Jharkhand’s Steel MSMEs Key to a Just Energy Transition, Says IEEFA Report

India’s push for decarbonisation in the steel sector must include focused support for micro, small and medium enterprises (MSMEs), particularly in states like Jharkhand, warns a new report from the Institute for Energy Economics and Financial Analysis (IEEFA).

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The report, Financing the MSME Transition in Jharkhand’s Steel Sector, highlights how fragmented steel clusters in Jharkhand, though economically vibrant, are shackled by outdated technologies, limited access to capital and low awareness of existing financial schemes. These challenges leave them vulnerable to being left behind in India's low-carbon transition.

“Steel accounts for 12% of India’s total CO₂ emissions, making it one of the most carbon-intensive industrial sectors,” said Shantanu Srivastava, co-author and research lead for sustainable finance and climate risk at IEEFA. “Large integrated steel producers are beginning to align with national decarbonisation pathways, but MSMEs remain at risk due to structural barriers.”

While a range of concessional finance mechanisms, credit guarantee schemes, and support from both central and state governments exist, the report notes that most MSMEs and the Energy Service Companies (ESCOs) serving them struggle with limited project preparation capacity, keeping them from accessing these funds.

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To bridge this gap, IEEFA proposes the establishment of a Green Financing Facility for Just Transition (GFF-JT) — a dedicated Project Preparation Facility (PPF) designed to support steel MSME clusters and ESCOs in developing bankable low-carbon projects.

“By providing early-stage support for feasibility studies, transaction advisory and financial structuring, the GFF-JT can help unlock public and private investment,” the report states. “Jharkhand offers an ideal proving ground for such a facility, which could later be scaled across sectors and regions.”

Co-author Labanya Prakash Jena, Sustainable Finance Consultant at IEEFA, warned that failing to support MSMEs in the decarbonisation effort could lead to job losses and deepen regional disparities. “Steel MSMEs are major employers in economically vulnerable areas. Their inclusion is essential to ensure that India’s energy transition is not just green, but just.”

The report underscores the importance of aligning climate and industrial policies with ground-level implementation tools that enable small players to participate in India’s clean energy shift.