From Compliance to Change: How ESG Can Create Social Value Through MSME Integration

In an era where business responsibility is no longer confined to shareholder returns, ESG (Environmental, Social, and Governance) frameworks have emerged as a defining force in how companies operate, report, and engage with stakeholders. In India, this shift has gathered momentum with mandatory ESG disclosures now required for the top 1000 listed companies on the Bombay Stock Exchange. These disclosures encompass environmental impact, social initiatives, and governance practices — increasingly forming the lens through which investors and regulators assess corporate performance.

While ESG is often associated with environmental and governance metrics, the “S” — social impact — remains relatively under-leveraged in India’s corporate sector. A critical pathway to broadening the social impact of ESG lies in engaging with India’s vibrant, yet under-supported, Micro, Small, and Medium Enterprises (MSMEs). This becomes even more relevant when viewed through a gender lens, where the empowerment of women-led enterprises presents an untapped opportunity for inclusive economic growth.

Globally, ESG began gaining traction in the 1990s, with the introduction of the Global Reporting Initiative (GRI) and the UN Global Compact. A 2004 UN report formally framed ESG as a set of factors integral to long-term investment decisions. Today, ESG has evolved from an investor buzzword to a core strategic consideration for businesses. Yet, despite these developments, many ESG efforts in India remain focused on compliance rather than systemic change.

This is where MSMEs — especially women-led ones — can shift the narrative.

India is home to approximately 63 million MSMEs, contributing about 30% to the country’s GDP and employing over 15 million people. However, their participation in corporate ESG or CSR ecosystems remains marginal. A 2023 report by UGRO Capital and KPMG noted that 20.5% of Indian MSMEs are now women-led, and nearly 45% of new startups are emerging from Tier 2 and Tier 3 cities — a clear signal that India’s entrepreneurial growth is becoming more geographically inclusive.

Despite this, corporate CSR and ESG efforts tend to follow conventional paths — investing in education, sanitation, or tree-planting initiatives. These are valuable, but they often do not build long-term economic agency. By contrast, when companies integrate MSMEs into their supply chains — as logistics providers, packaging vendors, or even co-manufacturers — the social value created is both measurable and sustainable.

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Supporting MSMEs under ESG is not merely a philanthropic gesture — it is a strategic investment in resilience. These enterprises often demonstrate adaptability, innovation, and strong community linkages. Many are also adopting green practices: using sustainable materials, reducing emissions, and implementing energy-efficient solutions. Integrating them into ESG-aligned operations therefore creates a win-win — advancing both environmental and social goals.

To make this integration meaningful, companies must commit beyond funding. They can, for example, set procurement targets that reserve a specific percentage for MSMEs, particularly those led by women. More importantly, they must invest in capacity building — through digital literacy, financial management, product development training, and mentorship by seasoned entrepreneurs.

At Womennovators, we have seen firsthand how such support transforms women-led MSMEs. Our model includes training programs, marketplace access, and strategic partnerships — ensuring that women entrepreneurs not only survive but succeed in competitive markets. What these entrepreneurs often lack is not potential, but access. Corporates are uniquely positioned to bridge this gap.

The business case is clear. Investors are increasingly evaluating companies through the lens of ESG outcomes. Firms that demonstrate inclusive, long-term social value creation are more attractive in both domestic and global capital markets. Moreover, as supply chain resilience and local sourcing gain prominence post-COVID, integrating MSMEs becomes not just desirable, but essential.

For Indian corporates, the next evolution of ESG must involve moving beyond reporting metrics and into the realm of real economy transformation. MSMEs — particularly women-led ones — offer a catalytic opportunity to align business performance with societal impact. What is required is a shift in mindset: from compliance to co-creation.

If India’s corporate sector embraces this shift, it won’t just improve ESG scores — it will help build a more equitable, resilient, and future-ready economy.

(The Author is Founder of Womennovator)