Climate finance is a multifaceted concept lacking a clear definition or well-defined scope. In simple terms, it refers to financing for activities aimed at mitigating or adapting to the impacts of climate change. Over recent years, it has emerged as a primary instrument influencing the way the corporate communities collaborate, explore avenues for development cooperation, and formulate collective or individual approaches to address the global climate crisis at local, national, regional, and global levels. In response to the escalating impacts of climate change across economic sectors, public budgetary allocations and other financing instruments are demonstrably looking to integrate climate risk considerations into their investment decisions. The current flow of climate finance is not, however, commensurate with the existing and anticipated risks, especially in relation to market players operating (sectorally or otherwise) at a limited scale. In this light, the article seeks to provide an overview of climate financing, its importance vis-à-vis MSMEs, a brief outline of the current approach in the three Asian jurisdictions and discusses potential ways to bridge the climate financing gap.


According to the United Nations Framework Convention on Climate Change, climate financing refers to financing drawn from public, private and alternative sources of financing, which may be local, national or transnational, that seeks to support actions addressing climate change. Climate financing is, and will continue to be, a key contributing factor in encouraging mitigation and adaptation. An increase in investment for mitigation is urgently needed, necessitating policy changes that focus on incentivising and, therefore, maximising climate assessment and impact across all sectors. Accelerating the flow of climate finance at the public and private levels will allow stakeholders to transition while simultaneously contributing to economic growth.

The acceleration towards a sustainable future contemplated above holds significant importance with respect to Asia, which is set to contribute a majority of the global growth in 2024. Addressing climate mitigation and adaptation needs, a process which demands continuous measures and substantial amounts of investment is more crucial and challenging in this region. Home to several of the largest emitters, the region is highly vulnerable to climate change due to its high population density and geography. In the annual State of Southeast Asia Survey 2020 conducted by the ASEAN Studies Centre at the ISEAS-Yusof Ishak Institute, climate change emerged as one of the top three security concerns in Asia. From a holistic standpoint, the global (monetary and fiscal) economic growth fueled by the region is rendered almost paradoxical owing to its heavy dependence on coal, which has resulted in substantial greenhouse gas emissions while also leaving the region more vulnerable to the effects of climate change. Asia’s environmental performance also hinders its capacity to attract international private flows from the rapidly expanding environmental, social, and governance asset classes, causing the cost of issuing sustainable debt to remain relatively high compared to other regions. With fiscal space limited by public debt accrued during the global pandemic, there is an urgent need to address these challenges and mobilise private capital for climate financing.

The (increased) susceptibility of the Asia-Pacific region (and more so, Southeast Asia) to the effects of climate change stems from various factors, such as elevated poverty rates in certain nations, heavy reliance on climate-sensitive industries for livelihoods, extensive coastlines, and exposure to multiple natural hazards. To quantify, for instance, a recent article published by the International Monetary Fund indicates that countries in this region confront a deficit of no less than USD 800 billion in climate financing. Consequently, the adverse outcomes disproportionately affect the most vulnerable communities and economic sectors across the Asia-Pacific region. This situation snowballs and notably impacts Micro, Small, and Medium Enterprises (MSMEs), which face barriers including limited access to capital, their scale, and insufficient understanding and awareness of the physical risks and impacts of climate change. For context, as early as 2016, according to the fourth annual global SME survey conducted by Zurich Insurance Group, approximately 78 % of the surveyed MSMEs anticipated that risks linked to climate change would exert a notable impact on their business. MSMEs, as corporate entities functioning at a relatively limited scale, are by default significantly more vulnerable to climate risks and indifferent to pursuing climate-positive action due to various factors. They often lack the resources, capacity and motivation to understand and/or withstand the impacts of climate change. Informal risk management arrangements, which may be effective for traditional individual-level risks, often fail to safeguard MSMEs from climatic risks. They face challenges such as unreliable infrastructure, limited access to finance, and insufficient technology. Additionally, rural MSMEs, in particular, encounter a harsh business environment with many uncontrollable risks. Constrained by their scale, scarce financial resources, and workforce capacity, often face the dilemma of balancing climate action initiatives with their bottom line.

