transition to ESG best practices.

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Disclaimer

Views expressed above are the author's own.

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