To achieve the 2030 Agenda for Sustainable Development, governments worldwide have intensified their support for integrating sustainability into business operations and capital markets.

The UNCTAD Global Sustainable Finance Observatory (GSFO) reports that by end-2023, 35 leading economies, including all G20 members, had enacted approximately 400 sustainable finance-dedicated policy measures, covering over 90 per cent of global GDP. Sustainability disclosure alone accounts for nearly half of these measures.

While the focus has predominantly been on large corporations and financial institutions, international standards and policy measures related to sustainability disclosure have also significantly altered the operational environment of small and medium-sized enterprises (SMEs), due to their ever-increasing spillover effects worldwide (Chapter II).

These impacts occur mainly through global supply and investment chains, but also through regulations whereby large companies, financial institutions, and regulators are increasingly requiring SMEs to participate in sustainability disclosure. Multi-national enterprises (MNEs) face growing demands for accountability on sustainability issues in their operations and supply chains. And as large companies increasingly require sustainability disclosure from their suppliers, SMEs find themselves under pressure to enhance their sustainability performance and reporting.

With a growing awareness of both the risks and opportunities associated with sustainability-related issues, financial institutions are also increasingly considering sustainability-related factors in their lending and investment decisions. The growing number of funds focused on sustainability outcomes and the rise of sustainable finance indicates that access to capital is increasingly tied to sustainability performance.

Sustainability reporting is also emerging as a key competitive advantage for all companies, as research reveals that sustainability integration and reporting can lead to innovation, reduced operational costs, and minimized risks for SMEs. Adherence to sustainable practices is increasingly becoming a prerequisite for joining global supply chains and capital markets, offering SMEs growth opportunities and access to new markets.

Although direct regulation of SMEs remains limited, the trend towards transparency and increased disclosure indirectly influences SME practices. In response, national governments have started to put in place necessary guidelines, requirements, and standards on SME sustainability disclosure (see chapter III), pushing SMEs towards greater disclosure and more detailed sustainability reporting.

Despite significant benefits, SMEs face many challenges implementing these disclosure requirements. According to a survey conducted by SAGE, PwC, and the International Chamber of Commerce (ICC) in 2023, more than 8 out of 10 SMEs recognized sustainability as a substantive issue, but just 7.7 per cent were undertaking sustainability reporting. The fragmentation of international standards is the primary obstacle preventing SMEs from fully participating in sustainability disclosure practices. In many cases, stakeholders require SMEs to report against different standards with various performance indicators.

The progressive convergence of leading international standards such as the International Sustainability Standards Board (ISSB) and the Global Reporting Initiative (GRI) standards provide an opportunity to establish a potential global baseline for sustainability disclosure. However, the adoption and implementation of these standards will take time, and navigating the complexities of international standards remains the principal challenge for SMEs (Chapters II and IV).

Other challenges include the lack of access to high quality data, lack of expertise, weak internal reporting capacities and the absence of training and support systems tailored to the needs of SMEs. These challenges point to daunting upfront costs for SMEs, which can outweigh potential benefits, and make sustainability disclosure almost unfeasible for some companies (Chapter IV).

Given the increasing demands for sustainability disclosure, and the crucial role that SMEs play in the global economy, it is time for policymakers to integrate SMEs into the global sustainability architecture, including in international forums such as the G20. Compared to large enterprises, the sustainability journey of SMEs requires simplified yet clearly defined and robust policy frameworks and standards. Additionally, the creation of an enabling ecosystem to engage all stakeholders in support of SME sustainability integration, along with incentives to make sustainability disclosure affordable and feasible for SMEs, will be indispensable (Chapter V).

Report by the United Nations Conference on Trade & Development