Financial constraints prevent MSMEs from adequately investing in or giving priority to climate action measures. Moreover, certain investments essential for managing climate change risks entail significant initial expenses, prolonged payback periods, and uncertainties, which may dissuade SMEs from engaging in climate change risk management. These limitations are disproportionate to the increase in the number and economic impact of MSMEs across sectors, and therefore, investing in climate-resilient MSME infrastructure, enhancing their access to finance, and providing support for technology adoption is essential to meeting a country’s overall climate target. Lack of climate financing could potentially disrupt cooperation from MSMEs and increase their exposure to the risks associated with climate change. This will, in turn, impede the larger efforts to contain climate change while also underscoring the commercial viability of MSMEs in an economy striving to be greener.

Overview of Initiatives

At a broader level, several initiatives have been launched in the Asia-Pacific region to assist the private sector, including MSMEs, in comprehending climate change impacts and preparing their operations accordingly. Efforts such as the ‘ASEAN Catalytic Green Finance Facility’ (ACGF) aim to formulate investment programs directed towards promoting sustainability among MSMEs in the Asia-Pacific region, offering training sessions to enhance awareness of available financial opportunities relevant to MSMEs. The ACGF stands out as an innovative finance facility committed to accelerating green infrastructure investments across the Asia-Pacific region, concentrating on projects advancing renewable energy, energy efficiency, sustainable transportation, water management, waste disposal, and climate-resilient agriculture. In addition to financing and project preparation assistance, the ACGF delivers training sessions to fortify regulatory frameworks and enhance the institutional capabilities of ASEAN governments to promote green infrastructure investments. Meanwhile, global initiatives like the ‘SME Climate Hub’ furnish essential technical expertise to aid MSMEs in implementing climate action measures, providing tools, methodologies, and step-by-step guidance on reducing greenhouse gas emissions and adopting climate mitigation strategies. Furthermore, the ‘ASEAN Center for Energy’ serves as a knowledge hub for energy sustainability, facilitating regional and international collaboration to improve energy efficiency management throughout the Asia-Pacific region. The European Union’s ‘SWITCH-Asia Programme’ is another flagship project that offers direct capacity-building support to MSMEs through sustainable consumption and production tools tailored to individual countries, making substantial investments in MSME capacity-building mechanisms and serving as a valuable partner for future endeavours promoting climate action.


MSMEs contribute significantly to India’s economy, sharing approximately 30 % of the gross value added to the country’s GDP. They simultaneously also account for a significant share of energy consumption within the industrial sector, utilising roughly 25 % of the total energy, making a low-carbon transition for this sector imperative to achieve India’s global climate commitments. Climate finance is, however, at a nascent stage in India. It largely flows through formal financial channels with stringent criteria, currently catering to only about 16% of India’s MSMEs. A large portion of the implementation instruments comprise of schemes operating at a central and state level. For instance, the ‘National Programme on Energy Efficiency and Technology Upgradation in SMEs’, funded by India’s Bureau of Energy Efficiency, aims to improve energy efficiency in MSMEs through data collection and recommendations, technical assistance and incentivisation. Further, the Small Industries Development Bank of India introduced the ‘4E Financing Scheme’ to aid MSMEs in covering expenditures related to energy-saving measures and investments in rooftop solar installations. The scheme provides partial financial support for capital expenditure, including equipment, machinery, civil works, installation, and commissioning. MSMEs enrolled in the program can achieve energy savings ranging from 10 % to 25 % with the assistance of consultants offering services at reasonable rates and high service quality. The government has additionally established the ‘Credit Guarantee Trust Fund Scheme for Micro and Small Enterprises’ to address the issue of banks’ reluctance to provide financial assistance to MSEs due to perceived high risks and collateral requirements. This scheme aims to facilitate collateral-free credit for MSMEs and provides credit guarantee support for loans without the need for collateral or third-party guarantees. During FY 2020-21, the scheme approved over 8 lakh guarantees amounting to nearly INR 37,000 crore. There is also a variety of funding available at the international level, which MSMEs can and should tap into. For instance, with the aid of technical support from the ‘Clean Technology Fund’, the Asian Development Bank aims to pinpoint crucial energy efficiency technologies and assess their economic feasibility, alongside identifying appropriate vendors for partnerships with private sector financial institutions. Subsequently, the Asian Development Bank chooses interested institutions and assists them in developing the necessary expertise to craft specialised financial products, as well as implementing strategies to encourage greater uptake of investments in energy efficiency and smart infrastructure technologies. However, international climate financing should not be construed as a reliable or constant source of funding. Accessing such funds requires fulfilling comprehensive procedural requirements, which encompass developing detailed project proposals and conducting energy and emission audits.

