Why Msmes Struggle With Esg Compliance And What We Can Do About It

Micro, Small, and Medium Enterprises (MSMEs) not to be confused with startups are the backbone of many economies. They create jobs, sustain families, and contribute significantly to national GDPs. Yet, despite their importance, most MSMEs find ESG compliance out of reach. This is especially troubling at a time when sustainability practitioners are actively encouraging them to get certified. 

Take the recent case of Rainforest Alliance certification in Kenya’s tea sector. An industry-specific ESG certification designed to signal responsible sourcing and production. But in May 2025, Kenya suspended this certification for all tea factories. Why?  

The government argued the certification imposed an unfair financial burden about USD 3,000 per factory annually on smallholder tea farmers, with little benefit in return. Although the certification promised better market access, years of implementation showed that profits did not trickle down. Smallholders, mostly under the Kenya Tea Development Agency (KTDA), were absorbing the costs of a system meant to satisfy global buyers without seeing the promised premium prices or improved livelihoods. 

At its core, the problem reflects a larger issue: a disconnect between global ESG demands and local MSME capacity. Certifications like Rainforest Alliance require audits, paperwork, compliance upgrades things large corporates can handle but small enterprises struggle with. Kenya’s stance was simple: if international markets want sustainability, they should be willing to co-finance it. 

This suspension wasn’t arbitrary. It followed a multi-stakeholder meeting involving the Tea Board of Kenya, KTDA, and Rainforest Alliance representatives. The agreement? Pause certifications, review the model, and seek a better-aligned alternative perhaps a homegrown ESG standard similar to India’s Trustea model. 

Allow me to digress a little. Micro, Small, and Medium Enterprises (MSMEs) should not to be confused with startups. While startups are typically innovation-driven, investor-backed, and built for rapid growth with ESG often woven into the business model, MSMEs are everyday businesses rooted in survival and cash flow, operating with limited resources and minimal external pressure to comply. Comparing MSMEs to startups when talking ESG is akin to asking the neighbourhood grocer to submit a five-year climate risk disclosure… in Excel… by Friday. Startups have pitch decks, angel investors, and dreams of unicorn status. MSMEs have customers to serve, school fees to pay, and maybe a dusty receipt book.  

Kenya’s suspension of Rainforest Alliance certification in the tea sector is symptomatic of the challenges encountered by MSMES when it comes to ESG compliance; still too far out of reach for most MSMEs.  

For many MSMEs, ESG remains a foreign language. It is often introduced in boardroom with jargon such as carbon disclosures, gender audits, governance frameworks. These concepts sound more at home in a multinational than in a local garage in downtown Nairobi, retail shop in Lamu, or a farmer’s cooperative in Ndalu. The first barrier is awareness: most MSMEs don’t know where to begin or how ESG connects to their day-to-day realities. 

 Then comes the cost. If you have done ESG compliance you know it does not come cheap. Hiring consultants, paying for audits, upgrading processes, and ticking boxes on global frameworks such as GRI. This is not pocket change for small businesses operating on tight margins. Many MSMEs struggle just to stay afloat, let alone finance a sustainability report. 

 Even those willing to try often lack the capacity. These businesses rarely have in-house legal, HR, or sustainability officers. Who will track emissions, write policies on gender equity, or manage a code of conduct? Most simply don’t have the human or technical resources to comply. 

 To make matters worse, the frameworks themselves are daunting. ESG metrics are often designed with large, formalised companies in mind. But MSMEs don’t operate that way. Many are informal or semi-formal, juggling multiple roles and paper-based systems. Expecting them to meet the same reporting thresholds as a publicly listed firm is unrealistic. 

 And finally, there’s the market logic: if no one is demanding ESG from them, why should they bother? Without clear buyer incentives or regulatory mandates, ESG feels like an expensive distraction, not a competitive advantage. 

 So, What Can We Actually Do About It? 

First, we need to demystify ESG. Speak the language of MSMEs. Use practical examples they can relate to like how saving energy reduces bills, how decent work reduces turnover, or how being transparent builds trust with buyers. 

 Second, we must simplify the standards. ESG frameworks should be tailored, not templated. Tiered systems that allow MSMEs to start small and scale up would go a long way in encouraging adoption. And this brings me to a question I keep asking myself (usually while stuck in Nairobi traffic): are we, as a continent, truly unable to design our own ESG frameworks ones rooted in our local realities, our culture of community, and our environmental wisdom? Must we always import standards, tweak a clause here and there, and call it localisation? Why not flip the script and say, “Before you export here, kindly meet our sustainability standards.” 

 Take Kenya’s suspension of the Rainforest Alliance tea certification in 2025 as a perfect example. The government said, “Nice certification, but it’s costing our farmers more than it’s helping them.” And just like that—pause. Review. Local relevance first. Now that’s the energy we need. 

 Third, subsidies matter. ESG shouldn’t be another tax on small businesses. Governments, donors, and development financiers can step in with targeted support grants, tax breaks, or ESG-linked low-interest loans. 

 Fourth, it’s time to go digital. MSMEs don’t need another paperwork mountain. Mobile apps and simple web tools can help them track key ESG metrics and generate reports with ease and minimal cost. 

 Fifth, let’s leverage supply chains. Big companies already require ESG compliance, so why not help their MSME suppliers get there? Shared audits, joint training, or co-funding certifications can make a huge difference. 

 And finally, build ESG support hubs. These could be hosted by chambers of commerce, industry associations, or even local universities as places where MSMEs can access templates, tools, coaching, and mentorship to start and sustain their ESG journey. 

 Conclusion 

If sustainability is to become more than a corporate buzzword, it must be reimagined for the MSME reality. Kenya’s tea story wasn’t an indictment of ESG principles, it was a wake-up call. Unless ESG frameworks become more inclusive, affordable, and locally relevant, they risk excluding the very businesses that make up most of the real economy. 

 MSMEs don't need to be pushed into ESG, they need to be supported into it. With the right tools, policies, and partnerships, these enterprises won’t just participate they will lead the way toward a more just, sustainable future.