• Over 13% of registered MSMEs are engaged in green and sustainable industries like solar, recycling, and water conservation, marking a steady shift toward climate-conscious operations. 
• With 57% of districts at high risk from the impact of climate events (CEEW), MSMEs need to prepare for rising costs, supply disruptions, and productivity losses.
• Government programs like the ZED Certification, PAT scheme, and RBI’s green lending guidelines offer direction, but many small businesses still lack the knowledge and access to use these tools effectively.
• Tailored financing from NBFCs can empower MSMEs to adopt sustainable practices and build long-term climate resilience.
  

India’s current climate policies are projected to reduce carbon dioxide emissions by around four billion tonnes between 2020 and 2030, and drive a 24% reduction in coal-based power generation. This is being supported by various measures being implemented by various government bodies, enterprises of all sizes and also in individual capacity. Out of this, more than 13% of India’s registered MSMEs are now engaged in green and sustainable sectors such as clean energy, eco-friendly manufacturing, waste management and water conservation. 

While small businesses hold immense potential as key enablers in the country’s green transformation, the shift is also necessary because energy-intensive MSME units contribute significantly to industrial pollution, accounting for an estimated 10–15% of emissions from the industrial sector, and roughly 3–4% of India’s total CO₂ emissions. 

These facts underline the need to make the MSME sector more energy-efficient and climate-conscious—especially if India aims to meet its net-zero emissions target by 2070.

On World Environment Day 2025, we look at why MSMEs are crucial in India’s vision of sustainable development and steps they can take toward going green. 

MSME’s Role in the Green Economy

As the green economy becomes the backbone of sustainable development, MSMEs are gradually serving customers who demand sustainability and are also integrating climate goals into their operations, products, and services. Their participation spans critical climate-aligned industries, including:

1. Waste Management and Recycling
A growing number of small enterprises now operate in the recycling of plastic, paper, e-waste, and metal. Many local businesses in cities like Mysuru, Surat, Jamshedpur, Vengurla, etc., are developing decentralized waste processing units. These units not only reduce landfill dependency but also generate employment and reusable raw materials.

2. Green Construction Materials
MSMEs are manufacturing eco-friendly bricks, fly ash-based cement blocks, and low-carbon insulation materials. Their innovations are helping bring down the emissions of India’s booming construction sector while offering cost-effective alternatives to conventional materials.

3. Solar Equipment Manufacturing
From assembling rooftop solar panels to producing solar water pumps and inverters, small-scale units have entered the clean energy supply chain. With India targeting 500 GW of non-fossil fuel capacity by 2030, MSMEs are well-positioned to meet the growing demand for decentralized solar technologies.

4. Water Purification and Bio-solutions
Rural-focused MSMEs have developed low-cost water filtration systems and biological wastewater treatment solutions. These solutions are particularly relevant in drought-prone areas where water scarcity and contamination pose major public health risks.

5. EV Components and Biofertilizers
The electric mobility ecosystem is seeing MSME participation in areas like battery casing, charging infrastructure, and lightweight EV components. Similarly, the organic farming push has encouraged small firms to manufacture biofertilizers and plant-based pest control solutions.

Together, these sectors represent a blend of innovation, affordability, and environmental sustainability.

Why MSME’s Role Is Crucial More Than Ever

Nearly 57% of Indian districts, accommodating 75% of the population, are at high or very high risk of extreme climate events like heatwaves, floods, and irregular monsoons.

These shifts affect MSMEs directly in the following ways:

• Disrupted operations due to heat stress and power outages
• Supply chain breakdowns caused by floods and infrastructure damage
• Rising costs from cooling needs, lower labor productivity, and asset repair
• Migration of skilled labor from climate-affected regions
  

For businesses operating with tight margins, such disruptions can be destabilizing. The need to transition to climate-resilient and low-carbon operations is no longer optional—it is a matter of survival.

