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Environment Oriented CSR activities in MSMEs

All businesses have ecological footprints, the impacts of big businesses are large -scale and thereforeattract most of the attention. However, micro small and medium enterprises (MSMEs) have thus farescaped serious scrutiny on this issue. So while major corporations are starting to reduce theirenvironmental impact by adopting significantly changed environmental policies, the vast majority of MSMEs have ignored their complicity in the problem. In order to address business impacts on theenvironment, a focus on MSMEs is critical as they make up the largest business sector in every economyin the world and produce the majority of the worlds economic output. It becomes all the necessa ry in adeveloping country like India where the percentage of economic output by MSMEs is far greater than inthe developed countries.

They dominate many important industry sectors (e.g., retailing, service, construction and agriculture),and form crucial forward and backward links in the supply chain of large scale capital intensivemanufacturing industries such as automotive, mining etc. They also provide employment to a hugechunk of our population. The key problem with majority of MSMEs is that they do not perceivethemselves as having a substantial impact on the environment. In addition, the environmental impact of individual MSMEs tends to be of small scale and highly dispersed and, therefore, it is often difficult toidentify the nature and sources of the environmental impact. Consequently, an insufficient number of MSMEs have been engaged in environmental impact management to any significant extent. A very smallnumber of these firms have environmental concerns and have got their plans for environmentprotection. However, given their dominance in absolute numbers, the ecological footprint imposedcollectively by MSMEs is enormously significant. They are more pollution-intensive than their biggercounterparts and although the actual environmental impact of MSMEs is difficult to assess, estimatessuggest that the contribution of this sector to pollution may be as high as 60% to 70% of total pollutionlevels. Soil contamination, air, water and noise pollution, water and energy consumption and release of untreated industrial effluent causing surface and ground water contamination, are some examples of SME environmental impacts that cumulatively are considered substantial and pose a hazard to ourenvironment. Taking example of a particular sector of MSMEs which is the leather cluster, is plagued bypollution. The operations in leather tanning - washing, stripping, bleaching, chrome tanning andbasification - involve the use of very toxic chemicals and its effluents tend to pollute ground water.These chemicals are thrown directly into water bodies or in open resulting in polluting the environment.The adoption of common effluent treatment plants and eco-friendly technologies has not become verywidespread due to lack of awareness among small firms and also partly due to lack of enforcement of environmental laws amongst small players. The same issue holds true for chemical sector companies.

Thus it becomes imperative to make the MSMEs management understand the harm they are doing tothe environment and the techniques that will help them reduce their carbon footprints and become agreener firm. For this special campaigns need to be run targeted specifically for the MSMEs and directgovernment and legal intervention is required.

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Problems in implementation:

The major problem in implementing environment specific CSR in MSMEs is their lack of capital andknowledge resources. Also the current infrastructure in these companies falls short in monitoring the

current practices and implementing new methods of operation. One of the unique characteristics of MSMEs is that their functioning is centered around the role of the owner who in most cases heads theorganization and their CSR policies are centered around his/her knowledge, values and interests. Manyof the SME's are unable to see any clear benefits by following or practicing CSR. Very few companieshave social reports, code of conduct or stated ethical practices. But many of SME's are involved in somedevelopment activity or the other. Environmental impact management is generally a peripheral functionof most MSME operations and accordingly, has a lower importance than core business activities whichdemand and compete for time and resources. Environmental impact management is further given lessimportance as most MSMEs are subjected to minimal, if any, environmental, legislative and regulativecompliance requirements by the authorities. In case of small business operators of the MSMEs, they

need more proactive regulation, environmental information and professional advice from local and stategovernment authorities due to the competing business demands of core activities and environmentalcompliance concerns. However, enforcement of individual SME compliance is costly due to the sheerdiversity and number of enterprises in this particular sector and consequently, engagement inenvironmental concerns in MSMEs is often self-regulated and discretionary.

The second problem being that the MSMEs are not convinced how the environment specific CSR can beapplied to their core business strategy to produce green products and whether the time and capital theyspend on working out this strategy will help them in getting desired returns. This is because mostMSMEs simply do not have the critical levels of scale needed to achieve such gains, and are unable to

effectively translate such investments into a sustainable long-term competitive advantage. Additionally,the cost of investing in environmental management systems is generally non-transferable to customersin terms of added benefits. All of these factors diminish the incentive for MSMEs to engage inenvironmental related CSR activities.

Also there are a few problems in implementing CSR in the supply chain of MSMEs. The standards maythemselves be inappropriate or particularly challenging for MSMEs. For example, pollution preventionmeasures stipulated by environmental standards may require investment in technology that is not viablefor MSMEs. Particularly in developing countries, MSMEs often find it difficult to access the newtechnology, environmentally friendly materials, credit, information and training that would help them to

meet CSR standards. The process of demonstrating compliance with the standards may be a barrier.MSMEs are less likely to have formal systems for measuring, recording and managing their impacts, andthey may not have the capacity to deal with demanding paper trails.

The cost of audits and certification can also prove to be a barrier. This is often the same however largethe company, so large companies are able to spread the cost across their entire operations. Standardstherefore often have a significant scale effect, which works against MSMEs. In many developingcountries, the high cost of certification is also in part due to a lack of local certifiers. Certification often

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acts as an entry ticket to markets, rather than a source of a premium, and even where there is apremium, this is unlikely to cover the cost of certification for MSMEs due to low volumes.

Some Solutions:

To engage MSMEs in better environmental management, it is important to provide MSMEs withappropriate environmental management solutions that are not just relevant to their business needs butalso applicable to their operational characteristics. As of now there are no such solutions offered to theMSMEs by the Govt. or any authority. They cannot just directly imitate the environment practices beingfollowed in the MNCs because small businesses are not just scaled down version of big businesses ratherthey are pretty much different and need more cost friendly and innovative initiatives to help them inmaking their businesses sustainable and environment friendly.

Thus to implement the environment related CSR in MSMEs a number of steps must be taken. Ratherthan expecting a MSME to take the initiative to engage, comply and act of their own volition, it isproposed that a multitude of small projects should be developed by NGOs, government or concernedauthorities to transfer knowledge to this important sector of the community in a way that will build theircapacity to engage. In particular, these projects will be directed toward practical, operational areas thatare specific to MSMEs needs and behaviors. This approach will introduce MSMEs to environmentalmanagement without overwhelming them and will therefore encourage their progression towards moresubstantive environmental management practices over time. Also to help them establish environmentfriendly initiatives, loans at lower interest rates must be given to these firms, as most of these solutionsare capital intensive and the owner of the MSME might not be able to sponsor it on his own. Thus easyavailability of loans will help him in solving the problem of capital. Government should make policiesconcerning the MSMEs which will define the guidelines and regulations regarding the amount of wasteor other pollutants that can be produced by a particular company. Strict monitoring is also required tocheck whether these guidelines are followed by the companies or not. Some of the medium sizecompanies may also be asked to produce a sustainability report at the end of year which will have all theenvironment related CSR initiatives by the firm and how has it helped them in becoming a moresustainable business. Also the provision should be there to provide audits and certifications to thesefirms at a lower price. As the cost of International standard certification is very high the Government of India must provide some certification approved by local authorities for MSMEs, this will keep thecompanies in complying with the regulations and will keep their pollution level to a limit. Hugepenalties should be imposed on the companies for not conforming to the set guidelines. These goals canbe achieved easily if each of the employees has knowledge and information about the impact on theenvironment by their particular sector. If the employees are made aware of these things and the firmscomply with all the regulations of the authority then the MSMEs can set an example in achieving asustainable business.