India has recently advocated for exemptions for Micro, Small, and Medium Enterprises (MSMEs) from the European Union’s (EU) carbon tax, set to be implemented from October, through a mutual recognition agreement for its Carbon Credit Trading Scheme (CCTS). The EU’s Carbon Border Adjustment Mechanism (CBAM) would impose a 20-35% tax on certain imports from January 2026. India aims for EU recognition of its CCTS to alleviate additional tax burdens on exports. Bilaterally, India is negotiating with the EU and seeks carve-outs for MSMEs and possibly the nation as a whole. Meanwhile, India, alongside other nations, has raised concerns about CBAM at the World Trade Organization (WTO). The government is also urging industries to prepare for the carbon tax, with suggestions including adopting climate-friendly practices. Ahead of the Trade and Technology Council (TTC) meeting in Brussels, India plans to address these issues with EU officials. The TTC aims to foster technology exchange in various domains, following a pact between India and the EU in February. Overall, India is engaging both bilaterally and multilaterally to safeguard its industries from the impact of the EU’s carbon tax.


MSMEs form the foundation of the Singaporean economy, accounting for around 50 % of the nation’s GDP and providing employment for over 70% of the workforce. A key obstacle encountered by SMEs when seeking financing is their limited creditworthiness. Many MSMEs in Singapore lack an extensive financial history, posing challenges for banks and financial entities to evaluate their creditworthiness accurately. Moreover, these MSMEs often lack adequate collateral to support loan applications, further diminishing their chances of securing financing. This dearth of creditworthiness and collateral complicates the process of obtaining traditional bank loans for MSMEs, restricting their access to financing options. In spite of the hurdles SMEs encounter in acquiring financing, various funding avenues exist that are accessible to them. These avenues comprise traditional bank loans, government-backed financing schemes, and alternative financing solutions. Notably, Singapore accords heavy focus on incentive mechanisms, such as tax subsidies and exemptions, which are aimed at increasing MSME contribution and participation. For instance, the ‘Sustainable Loan Grant Scheme’, introduced by the Monetary Authority of Singapore, is a loan program aimed at assisting corporations of all sizes in accessing green and sustainable financing options. It offsets up to SGD 125,000 of expenses incurred for external reviews of eligible green, social, sustainability, and sustainability-linked as well as transition loans and promotes the adoption of internationally recognised standards and taxonomies. Further, the ‘3R Fund’ is designed to incentivise MSMEs to focus on waste streams with low recycling rates, such as food, plastic, and glass. Under this initiative, MSMEs can receive co-funding of up to 80% of eligible costs, with a maximum cap of USD 1 million per project per applicant. Subsequent or multiple onsite waste management systems will also be subsidised, albeit at a reduced co-funding rate. On the other hand, the ‘Energy Efficiency Grant’ is dedicated to enhancing energy efficiency in businesses with industrial facilities by covering the expenses of MSMEs across various sectors seeking to upgrade their operations for greater energy efficiency.