Steps MSMEs Are Taking Toward Going Green

While some MSMEs have embraced green practices, many still face barriers such as a lack of awareness, upfront costs, or regulatory complexity. Yet, examples from across India prove that with the right support, change is possible:

• Clusters in Rajkot have adopted energy-efficient furnaces, saving both fuel and emissions.
• MSMEs in the major textile hub of Tirupur have implemented zero-liquid discharge systems with the support of collective infrastructure.
• Plastic recyclers in Ahmedabad are now part of an organized supply chain feeding into FMCG and packaging sectors.
  

These examples show that MSMEs can not only reduce their carbon footprint but also make their operations more efficient and future-ready. And these enterprises also have government and policy support to stay the course of sustainability. 

Government and Policy Support Strengthening Sustainability

India announced its Panchamrit commitments at COP26 in Glasgow as part of its broader climate strategy. These targets aim to reduce carbon intensity, expand non-fossil energy capacity, and achieve net-zero emissions by 2070—aligning India with global climate action goals. 

Below are the key policy frameworks aligning with this:

1. National Action Plan on Climate Change (NAPCC)
Launched in 2008 and expanded through various sub-missions (like the National Mission for Enhanced Energy Efficiency), the NAPCC recognizes the role of decentralized enterprises in delivering climate solutions.

2. Perform, Achieve, and Trade (PAT) Scheme
Though initially targeted at large industries, PAT is now being adapted for MSMEs in high-energy sectors. It promotes market-based incentives for energy savings.

3. ZED Certification (Zero Defect, Zero Effect)
Under the Ministry of MSME, this initiative offers ratings and financial assistance to small businesses adopting environmentally sound manufacturing processes. Over 27,000 MSMEs have received ZED certification so far.

4. Green Lending Guidelines by RBI
In 2024, the RBI issued guidelines encouraging banks and NBFCs to develop green credit frameworks and include environmental risks in their lending decisions. This signals a systemic shift in how credit is directed toward climate-aligned businesses.

5. Emerging Carbon Markets and Incentives
Pilot initiatives in carbon trading and green credit mechanisms are underway. MSMEs that can measure and reduce emissions could soon benefit from carbon credit revenues.

However, despite these efforts, there remains a pressing need to improve access to concessional green finance and simplify the application process for schemes. MSMEs in smaller towns often lack the advisory support and the required credit to navigate these mechanisms. This is where regulated NBFCs like Protium can step in. 

Role of NBFCs in the Green Transformation

Climate action cannot take root without financial inclusion. Many MSMEs are credit-constrained and hesitant to take on loans for green upgrades due to unclear ROI. This is where NBFCs can play a pivotal role.

1. Green-Capex Financing
Financial Institutions can design capital expenditure loans tailored for solar installation, energy-efficient machinery, or waste recovery systems. Structured repayment linked to energy savings can de-risk such investments for MSMEs.

2. Capacity-Building Support
Lenders can also collaborate with government and industry bodies to provide MSMEs with advisory services on environmental compliance, ESG reporting, and operational greening.

3. ESG Risk Assessment in Lending
Incorporating environmental, social, and governance (ESG) parameters into MSME credit scoring will help identify future-focused borrowers and reduce portfolio risk.

By aligning financing models with India’s climate targets, NBFCs can drive both environmental progress and business sustainability.

Businesses that serve local communities, produce at scale, and innovate under constraint must drive India’s climate transition. Supporting MSMEs in their green journey is not just a policy obligation—it is a national opportunity. With targeted financing, enabling policies, and focused capacity-building, India’s MSMEs can become the driving force of a low-carbon, climate-resilient economy.

1 Council on Energy, Environment and Water (CEEW)
2 Ministry of MSME, Green MSME Initiative Report 2024
3 SIDBI, MSME Green Economy: India’s Sustainable Future
4 Council on Energy, Environment and Water (CEEW),How Extreme Heat is Impacting India –
Assessing District-level Heat Risk, 20 May 2025
5 Jourhal of Emerging Technologies and Innovative Research, Technology Transfer of Low Carbon Energy Efficient Technologies – A study of SME Sector in India, 2020
6 Indian Textile Journal, Tirupur was the first industrial cluster to implement ZLD in India