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Introduction

The sustainability landscape in India is evolving rapidly. Once treated as a voluntary corporate social responsibility [CSR] activity for large corporations, sustainability is now embedded within mainstream business strategy. For India’s vast network of small and medium-sized enterprises [SMEs], startups, and manufacturing units, this transition represents a paradox: compliance pressures on one side and new opportunities on the other. This article examines the challenges facing these businesses under the emerging sustainability regime and outlines pathways through which they can transform regulatory requirements into strategic advantages.

The New Regulatory Landscape: A Ripple Effect

The Securities and Exchange Board of India [SEBI] now mandates the top 1,000 listed companies to file a Business Responsibility and Sustainability Report [BRSR] [1]. While this requirement does not directly extend to SMEs, its implications are significant. Through value chain reporting, larger corporations must disclose the sustainability practices of suppliers and partners contributing more than 2% of their purchases or sales [2]. As a result, SMEs and startups are increasingly being asked for ESG-related disclosures, creating indirect compliance obligations.

Navigating the Challenges: The Hurdles to Overcome

1. The Financial Squeeze

Sustainability reporting and compliance can be costly. SMEs must often hire consultants, adopt data management tools, and undergo audits, all while managing thin operating margins. Access to green finance also remains limited, with micro, small, and medium enterprises—despite contributing more than 30% to India’s GDP—receiving a disproportionately small share of climate-focused capital [5].

2. The Technical and Operational Gaps

A large segment of India’s SME sector still lacks digital readiness. Collecting and standardizing data on resource consumption and emissions poses difficulties. Compounding this is the shortage of ESG-skilled professionals in the workforce, which limits both reporting quality and long-term sustainability planning [3].

3. The Compliance Conundrum

The absence of a streamlined reporting framework for smaller businesses creates additional complexity. While large corporations may rely on detailed sustainability reporting mechanisms, SMEs are often asked for data beyond their routine business practices. Although SEBI has introduced simplified formats like BRSR Core and BRSR Lite [4], clarity on their implementation for SMEs is still evolving, creating uncertainty and friction in supplier–buyer relationships.

Turning Challenges into Opportunities: A Strategic Playbook

1. Government as an Enabler

Policy measures are gradually addressing these barriers. The Small Industries Development Bank of India’s [SIDBI] Green Finance Scheme [GFS] provides financial assistance for green projects, including loans at concessional rates [5]. For example, green finance schemes like GFS directly lead to lower capital expenditure (CAPEX) for small and medium enterprises (SMEs) that are adopting clean technologies. The Ministry of MSME’s Green Investment and Financing for Transformation [GIFT] scheme further supports SMEs in adopting clean technologies such as solar panels, waste treatment, and energy-efficient equipment. Example: GIFT scheme adoption can lead to reduced operational costs through energy savings and improved resource efficiency, boosting profitability.

2. The Business Case for Green

Sustainability is increasingly a prerequisite for market access. Buyers in global and domestic markets prefer suppliers with credible ESG credentials. Startups and SMEs that embed sustainability early can access new markets, improve brand reputation, and gain investor confidence [6]. Example: By demonstrating strong ESG credentials, an SME can secure contracts with large corporations that prioritize sustainable supply chains, expanding their market reach. For venture-backed startups, alignment with ESG goals often enhances long-term attractiveness to institutional investors. For example, meeting ESG criteria can unlock access to a broader pool of capital from impact investors and sustainability-focused funds, facilitating faster growth and expansion.

For venture-backed startups, alignment with ESG goals often enhances long-term attractiveness to institutional investors.

What SMEs Can Do on a Regular Basis

For SMEs, sustainability need not begin with large investments. A phased, practical approach can make the transition manageable:

Start Small with Measurement: Track basic metrics such as electricity bills, water use, and waste output. This builds a baseline for improvement.
Nominate an ESG Champion: Assign one employee to coordinate sustainability data collection and initiatives.
Leverage Affordable Tools: Use simple spreadsheets or low-cost cloud solutions to maintain environmental records.
Collaborate with Supply Chains: Engage suppliers and partners to jointly cut waste and source responsibly.
Adopt Energy Efficiency Measures: Simple interventions like LED lighting, solar rooftops, and efficient machinery can reduce costs while improving ESG performance.
Seek Financial Support: Apply for government schemes [e.g., SIDBI GFS, MSME GIFT] that subsidize green technology adoption.

Succeeding Against the Odds: Emerging Success Stories

Indian startups are already demonstrating how sustainability can fuel innovation and profitability.

Ather Energy has built a strong brand around electric mobility, attracting both investment and consumer trust [7]. It has built a strong brand around electric mobility, attracting both investment and consumer trust . By tapping into the growing demand for eco-friendly transportation, Ather has secured significant venture capital funding and expanded its market share, directly translating its sustainable mission into financial gains.
Phool transforms temple floral waste into incense products, showcasing circular economy solutions [8]. It transforms temple floral waste into incense products, showcasing circular economy solutions. Their innovative approach addresses environmental waste and creates high-value products from what was once considered refuse, leading to a profitable business model with a strong social and environmental appeal.

These examples highlight that sustainability is not only about compliance but also about building resilient, market-ready business models.

How Carbon Mandal is Helping SMEs

At Carbon Mandal, we believe that “what we cannot measure or quantify, we cannot improve or reduce.” Our work with SMEs focuses on simplifying sustainability through:

Life Cycle Assessments [LCA]: Measuring product- and process-level footprints to provide clarity on hotspots.
ESG Data Systems: Building low-cost, easy-to-use data management frameworks suited for smaller enterprises.
Compliance Readiness: Supporting SMEs in preparing BRSR Lite and ESG disclosures required by larger corporate clients.
Capacity Building: Training internal teams to manage sustainability data without heavy external dependence.

By quantifying emissions and resource use, we empower SMEs to reduce costs, improve efficiency, and position themselves as competitive partners in sustainable value chains.

Conclusion: A Collaborative Path Forward

The journey toward sustainability for Indian SMEs and startups is complex but promising. The BRSR framework and related regulatory developments are not merely compliance exercises—they represent a fundamental market shift. By reframing sustainability as a strategic enabler, businesses can access new markets, attract investment, and build resilience in a transitioning economy. Achieving this requires coordinated efforts between policymakers, corporations, and SMEs themselves. With the right tools and partners, India’s small businesses can navigate the “green paradox” effectively—transforming compliance pressures into long-term competitive advantage.