Moreover, Singapore is implementing higher carbon tax rates from 2024 to address greenhouse gas emissions while ensuring competitiveness for key sectors. Minister for Sustainability and the Environment, Grace Fu, announced allowances for emissions-intensive trade-exposed (EITE) sectors like oil and gas and manufacturing to mitigate immediate competitiveness challenges. These allowances will support emissions reduction efforts and investment in cleaner technologies. The carbon tax, set to rise progressively to $80 per tonne by 2030, targets facilities emitting over 25,000 tonnes annually, covering about 80% of the nation’s emissions. The phased increase allows businesses time to transition to low-carbon practices. Concerns were raised about compromising the “polluter-pays” principle and eroding price signals with tax allowances, countered by arguments emphasizing the need to prevent emissions leakage. Transparency regarding facilities receiving allowances may be considered, balancing the need for disclosure with commercial sensitivities. To cushion the impact on households and SMEs, measures like U-Save rebates and grants for energy efficiency improvements are available. Additionally, companies can offset taxable emissions using international carbon credits (ICC), with plans to ensure high environmental integrity and compliance with international standards. However, concerns about the 5% cap on carbon credit usage and limited emission reduction technologies were raised. Minister Fu emphasized a flexible approach, indicating adjustments to the cap as the carbon market matures. The establishment of an ICC registry by the National Environment Agency will track and account for carbon credit usage, supporting the development of a vibrant carbon trading market in Singapore.

Concerns arise over Singapore’s carbon tax hike and limitations of the ICC framework, with challenges including project eligibility and slow progress in securing agreements. However, there’s an opportunity to enhance ICC offerings before the Jun 30, 2025 deadline. In 2024, EY’s Budget wish list for Singapore urged increased SME funding for sustainability and reassessment of tax incentives amid BEPS 2.0 reforms. The lists highlights how Flexible tax measures are vital to support economic goals, with suggestions including a Qualified Refundable Tax Credits scheme and expanding incentives post-BEPS 2.0. Despite hurdles, Singapore’s carbon tax applies to a limited number of facilities, indicating manageable demand for carbon credits. EY’s proposals aim to enhance Singapore’s economic competitiveness, sustainability efforts, and response to global tax changes.

Hong Kong

As of December 2023, Hong Kong had a total of over 360,000 MSMEs, comprising more than 98% of all enterprises in the region. These MSMEs offer employment opportunities to over 1.2 million individuals, representing over 44% of the total workforce. The government of Hong Kong offers over 40 funding schemes with varying scopes, amounts, and requirements to foster the growth of enterprises and industries in the region. Additionally, the ‘Green and Sustainable Finance Grant Scheme’ was introduced to assist MSMEs obtain green loans more efficiently. Grants of up to HKD 800,000 per loan to cover eligible expenses paid to recognised external reviewers are provided under the scheme. To encourage more MSMEs to apply for these grants, the minimum loan size for grant applications was reduced from HKD 200 million to HKD 100 million. Further, it is positively interesting to note that there is a lot of focus on increasing awareness among MSMEs, thereby organically mobilising other key efforts in this direction. A dedicated service team called ‘SME ReachOut’ was established in 2020 to assist MSMEs in identifying suitable funding schemes and addressing application-related queries through face-to-face consultations. To further support MSMEs, the government allocated USD 100 million to the Hong Kong Productivity Council to enhance the services of ‘SME ReachOut’ over the period of 2023 to 2028. Further, in October 2023, the Hong Kong Productivity Council bolstered the services by expanding outreach efforts to more chambers of commerce, commercial and industrial buildings, and co-working spaces. Additionally, increased social media presence aims to raise awareness of government funding schemes. Moreover, more personalised consultation sessions will be offered to assist MSMEs in accessing government funding and enhancing their capabilities, focusing on areas such as ESG, technology transformation, digitalisation, and cybersecurity. These initiatives aim to improve MSME competitiveness by leveraging new technologies. A key issue remains that a majority of the green funding available in Hong Kong is routed to larger corporations. A survey conducted by the Hong Kong Productivity Council revealed that 64 per cent of MSMEs identified insufficient knowledge and funding as their primary obstacles in promoting ESG practices. Increased financial assistance, industry guidance, and employee training are construed to be the most critical needs for MSMEs in Hong Kong in this regard.

