Small- and Medium-Sized Enterprises (MSMEs) in India are picking up speed in their pursuit of sustainability, but fall short in some areas regarding implementation and government support for Environmental, Social, and Governance (ESG) initiatives.

Small- and Medium-Sized Enterprises (MSMEs) in India are picking up speed in their pursuit of sustainability, but fall short in some areas regarding implementation and government support for Environmental, Social, and Governance (ESG) initiatives.

India's micro, small, and medium enterprises (MSMEs) are stepping up their commitment to sustainability, as demonstrated by the latest Sustainability Perception Index (SPeX) report. The Q1 2025 SPeX index reached a record high of 69, marking the highest level since the index's launch in late 2022.

The sector-wide push to integrate environmental, social, and governance (ESG) principles into core business functions is evident in the surge of the SPeX index. Medium and small enterprises are driving this shift, with 59% of them allocating between 5-10% of their sales revenue towards sustainability practices.

However, the implementation score for sustainability practices in MSMEs remains lower than awareness and willingness, indicating several challenges in the transition. According to the SPeX report, key challenges include insufficient awareness, limited financing access, weak infrastructure, technological and data constraints, regulatory uncertainty, and upfront cost concerns.

One of the main obstacles is the lack of awareness and clarity about affordable, scalable green alternatives and sustainable practices. There is also confusion about which ESG standards to follow, how to prepare disclosures, and compliance timelines. Awareness of ESG frameworks remains limited, hindering implementation.

Access to financing is another hurdle, with MSMEs often unaware of government schemes like SIDBI’s green loans and World Bank credit lines. Less than 10% currently access formal green finance due to credit and collateral barriers, and about 33% are unaware of major government schemes.

Infrastructure and supply chain constraints, especially in tier II and tier III cities, also pose significant barriers to green technology adoption. Many MSMEs rely on outdated machinery and diesel generators due to unreliable energy grids.

Implementation support and technology gaps are further challenges. MSMEs need more hands-on assistance such as grassroots-level training and tech-driven platforms to guide them through sustainability adoption. Digital tools needed for data collection, monitoring, and reporting ESG metrics are often not affordable or accessible, and data across multiple facilities tends to be fragmented, complicating systematic tracking.

Regulatory and governance ambiguity is another issue, as ESG norms are not yet mandatory for MSMEs, causing uncertainty about standards and disclosures. Governance practices are still not prominent in MSMEs’ sustainability efforts, which tend to focus more on reducing emissions, waste, and energy use.

Despite these challenges, there is a growing recognition among MSMEs that sustainability is not just a cost but a strategic lever for long-term growth and competitiveness. A striking 89 percent of surveyed businesses in Q1 2025 acknowledged a positive correlation between sustainable practices and improved profitability.

Manoj Kumar Vijai, Office Managing Partner - Mumbai and Head - Risk Advisory at KPMG in India, emphasized the need for policymakers to simplify compliance frameworks, broaden access to co-lending and TReDS platforms, and expand digital literacy programs. The SPeX index has emerged as a critical barometer for policymakers and industry stakeholders, mapping businesses' understanding of sustainability and identifying where interventions are most needed.

As sustainability becomes increasingly important in global supply chains, Indian MSMEs need to accelerate their ESG journey. Addressing the challenges outlined in the SPeX report requires coordinated public-private partnerships, expanded outreach for financing schemes, affordable digital tools, and tailored capacity-building programs to help MSMEs embed sustainable practices effectively.

[1] Sustainability Perception Index (SPeX) Report, Q1 2025, Dun & Bradstreet in collaboration with SIDBI [2] MSME Development (Organisation and Coordination) Act, 2006 [3] Environment Protection Act, 1986 [4] Companies Act, 2013

1. The surge in the SPeX index indicates that medium and small enterprises are allocating a significant portion of their sales revenue towards sustainability practices, aiming for long-term growth and competitiveness.
2. One of the major obstacles for Indian MSMEs in implementing sustainability practices is the Limited financing access, with a majority of them unaware of government schemes like SIDBI’s green loans and World Bank credit lines.
3. International supply chains value sustainability, thus it's crucial for Indian MSMEs to accelerate their ESG journey by addressing challenges such as insufficient awareness, access to financing, infrastructure and supply chain constraints, and regulatory uncertainty through coordinated public-private partnerships and tailored capacity-building programs.

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