Innovation and ESG for Sustainability in MSMEs

This chapter examines how innovation acts as a catalyst for environmental, social, and governance (ESG) integration in micro, small, and medium enterprises (MSMEs). It highlights the interdependence between sustainability-driven innovation and improved ESG performance. Despite constraints such as limited finance, technology gaps, and regulatory complexity, MSMEs can leverage digital tools, green technologies, frugal innovation, and inclusive business practices to enhance efficiency, transparency, and social impact. The chapter analyses technological, social, and governance innovations, supported by real-world case illustrations, and outlines strategies for fostering ESG-oriented innovation through leadership, collaboration, policy support, and measurement frameworks. It concludes that innovation enables MSMEs to convert ESG challenges into opportunities for competitiveness, resilience, and sustainable growth.