The Green and Sustainable Finance Grant Scheme (GSF Grant Scheme) launched in May 2021 in Hong Kong subsidizes eligible green and sustainable bond and loan issuances. Proposed extension until 2027, with subsidies expanded to cover transition bonds and loans, aims to support industries in transitioning towards decarbonization. Administered by the HKMA, the scheme’s updated guideline have taken effect from May 10, 2024, with potential adjustments based on market dynamics and feedback. Additionally, Hong Kong’s Qualifying Debt Instrument (QDI) scheme, introduced in 1996, offers tax concessions to attract overseas issuers and enhance the local debt market. Recent measures include refining regulatory measures and tax arrangements for the asset and wealth management sector, setting up a committee for developing Hong Kong into a green technology and finance center, and expanding the Government Green Bond Programme. These initiatives aim to bolster Hong Kong’s platform and ecosystem, making it more attractive for market participants seeking opportunities in green and sustainable finance.

Role of Foreign Direct Investment in Unlocking Climate Investment

The climate justice agenda emphasizes increasing funding for greener development in Emerging Markets and Developing Economies (“EMDEs”) to address climate change impacts. Foreign direct investment (“FDI)” plays a crucial role in this agenda, serving as the primary source of private capital flows. While some developed countries have made significant progress in mobilizing climate FDI, many EMDEs have yet to attract substantial investments. This disparity poses challenges for achieving climate goals and narrowing the north-south gap in economic and social development. EMDEs face financial constraints and regulatory barriers to investment, compounded by high debt levels from the COVID-19 pandemic. Limited access to climate FDI hampers their ability to transition to greener economies, threatening future emissions growth as these countries pursue economic development. To address this, collaboration between developed countries and EMDEs is essential, requiring new commitments and innovative financing mechanisms.


India’s focus on green growth presents lucrative opportunities for foreign investment, particularly in sectors aligned with sustainable development goals. The government has implemented various measures to attract foreign firms offering green solutions, with a particular emphasis on renewable energy, waste management, and sustainable infrastructure. The green economy in India emphasises sustainable development and poverty eradication while valuing natural assets like forests, water, and soil. Green industries not only drive economic growth and innovation but also create job opportunities, especially for small and medium-sized enterprises.

To support the green economy, India has implemented policies to attract foreign direct investment (FDI) in renewable energy projects, allowing up to 100 percent FDI through the automatic route. The government has waived Inter State Transmission System (ISTS) charges for inter-state sale of solar and wind power until June 30, 2025, and established Ultra Mega Renewable Energy Parks to facilitate development. Various schemes like PM-KUSUM and Solar Rooftop Phase II aim to promote renewable energy adoption. Additionally, India has launched initiatives to promote sustainable urban development, waste management, and clean transportation. The Green Energy Corridor Scheme aims to integrate 500 GW of renewable energy capacity by 2030, while the Green Energy Open Access Rules and Green Term Ahead Market facilitate the sale of renewable energy power. Efforts to retire inefficient thermal units and promote electric vehicles further contribute to India’s comprehensive approach to sustainability. In terms of foreign investment scope, the renewable energy sector in India has seen significant growth, attracting investments of over US$2.5 billion in FY23. Key investor countries include Singapore, Mauritius, The Netherlands, and Japan. India’s renewable energy landscape offers abundant labor, easy access to affordable capital, and streamlined regulatory clearances, making it an attractive destination for investment. Moreover, India’s waste management market presents opportunities for investment, with the market projected to reach US$35.87 billion by 2028. Various players are working to reduce waste generation and optimize recycling processes, with startups leading initiatives for environmentally friendly waste disposal.

India’s sustainability targets align with the United Nations Sustainable Development Goals (SDGs), with a focus on sectors like smart cities, affordable housing, renewable energy, and electric mobility. The national FDI facilitation agency, Invest India, is committed to aligning investor facilitation goals with UNSDGs and provides comprehensive information to target investors.

However, India faces challenges in environmental performance, ranking lowest in the Environmental Performance Index (“EPI”) 2022. The country confronts issues like air pollution and water scarcity, with a significant portion of the population exposed to high levels of air pollutants and limited access to clean water. Despite these challenges, business opportunities abound in tackling India’s environmental issues. Investments in clean energy, sustainable infrastructure, and water management not only contribute to environmental protection but also offer substantial economic returns.

