Scaling Up Public Financial and Non‑Financial Support for SME Sustainability

1. Introduction

Abstract

This chapter highlights the crucial role that SMEs play in the green transition. It examines key barriers such as limited financing access, and technical knowledge and capacity constraints. Emphasising the need for targeted interventions, the chapter underscores the importance of both public financial and non-financial support to help SMEs invest in and benefit from sustainable practice. It introduces the framework adopted in this report which segments SMEs into three categories, according to the role that they play in the green transition, namely SME innovators, enablers and adopters. Each of these actors requires distinct support mechanisms to drive innovation, scale sustainable solutions and adopt sustainable practices.

1.1. SMEs have a key role to play in the global sustainability agenda

Small and medium-sized enterprises (SMEs) are the backbone of economies worldwide, accounting for over 50% of business employment and economic output, and driving innovation and the provision of solutions to global challenges. Their role in advancing towards sustainability cannot be overlooked, as they collectively account for a substantial share of industrial pollution, waste, and resource consumption. According to recent OECD estimates, SMEs account for about 40% of business sector GHG emissions in EU countries, and about 50% globally according to the International Trade Centre (ITC) (OECD, 2023[1]; ITC, 2021[2]). SMEs also have an important role to play in devising the solutions to environmental challenges, accounting for 95% of the enterprises in cleantech-related manufacturing sectors across Europe (OECD, 2025[3]). Against the backdrop of intensifying climate change and increasing resource scarcity, greening SMEs is not just desirable but critical for achieving global sustainability goals.

SMEs, however, face considerable resource constraints when it comes to greening. In a 2023 global survey, 58% of SMEs identified skills and 44% lack of time as key barriers to climate action (SME Climate Hub, 2023[4]) The business case for green investments by SMEs is often constrained by high upfront costs and extended payback periods, which can strain the liquidity of small businesses and increase financial risk (Alliance for Financial Inclusion, 2024[5]). Uncertainties around evolving green technologies, fluctuating market demand for sustainable products, and shifting policies and regulations further increase investment risks. Administrative and regulatory burdens are an additional barrier. In the 2024 Eurobarometer survey on “SMEs, resource efficiency and green markets”, EU SMEs identified the complexity of administrative or legal procedures (35%) and environmental reporting requirements (26%) among their main challenges (European Commission, 2024[6]).

Access to finance remains a critical challenge for SME greening. In a 2025 global survey of SMEs, 41% identified insufficient funding among the key barriers to climate action, and 63% reported having limited knowledge of available funding options for climate-related initiatives (SME Climate Hub, 2025[7]). According to the 2024 Eurobarometer survey, among the SMEs who have not yet undertaken any resource efficiency actions, nearly a quarter indicated that additional financial support would enable them to take such actions (European Commission, 2024[6]).

Most SMEs continue to rely on their own financial resources to implement resource efficiency measures. Only 35% of their sustainable investments are funded through external sources (European Comission, 2024[8]). Medium-sized enterprises are more likely than micro-enterprises to access both financial support (46% vs. 35%) and non-financial support (30% vs. 26%) from public institutions. The majority of SMEs still sees decarbonisation and investments in sustainability as synonymous with short-term risks and competitive disadvantages (Bpifrance, 2023[9]).

Limited access to financing is especially pronounced among SMEs in emerging markets and developing countries (EMDEs), where SMEs face additional barriers due to widespread informality, lacking credit history and collateral, as well as limited financial literacy regarding financing requirements. This in turn makes them more reliant on informal financial support from friends or family (Alliance for Financial Inclusion, 2024[5]). An IFC study identified formal SMEs in developing countries as having annual unmet financing needs of USD 5.2 trillion (International Finance Corporation, 2017[10]). A UNEP study showed that on average, 80% of loans distributed by banks in EMDEs required collateral, with collateral values reaching around 210% of the loan’s value (United Nations Environment Programme, 2022[11]).

Additionally, green financing options offered by public financial institutions in EMDEs remain limited. For instance, only 20% of African banking portfolios are estimated to be green (European Investment Bank, 2020[12]). The lack of sustainable taxonomies and standardisation represents a further hurdle, creating challenges for comparability and reliability, raising transaction costs and increasing the risk of greenwashing. In a World Bank study, national development institutions in EDMEs identified the lack of standardisation and green taxonomy as the main barrier in scaling up climate financing (Dalhuijsen et al., 2023[13]).

The lack of granular sustainability-related data from SMEs further exacerbates these challenges. It makes it difficult for SMEs to make informed decisions and for financial institutions to assess investment viability (Carvajal and Didier, 2024[14]). An OECD survey conducted in 2023 found that 60% of financial institutions are already requesting sustainability-related data from their SME clients, but these requests lack standardisation, ranging from informal questionnaires to externally validated assessments (OECD, 2023[15]).

