SMEs are increasingly adopting green business practices and offering innovative green solutions, driven by environmental concerns and business opportunities.

The green transition offers significant opportunities for SMEs to enhance efficiency, reduce costs, and unlock new market opportunities. Yet, for many SMEs, environmental, social and governance (ESG) practices remain a low priority due to competing demands, limited capacity, and a focus on day-to-day business survival. Many SMEs, especially in rural areas or specialized sectors, do not have internal capacity and lack access to adequate training opportunities and resources that could equip them with the technical and strategic skills needed for their green transition.

As the United Nations Secretary-General emphasized at COP29, tearing down the barriers to climate finance is essential. Indeed, one of the most widely quoted barriers that SMEs face in the green transition is limited access to finance. Environmental practices like adopting renewable energy systems or improving waste management require substantial upfront investments that many SMEs simply cannot afford. A 2024 global survey found that 84 per cent of SMEs have not been offered any form of financial incentive to reduce emissions, while nearly 70 per cent needed additional funding to accelerate emissions-reduction efforts. Although climate finance mechanisms and ESG-focused instruments exist, they largely target large corporations. SMEs are often excluded due to complex eligibility requirements, such as detailed environmental performance metrics. Tailored financial solutions, such as simplified ESG-linked credit lines, are urgently needed to empower SMEs to invest in green business practices.

Policymakers and SME development agencies play a strategic role in addressing these challenges. By crafting tailored policy measures, offering incentives, and facilitating access to resources, they can create enabling environments for SMEs to thrive in their green transition. Across the ASEAN region, several initiatives are already driving progress. Malaysia’s ESG Quick Guide, for instance, simplifies ESG reporting for SMEs, while Viet Nam’s training and technical assistance programmes focus on building the capacity of SMEs to integrate sustainability into their operations.

The Advancing the Green Transition of SMEs: Insights for SME Development Agencies to Support Sustainability Practices and Reporting report highlights such initiatives from the ASEAN region, focusing on four critical areas: (1) raising awareness about ESG practices and reporting, (2) building the capacity of SMEs, (3) providing accessible tools to simplify ESG adoption, and (4) unlocking financing to enable these green transitions. These efforts not only equip SMEs to embrace ESG principles but also demonstrate the potential of tailored, region-specific solutions. the potential of tailored, region-specific solutions.

Cross-regional collaboration is helping further accelerate the green transition of SMEs. This was the focus of the “Advancing SME Access to Finance for the Green Transition” study tour, co-organized by ESCAP in partnership with the Presidential Agency for International Cooperation of Colombia (APC Colombia), the Ministry of Commerce, Industry and Tourism of Colombia (MINCIT), and with the support of Project Mesoamerica. Held in Bogotá, Colombia, the study tour brought together 16 policymakers from 11 ASEAN Member States and Mesoamerica countries to exchange ideas, insights, and strategies.

The study tour highlighted shared barriers faced by SMEs in ASEAN Member States and Mesoamerica, including limited resources and financing gaps, as well as valuable initiatives that governments in these regions are putting in place to support the green transition of SMEs. Through in-depth engagement with national initiatives presented by the delegates, participants identified three opportunities for collaboration: 1) replicating successful models for training green businesses, 2) developing ESG guidance and tools, and 3) exploring digital ESG data platforms for SMEs. These discussions and commitment to continued collaboration underscored the value of exchanging ideas to create locally relevant yet globally informed solutions; showcasing the power of South-South cooperation in enabling policymakers to adapt, adopt, and scale successful practices to address common challenges and drive transformative change.

Photo credit: ESCAP Photo/Julián Salamanca

The green transition of SMEs is not only a necessity for combating climate change but also an opportunity to drive innovation, inclusivity, and resilience in economies. With tailored support and collective action, SMEs can rise to the challenge, and contribute to a greener, more equitable future. By promoting ESG practices and creating enabling environments, policymakers empower SMEs to lead in sustainability.

Explore the highlights from the study tour here and access the full publication here.