Hong Kong

Hong Kong welcomes foreign investment with no legal distinctions between foreign-controlled and locally controlled companies. Foreign entities can establish operations, branches, or representative offices without ownership restrictions, and directors don’t need to be Hong Kong residents. Reporting requirements are simple. Hong Kong ranks third globally in foreign direct investment, with InvestHK aiding inward investment. Foreign firms, including from the U.S., enjoy national treatment in R&D programs. Tax policies are favorable, with no capital gains or withholding taxes, a flat 16.5% tax rate, and an 8.25% rate on the first $255,000 profit for all companies. Import/export policies are non-discriminatory, and there are no direct subsidies or disincentives, making Hong Kong appealing for international businesses.


Singapore ranks third in attractiveness for inbound greenfield foreign direct investment (FDI) in the energy sector, according to Foresight Economics (“FE”). With an index of 72.74%, it follows Luxembourg (86.25%) and Hong Kong (80.70%). The ranking reflects Singapore’s high degree of openness and political stability. The founder of Foresight Economics, Kavi Chawla, anticipates Singapore’s trend of narrowing the gap with Hong Kong to continue. The index highlights a shift towards renewable and sustainable energy amidst a global recession and undersupply situation. Notably, investment flows in renewables and green energy were negligible in top energy-producing countries, impacting their performance in the index. The 2018 tariffs affected the US and China’s standings in the index. Key indicators for the FE Energy Index include Governance and Diversification, Openness, Economic Growth, and Natural Resources Endowment, with Openness and Natural Resources Endowment having significant weightings. Overall, the index underscores the critical role of FDI in the energy sector’s transition and the importance of actionable data for informed investment decisions.

Enhancing Climate Finance Mobility for MSMEs: Key Recommendations

MSMEs serve as the primary drivers of economic expansion in the Asia-Pacific region, generating employment opportunities on a large scale, catalysing the innovation of novel products and services, stimulating consumption growth, and fostering competition within industries, but they continue to be disproportionately affected by climate change. Lack of timely and adequate access to climate finance poses a big challenge to MSMEs and will continue to constrain their contributions. Accordingly, prioritising climate financing for MSMEs would not only address environmental challenges but also promote inclusive economic growth and resilience in the face of climate change. Given the limited funds for MSME support available to governments, especially those of developing countries, investing in institutions that offer skills development programs and impartial credit risk assessments for MSMEs could be a more viable approach. Simultaneously, public bodies should work towards extending financial products and services that address the unique needs and constraints faced by MSMEs, particularly in the context of climate change adaptation and mitigation.

Emphasis should also be placed on building partnerships between financial institutions, governments, and development organisations to enhance the accessibility and affordability of climate finance for MSMEs. Innovative approaches, such as blended finance mechanisms and risk-sharing instruments, to incentivise private sector investment in climate-resilient and low-carbon initiatives will undoubtedly play a key role. Continuing on the note of partnerships, interdisciplinary efforts will prove key. Financial literacy allows MSMEs to navigate through climate financing alternatives and collaborate at a more efficient level, thereby significantly contributing to formal credit accessibility. Accordingly, governmental bodies, research organisations, think tanks and academia should come together to help MSMEs understand climate risks, climate action schemes and incentives available to them, the scope of financing under each such scheme or incentive and regularly update them regarding expected climate action standards.

The forthcoming measures should prioritise addressing the current eligibility criteria for MSMEs to access climate finance. Presently, these criteria vary across different schemes and mechanisms. For instance, MSMEs face challenges in directly accessing climate finance from national funds or other similar sources due to their funding needs being considerably smaller than what these sources typically provide. Another requirement is the establishment of a dedicated climate finance facility tailored for institutions, such as non-bank financial companies and microfinance institutions, serving MSMEs. While financial institutions access climate finance from national funds, they encounter limitations in delivering it to MSMEs. As primary providers of finance to MSMEs, such institutions either do not meet eligibility criteria or struggle to access climate finance. Hence, eligibility requirements for financial institutions dispensing climate finance should include specific provisions enabling access to climate finance themselves. The aim should be to move to a more integrated financing structure.

