From Compliance to Competitive Edge: The Power of ESG for Indian Businesses

MSME's for ESG

ESG stands for Environmental, Social, and Governance. It is a framework used by companies to measure and report their performance in non-financial areas that are important for long-term sustainability and responsible business practices. While traditional business reports focus mostly on financial results, ESG looks at how a company affects the environment, society, and how it is managed internally. Today, ESG has become an important tool for investors, regulators, customers, and lenders who want to understand how responsibly a company operates and how prepared it is for future risks and opportunities.

The Environmental (E) aspect focuses on how a company’s activities impact the natural world. This includes things like how much carbon dioxide and other greenhouse gases it emits (emissions), how it handles waste and pollution, how efficiently it uses energy and water, and what steps it takes to deal with climate change. For example, a factory that uses solar energy and manages its waste responsibly is considered to be strong in environmental performance.

The Social (S) aspect relates to how a company treats people – both inside and outside the organization. This includes employee rights and safety, working conditions, training and development opportunities, diversity and inclusion, customer satisfaction, and how the company supports the communities where it operates. For instance, a company that offers fair wages, promotes gender equality, and supports local schools or healthcare projects would be seen as socially responsible.

The Governance (G) aspect looks at how the company is run. It includes the structure and behavior of the company’s leadership, transparency in decision-making, ethical business practices, board diversity, and compliance with laws and regulations. A company that has an independent board of directors, avoids corruption, and shares accurate financial and operational information is considered to have good governance.

The ESG framework provides a structured approach for companies to identify, monitor, and report their ESG-related activities. It acts as a guideline for integrating sustainability into the core business strategy and helps companies use standardized reporting formats. This makes it easier for stakeholders to compare different companies and understand which ones are truly responsible and sustainable. ESG frameworks also support goal-setting, risk management, and building trust with customers and investors.

In India, the Securities and Exchange Board of India (SEBI) has made ESG reporting mandatory for the top 1000 listed companies based on market capitalization. These companies must now submit Business Responsibility and Sustainability Reports (BRSR) every year. The BRSR framework encourages companies to be more transparent about their ESG activities and show how they contribute to the Sustainable Development Goals (SDGs).

Although Micro, Small, and Medium Enterprises (MSMEs) are not currently required by law to adopt ESG practices, they are increasingly encouraged to do so on a voluntary basis. Early adoption of ESG by MSMEs can bring many benefits. It can help them build a resilient and future-ready business model, stand out in the market, and improve their brand image. Companies that follow ESG principles often attract responsible investors, customers, and even government support. Financial institutions may offer better loan terms or special funding to businesses that show strong ESG performance. Furthermore, adopting ESG practices helps MSMEs align with national and global climate goals, including India’s commitment to the Paris Agreement and the United Nations Sustainable Development Goals.

In summary, ESG is not just a reporting tool – it is a pathway for businesses to operate responsibly, build trust, and ensure long-term success. As expectations from customers, investors, and governments continue to grow, adopting ESG practices will soon become a necessity rather than a choice, even for small and medium enterprises.