How Indian MSMEs are leading the integration of environmental sustainability into their operations

With India’s commitment to achieving net-zero emissions by 2070 and global climate targets becoming more ambitious, the role of Indian Micro, Small and Medium Enterprises (MSMEs) in driving environmental sustainability has become more crucial than ever. Indian MSMEs are taking steady, tangible steps to reduce greenhouse gas (GHG) emissions with initiatives such as shifting to clean energy, implementing energy-efficient manufacturing, promoting recycling and waste management, and embracing sustainable transportation solutions, among others.

MSMEs collectively account for approximately 90 percent of businesses worldwide. In India, MSMEs contribute to around 30 percent of the country’s GDP, employ 110 million workers, and have a 45 percent share in exports. They also carry a significant environmental footprint, estimated to be responsible for 3–4% of India’s total carbon emissions.

Despite their economic significance, MSMEs remain highly vulnerable to climate risks due to their small scale, limited technological capacity, and limited access to finance and skills. Yet, they are embracing new ways of doing business that prioritise both environmental and economic outcomes. Such efforts are being taken not only to address environmental regulations and meet ESG norms, but also to make the industry more competitive and resilient.

With extreme weather vulnerability, heat-related losses, and risks involved in their supply chains, MSMEs in India are recognising the urgency of adopting sustainable practices. They are slowly recognising sustainability as a strategic necessity to reduce costs, strengthen competitiveness, meet buyer expectations, and unlock access to global markets. This shift is being reinforced by a changing ecosystem, where both regulatory pressures and growing environmental awareness are collectively shaping a new way of doing business.

Common initiatives include waste management, where MSMEs focus on reducing waste through recycling and reusing materials. Many MSMEs are also adopting energy-efficient technologies such as solar panels and improved machinery to cut down on electricity consumption. In water-intensive sectors, enterprises are investing in rainwater harvesting systems and wastewater recycling to reduce freshwater usage. Cleaner production techniques – such as using non-toxic dyes in textiles or switching to biodegradable packaging in food and agro-processing – are also gaining ground.

Supporting this transition requires coordinated efforts across policy, finance, and the development sector. Government initiatives and awareness campaigns have played a key role in enabling MSMEs to adopt sustainable practices. Flagship schemes such as PM Surya Ghar, PM KUSUM, and the MSME Sustainable (ZED) Certification programme have helped drive awareness and uptake of green initiatives, particularly in solar energy.

Moreover, government-backed schemes such as MSE-SPICE and MSE-GIFT, both initiatives by the Ministry of SME, have been launched to ease the cost of sustainability adoption. The MSE-SPICE scheme provides a 25% capital subsidy to MSMEs for adopting resource-efficient and cleaner production technologies. MSE-GIFT (Green Investment and Financing for Transformation) supports projects in renewable energy, clean transportation, waste-to-energy, and water efficiency. On a larger scale, The Green Climate Fund approved $215.6 million to support climate action in the MSME sector, which aims to help MSMEs adopt low-emission and climate-resilient technologies.

Circularity is emerging as a powerful strategy for Indian MSMEs to reduce waste, cut costs, and create new revenue streams. From upcycling temple waste into biodegradable incense at Kanpur-based HelpUsGreen, to fashion brands such as Bunko Junko upcycling pre-consumer textiles, Indian brands, with the support of MSMEs, are demonstrating how circular business models can combine environmental responsibility with creative design and community impact. With innovative solutions, several such enterprises are blending environmental responsibility with design, employment generation, cost savings, and access to new markets.

Centre for Responsible Business is playing a crucial role in advancing sustainability in the textile sector. The organisation is closely working with SMEs and textile clusters in Panipat, Ludhiana, Surat, Karur, Salem, Dindigul, and Perundurai to help pilot decarbonisation and circularity pathways, providing capacity building, technology adoption support, policy advocacy, life-cycle assessments, and ecosystem enablement to reduce emissions, promote resource-efficient production, and scale sustainable practices. Learn about it here, here, here, and here.

While challenges such as limited access to finance, inadequate infrastructure, regulatory complexity, and gaps in skills and awareness persist, MSMEs can build resilience by deepening their understanding of supply chain risks, conducting lifecycle assessments to uncover opportunities, and using data to design practical roadmaps for sustainable adoption. As climate risks intensify and regulatory and market expectations evolve, such proactive measures will make the sector ready to adapt quickly and ensure long-term competitiveness.