Moreover, FDI becomes a vital component for fulfilling the climate justice agenda by financing greener development in Emerging Markets and Developing Economies (“EMDEs”). Collaboration between developed and developing countries, alongside innovative financing mechanisms, is necessary to overcome barriers and accelerate the transition to low-carbon economies. By leveraging climate FDI, EMDEs can mitigate climate change impacts, promote sustainable growth, and contribute to global de-carbonization efforts.

Researchers have also observed a growing trend among banks to factor in ESG considerations when making lending decisions. In light of the risks associated with ESG factors, many financial institutions are inclined to lend to businesses with stronger sustainability profiles, which are perceived as less risky. This approach is beneficial for MSMEs, banks, and regulators alike. Extending credit to sustainable companies can enhance a bank’s value by increasing net interest margins and reducing default risks. Consequently, banks are expanding their involvement in environmentally friendly activities by providing capital at lower rates to firms aligning with environmental objectives. Owing to the increase in formal credit flow, MSMEs will recognise that adopting sustainable practices is no longer just a regulatory obligation but a critical factor in accessing bank financing, particularly in the current climate of tighter credit conditions. Simultaneously, banks will be incentivised to finance sustainable MSMEs due to their enhanced ability to meet financial obligations and repay debts, thus strengthening the bank-firm relationship and ensuring compliance with regulatory guidelines.


The global emphasis on impact technologies to address climate change has reached unprecedented levels. A dynamic network of sustainability-driven startups is actively engaged in developing creative solutions across various sectors, such as clean energy, energy efficiency, electric vehicle adoption for emissions reduction, and enhanced waste recycling. These efforts aim to mitigate the effects of climate change through innovation and sustainable practices.

While the current rate of progress is notable, in the grander scheme, it is plainly insufficient. Ambition is not accelerated enough, and efforts to cut greenhouse gas emissions to the respective levels promised by each country are falling alarmingly short. Without more robust action, our warming planet poses threats to homes, health, and food security. Backing climate-resilient MSMEs from a policy standpoint largely remains unexplored, a concern compounded by a scarcity of empirical data and established success records for numerous climate-resilient rural solutions. This underscores the necessity for meticulousness and prudence in policy formulation. It is, therefore, essential to mobilise more climate finance not only for mitigating emissions but also for building adaptive capacity through investments in climate-resilient infrastructure.

Besides the economic and environmental advantages offered by adopting greener methods in traditional MSMEs, the green economy introduces entirely fresh prospects for SMEs to emerge as frontrunners in sectors like renewable energy installation, green service provision, and environmental consulting. To harness climate finance for bridging the MSME financing deficit and unlocking the complete potential of MSMEs, stakeholders within the SME ecosystem must unite with climate finance experts and policymakers. Climate finance providers should acknowledge the significance of MSMEs in climate initiatives and upscale the capital allocated to MSMEs across various industries. Concurrently, innovative financial instruments are necessary to ensure that the total funds earmarked for MSMEs globally are efficiently disbursed to SMEs in smaller increments.

Overall, there is a need to devise a mechanism that proactively directs climate finance to MSMEs. Institutions should concentrate on mobilising additional capital for the MSME sector through structured measures and risk mitigation strategies, thereby facilitating increased credit flow to MSMEs. Ultimately, a holistic approach that integrates financial inclusion strategies with climate action efforts to unlock the full potential of MSMEs will drive sustainable development in the right direction.


Manvee Kumar Saidha (Associate, Trilegal ) & Kaushiki Singh (Associate Editor)


All views and opinions expressed in this article are personal.

Editorial Team:

Managing Editor: Naman Anand
Editor in Chief: Abeer Tiwari and Harshita Tyagi
Senior Editor: Kopal Kesarwani
Associate Editor: Kaushiki Singh
Junior Editor: Kanishka Bhukya

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