India's SMEs and the Carbon Challenge

Carbon emissions reduction is no longer just the domain of large global corporations. Whether you own a steel company, a textile business, or operate in the FMCG sector, reducing your carbon footprint has become a business imperative. But for many SMEs, the journey has been challenging.

Carbon Emissions: Where Does India Stand?

India currently stands as the third-largest emitter of greenhouse gases globally. According to the World Bank, India's per capita CO2 emissions in 2020 were approximately 1.9 tons – higher than many developing countries but still significantly lower than developed nations. The Global Carbon Budget report indicates that global CO2 emissions continue to rise year over year, highlighting the urgency of the situation.

India has made significant commitments to address this challenge:

• Reaching net-zero status by 2070

• Reducing emissions intensity of GDP by 45% by 2030

• Increasing non-fossil energy capacity to 500 GW by 2030

National policies, industry mandates, and reporting frameworks like SEBI's BRSR (Business Responsibility and Sustainability Reporting) are evolving to support these commitments.

The SME Impact on India's Carbon Footprint

With more than 63 million SMEs contributing almost 30% of India's GDP and up to 45% of its total exports, their collective environmental impact is substantial. This is particularly true for Scope 3 emissions within larger supply chains.

The majority of these SMEs operate out of industrial clusters in Delhi NCR, Gujarat, Pune, Mumbai, Bengaluru, and Chennai. Each region faces unique sustainability challenges based on their industrial composition and infrastructure.

The On-Ground Reality: Pressure Without Support

The biggest challenge SMEs face today isn't a lack of willingness to change, but rather the pressure from their customers to become compliant without being equipped with the necessary tools, awareness, and incentives.

As Fitsol's CEO Mr. Anand Pathak observes, "This has been a consistent theme wherein Fitsol has been working with suppliers of their customers where in majority of the cases, SME suppliers did not have enough incentives to become green. Fitsol recently shared their training exercise experience on LinkedIn highlighting the need of enablement across supplier/partner networks to achieve net-zero."

This disconnect is particularly evident in industrial hubs like automotive manufacturing centers, where smaller component suppliers struggle to meet the sustainability expectations of larger OEMs.

Success Stories Emerging

Despite these challenges, some Indian SMEs are pioneering sustainable practices. For example, one of India's leading book publishing companies has been actively working with their paper suppliers to transition to low-footprint paper for printing. They've been experimenting with different recycled paper sources, creating a ripple effect throughout their supply chain.

Similarly, automotive OEMs have started tackling their Scope 3 emissions by first understanding their product carbon footprint. This approach gives them significant visibility into their suppliers' manufacturing processes and allows them to develop targeted training programs with decarbonization partners to ensure on-ground outcomes.

Common Barriers SMEs Face

1. Inadequate Awareness and Support: Many SMEs across India lack an understanding of carbon accounting and its business implications. The knowledge gap is particularly pronounced in tier-2 and tier-3 cities.

2. Resource Constraints Unlike large corporations, most SMEs operating in industrial clusters like Pune or Chennai don't have the funds or expertise for dedicated sustainability teams.

3. Technical Expertise Gap Calculating Scope 1, 2, and 3 emissions requires specialised knowledge and tools that many businesses in manufacturing hubs like Gujarat simply don't have access to.

4. Complex Supply Chain Dynamics SMEs often find themselves in fragmented supply chains, making emissions tracking challenging. This is especially true for textile suppliers in Tamil Nadu or component manufacturers in the automotive sector.

The Business Case for Carbon Management

While these challenges are real, addressing carbon emissions presents strategic growth opportunities for SMEs:

1. Competitive Edge in Global Markets Many global businesses are actively seeking green suppliers and requesting emissions data. SMEs with transparent carbon reporting have a distinct advantage, especially those in export-oriented sectors.

2. Financial Benefits Both banks and investors are increasingly favouring sustainable businesses with preferential funding and credit terms. As India prepares to launch its own carbon credit trading scheme as early as 2026 (with draft policies already in circulation), early adopters stand to gain.

3. Operational Efficiency and Cost Savings Carbon tracking helps identify inefficiencies. Whether it is adopting energy-saving technologies in a Delhi NCR manufacturing unit or optimising logistics for an FMCG supplier in Bengaluru, these measures typically reduce operational costs.

4. Export Readiness With regulations like the EU's Carbon Border Adjustment Mechanism (CBAM) making carbon reporting a prerequisite for global trade, SMEs that prepare now will maintain and expand their international business opportunities.

Moving Beyond Compliance Mindset

Most sustainability regulations globally are either compliance—or finance-driven, making sustainability efforts primarily a risk mitigation lever. However, we need to consider the long-term impact of our actions on planet Earth holistically.

As one textile supplier from Gujarat noted during a recent Fitsol training session, "Initially we saw this as just another compliance burden, but once we started measuring our emissions, we discovered energy inefficiencies that were costing us lakhs each month."

Practical Roadmap for SMEs

Here's a practical approach for SMEs looking to start their sustainability journey:

1. Begin with a Carbon Footprint Assessment Track Scope 1, 2, and 3 emissions with appropriate tools and expertise.

2. Set Realistic Reduction Targets Align with global benchmarks like Science Based Targets initiative (SBTi) while considering your specific business constraints.

3. Invest Strategically in Clean Technologies Consider solar energy, energy-efficient machinery, green packaging, and waste reduction methods appropriate for your regional context and industry.

4. Build a Culture of Sustainability Engage employees and vendors across your value chain, making sustainability part of everyday operations rather than a separate initiative.

5. Leverage Appropriate Reporting Frameworks Utilize frameworks like BRSR Core, CDP, or GRI to report your progress transparently.

The Path Forward: Engagement and Enablement

The journey to net-zero for Indian SMEs isn't about isolated efforts but requires a collaborative approach. Engagement and enablement are the only way to have a concerted effort toward a net-zero future.

Whether you're a manufacturing SME in Pune, a logistics provider in Chennai, or part of the textile industry in Tamil Nadu, carbon management is achievable with the right tools, guidance, and strategy. The right approach can make your business compliant, efficient, and climate-ready while strengthening your competitive position.

Taking the First Step

Engage with Fitsol to enable your suppliers with free access to carbon accounting and compliance features on Kyoto™. By providing your supply chain partners with the tools and knowledge they need, you contribute to a more sustainable business ecosystem while strengthening your own ESG credentials.