Financial incentives for SMEs in India, Britain and Indonesia

This piece is part of our ‘Climate Policy Engagement’ series. To ensure SMEs in the Race to Zero can climate proof their businesses, governments need to provide them the right kind of incentives. From India, to Indonesia to the UK, this piece demonstrates how governments around the world can support the progress of SMEs to adapt to and mitigate climate impacts. 

SMEs the backbone of our economy

SMEs are the backbone of the economy, representing between 50% to 80% of the economy in many countries. Yet, SMEs are more vulnerable to the impacts of climate change, face business continuity risks, and need access to tools and resources to decarbonise. Government policy can support and assist SMEs to not only respond to climate impacts – but also innovate for the future. The following examples demonstrate how governments can support SMEs, from helping provide access to funding to renewable energy projects. 

Indian SMEs financed through development bank

Indian SMEs account for nearly one third of the country’s GDP and half of its exports. Alongside making up global supply chains, they generate employment for over 110 million people. Indian SMEs must remain a critical part of efforts towards net zero. 

Small Industries Development Bank of India (SIDBI) launched its End to End Energy Efficiency (4E) Scheme in 2010 to finance energy-efficient technology and machinery, and renewable energy projects in SMEs. Such mechanisms finance up to 75% of the project cost and offer concessional or subsidized interest rates, along with flexible repayment terms. SMEs are thus able to reduce energy costs, enjoy enhanced market competitiveness and meet buyer expectations to lower emissions. Through the 4E scheme, SIDBI also provides SMEs with subsidized technical consultants to deliver energy audits and implementation support.

“Empowering SMEs through climate finance is critical if global businesses and governments are to achieve their net zero targets”, says Pradeep Choudhary, Managing Director, Multi Decor India Private Limited (MDIPL). He adds: “We are in strong support of financing mechanisms such as flexible loans and subsidies offered by governments and financial institutions which enable and encourage SMEs to take climate action.”

Through concessional loans offered by the Small Industries Development Bank of India (SIDBI), our business has been able to prioritize multiple climate initiatives in line with our mission statement of becoming more sustainable.

The Haryana-based construction company, MDIPL, has been a frontrunner in its environmental initiatives. They joined the Race to Zero through the SME Climate Hub in 2023, and first approached SIDBI at one of the SME Climate Hub’s regional events. Unlocking climate finance through SIDBI has catalyzed the company’s climate ambition into action. Setting up solar panels, natural gas gensets, and building insulation has reduced emissions and cut costs, enabling MDIPL to work towards its net zero target. 

UK grants for renewable energy 

There are 5.5 million SMEs in the UK and up to 53% of the UK’s emissions are from SMEs. The UK Business Climate Hub is a shared endeavour, developed with the Department for Energy Security and Net Zero (DESNZ), the SME Climate Hub, and the UK’s main business organisations, energy networks, high street banks and professional bodies. The Business Climate Hub signals where SMEs may find access to funding, including business rates relief, capital allowances and clean growth funding. 

VMI is a camera rental company within the TV industry in the UK. VMI made an initial investment in installing 10KW of solar PV in London to meet their power needs, such as charging EVs, which was later extended to 40KW. The success of this model encouraged VMI to successfully apply for funding with the West of England Combined Authority and European Regional Development Fund, which enabled them to expand their solar PV provision in Bristol (from 10KW to 15KW) and make improvements in energy efficiency (e.g., replacing existing fluorescent lighting with LED equivalents). In the context of rising power costs, their movement to more efficient, renewable energy provision has saved costs for VMI. 

Indonesia’s corporate assistance programme

KADIN Indonesia, through its Net Zero Hub (NZH), is driving climate action by supporting businesses, including SMEs, in their decarbonisation efforts. The Corporate Assistance Programme (CAP) is a flagship initiative that equips companies with the training and tools necessary to reduce emissions. A notable example is the involvement of 20 companies from Adidas’ supply chain in Indonesia, covering sectors such as apparel, footwear, and accessories. These businesses have been trained to measure and manage Scope 1, 2, and 3 emissions, adopting international standards like the GHG Protocol and Science Based Targets initiative (SBTi). Collectively, they are projected to reduce 3.5 million tonnes of CO2 by 2035. Additionally, in a separate CAP batch, PT Indo Oil Perkasa Tbk, an SME, has successfully submitted its net zero targets for validation by SBTi, demonstrating the programme’s extensive reach and impact.

The Ministry of Industry supports these efforts and their ambitions by considering policy frameworks that incentivise SMEs through mobilising grants or green investments from financial services or international organisations. Furthermore, the Ministry of Finance provides fiscal incentives through tax reductions, tax credits for R&D and subsidies to encourage the adoption of green technologies. These efforts between KADIN, the government, and the private sector highlights how effective policy and industry leadership can accelerate Indonesia’s transition towards a sustainable, net zero future.