Study Warns Over 90 Million MSMEs in India Face Compliance Challenges with Scope 3 Emission Reporting

New Delhi, November 12 (Daily Kiran) : A recent study has revealed that more than 90 million micro, small, and medium enterprises (MSMEs) in India may face significant compliance challenges due to new Scope 3 emission reporting requirements under the Business Responsibility and Sustainability Reporting (BRSR) framework set by the Securities and Exchange Board of India (SEBI). The findings were published by the Chintan Research Foundation (CRF) on November 12.

The report, titled “Building India’s Scope 3 Architecture: A Phased Roadmap for Credible, Interoperable, and Equitable Emission Accounting,” evaluates India’s readiness for reporting emissions across value chains. It particularly focuses on large listed companies preparing for mandatory Scope 3 disclosures.

According to researchers Shagun Mamgain and Sandra V. Kurian from CRF, India is rapidly moving towards mandatory disclosure of emission-related information. However, the necessary infrastructure for accurate and consistent emission calculations is still underdeveloped.

The study indicates that approximately 27% of large companies in India already disclose emissions from their value chains, significantly above the global average of 15%. Yet, disparities in reporting methods were highlighted. Companies are utilizing various international frameworks, such as the Greenhouse Gas Protocol and Global Reporting Initiative (GRI) standards, but there is no uniform national standard in place.

The report emphasizes that the lack of a nationally recognized database for emission factors and standardized reporting boundaries leads to significant variations in disclosures. This inconsistency makes it challenging to determine whether actual emission reductions have occurred or if discrepancies are merely a result of differing reporting methods.

The study warns that the compliance burden will likely fall most heavily on the MSME sector, which is a crucial part of the supply chains of larger companies. Many small enterprises are already grappling with various regulatory requirements and environmental compliance obligations. Furthermore, they often lack the technical expertise or dedicated teams necessary for monitoring and reporting greenhouse gas emissions.

Some large companies have initiated programs to enhance the capacity of their suppliers. However, to remain competitive, MSMEs must also reduce their Scope 1 and Scope 2 emissions, as these directly impact the total Scope 3 emissions of larger firms.

The report cautions that without adequate support systems, sudden compliance requirements could increase costs for small businesses, potentially pushing some suppliers out of the supply chains of larger companies.

To address these challenges, the report proposes a three-phased roadmap for developing a Scope 3 reporting system in India. The first phase prioritizes improving methodologies, which includes standardizing reporting protocols, identifying key categories through a sector-cluster approach, creating a national database for recognized emission factors, and ensuring coordination among various reporting frameworks.

The second phase emphasizes capacity building, formalizing supply chain programs led by major companies, designing targeted support systems for MSMEs, and expanding the network of trained third-party auditors.

The final phase recommends compliance measures such as mandatory third-party verification, legally binding disclosure requirements, and integration with emerging carbon markets.