90% of MSMEs view cost reduction as the biggest motivation to implement sustainability initiatives

Mumbai, June 8^th, 2023: The SIDBI - D&B Sustainability Perception Index (SPeX – the green pulse indicator) for January - March 2023 stands at 54, eight points higher than the October - December 2022 level of 46, suggesting a higher level of perception towards sustainability by Indian MSMEs. SPeX measures and tracks Indian MSMEs’ perception towards sustainability. The Index assesses the internal and external factors that shape sustainability perception of businesses on three dimensions, namely – Willingness, Awareness, and Implementation.

Dr. Arun Singh, Global Chief Economist, Dun & Bradstreet said, “Notably, it has been the increase in the awareness level which has driven the change in the Index as the level of implementation remained stagnant and willingness amongst SMEs saw a minor increase compared to last quarter. Insights from the survey indicate that one of the reasons which prevents implementation of sustainability measures is that majority of the SMEs, i.e., more than 60%, do not have any defined sustainability targets and have not established any sustainability policy and procedures. Three out of four SMEs also stated that they lack the internal expertise to create a sustainable business strategy. Availability of technical know -how (88%) and capital (81%) are the two biggest challenges faced by MSMEs. Awareness about availability of low-cost funding (green financing) is still low amongst MSMEs - 67% have limited or no awareness of low-cost green finance options.”

Dr. R.K Singh, CGM, SIDBI stated, “SPeX aims to be a reliable indicator of the state of environmental, social, and governance (ESG) adoption among MSME companies based in India. This presents a quantitative measure of sustainability practices perception of the MSME sector against which policymakers can gauge the industry insights and level of adoption of sustainability initiatives in the sector. Such a measure is expected to act as an incentive to the sector to further adopt the ESG framework and sustainability practices deep into their operations. With SPeX, an Index indicator for MSMEs on sustainability, we are moving in the right direction to mainstream the MSME sector in the green transition pathway. This survey and index will help  MSMEs to harness the opportunity provided in the global sustainability transition and address any transitional challenges.”

Highlights of the SPeX Report:

• During the period under comparison, the index value for awareness increased the most, from 40 to 62 while willingness witnessed a minor increase from 61 to 63. The index value for implementation remained consistent.
• 65% of the MSMEs do not have any defined sustainability targets. 68% have not established policy and procedures for sustainability, while 64% do not have sustainability related compliance measures in place.
• MSMEs view sustainability initiatives to be a useful guide for responsible governance across all SPeX leadership categories, and a higher share of businesses in the SPeX leadership category have activated these sustainability initiatives  due to customer demand.
• 50% of MSMEs claim to be fully aware of the improvement in brand image, cost reduction and attractiveness to various stakeholders due to adoption of sustainability measures.
• 41% of MSMEs claim to be fully aware of its impact on profitability.
• For each of the seven sustainability initiatives that were tracked, the majority of  MSMEs do not have any plan/initiatives currently in place.
• Awareness about availability of low-cost funding (green financing) is low among MSMEs. 67% of MSMEs have limited or no awareness of low-cost green finance options.
• 90% of MSMEs view cost reduction as the most crucial factor, motivating them to implement sustainability initiatives. Regulations are second most important (80%), and 69% view willingness to support sustainability as the most important factor. Peer pressure (28%) and external factors (5%) have the least influence on MSMEs adoption of sustainability measures.
• Among several economic, social, and environmental objectives, 85% of MSMEs prioritise employee welfare, training, and retention the most. 75% of MSMEs view environment related initiatives such as reducing, reusing, and recycling of emissions, waste, water and energy as second and 71% MSMEs consider compliance to be the third most important priority.
• 75% of Leaders in the SPeX category, have in-house knowledge and expertise to apply sustainable practises. 63% of Aspirers have some experience or knowledge, 49% of Integrators claim to have in-house experience and 53% of Followers intend to develop competence.
• 50% of respondents claimed to have reduced their usage of water, raw materials, and energy. Yet, 40% recycle/recover less than 10% of their consumption.
• Availability of technical know-how (88%), capital (81%) and internal willingness to change (51%) are the top three challenges faced by MSMEs.
• 56% believe that specific policies and regulations are required to encourage MSMEs in adoption of sustainability measures. Direct incentive or awards of recognition did not emerge as necessary incentives to encourage.