1.2. Financial and non-financial support are critical for accelerating SME greening

Public financial support is critical to enable SMEs to gain access to a growing global pool of tailored financing solutions that integrate climate and other greening considerations in financing decisions and thereby offer more favourable financing conditions for clients with stronger sustainability credentials. In a 2023 OECD survey of public development banks and private financial institutions (FIs), the majority of respondents stated that they are integrating climate considerations in their operations, including in developing institutional objectives and plans (68%), assessing some or all financing/investment opportunities (66%) and providing dedicated financing programmes or more advantageous conditions for financing and investments focused on green objectives (72%). In the same survey, financial institutions noted that they are providing tailored financing solutions for SMEs’ investments in net zero and greening, including through medium- and long-term loans (69%), short-term loans and factoring (38%), credit guarantees (67% of public development banks), and other financial instruments (OECD, 2023[15]).

Non-financial support also plays a critical role in enabling SMEs to transition toward greener practices. Capacity-building programmes, technical assistance, and advisory services can help equip SMEs with the necessary skills and information to make informed decisions about greening their operations. Additionally, these initiatives raise awareness about the economic and environmental benefits of sustainability supporting innovation and long-term investment and planning. Regulatory support, such as simplifying compliance procedures or offering clear guidance on environmental standards is also critical. All of this non-financial support also facilitates the provision of sustainable financing solutions for SMEs by financing providers.

Non-financial support can also help SMEs build the capacity to measure and report on their sustainability performance—a critical requirement for accessing green and sustainable finance. SMEs often lack the expertise or resources to meet reporting demands coming from their financing providers and supply chain partners. Conversely, financial institutions tend to structure their sustainability reporting requirements around large firms, making it difficult for SMEs to comply. Through training programmes, workshops, and targeted advisory services, non-financial support can enable SMEs to understand the benefits of adopting relevant reporting standards. Furthermore, tools and platforms provided by public or private initiatives can simplify data collection and reporting processes, reducing the burden on resource-constrained SMEs (OECD, 2024[16]).

1.3. Financial and non-financial support needs to be tailored to SMEs’ diverse needs and contributions to the green economy

SMEs encompass a very wide range of enterprises, from microenterprises in local communities to highly specialised firms that are part of complex supply chains with global reach. With high diversity in terms of size, sector, geographic location and levels of technological maturity, SMEs play different roles in the greening of the economy, and they have diverse support needs, both in terms of financing as well as capacity building support. For the purposes of the analysis in this report, SMEs are considered in three broad categories:

• Innovators are SMEs and innovative start-ups that develop disruptive technologies and solutions to address the climate crisis and other environmental challenges. These pioneering companies are at the forefront of green innovation, creating new methods for carbon capture, sustainable energy storage, and advanced materials with minimal environmental impact. Their solutions facilitate the transformation of business operations toward green and sustainable practices. They need financial support to address key challenges such as high upfront costs, technical risks and market barriers. As such, they need more patient capital, such as R&D grants, equity and quasi-equity funding to support research, development, and commercialisation of their products and services (Note: for definitions of specific instruments please refer to the Glossary). When it comes to non-financial support, SME innovators can benefit especially from access to research, collaboration opportunities with universities and R&D institutions, and streamlined regulatory approval processes for green technologies. They can also benefit from mentorship programs, innovation hubs, and exposure to potential clients and markets to scale their solutions.

• Enablers are SMEs and start-ups that help disseminate green products and solutions and thereby enable their wider adoption among SMEs as well as large enterprises. Their facilitation of decarbonisation within supply chains and across ecosystems amplifies the impact of sustainability efforts far beyond their own operations. Enablers include renewable energy producers, installers, and providers or repair and maintenance services; recycling and waste management companies; green engineering and consultancy services providers; and others. Enablers can benefit from publicly provided financing solutions that support the scale-up and diversification of their operations, such as sector-specific loan and grant programmes, as well as risk-sharing mechanisms, such as guarantees, blended finance, and concessional funding. Trade finance solutions that facilitate enablers’ exports and supply chain integration are also critical to help these businesses to grow their operations and gain market access. Enablers further need technical and capacity building support, such as support with standardisation, certifications and reporting. They can also benefit from access to collaborative ecosystems, such as industry networks and business forums, to help them deliver effective solutions and reach new customers. Finally, policies that promote partnerships between enablers and adopters can help enablers expand their market reach.

• Adopters account for the vast majority of SMEs globally, spanning most product and service sectors. They need to adopt green technologies and processes to decarbonise or otherwise improve the sustainability of their operations. As a result, these actors often require accessible and affordable financing options such as grants, leases, low-interest loans or sustainability-linked financing to overcome upfront investment costs. They can further benefit from financing solutions that de-risk green investments both for SMEs as well as financing providers, such as guarantees and blended finance solutions. SME adopters also need information and awareness support to understand the benefits, costs, and regulatory requirements of sustainable practices, facilitated by access to information portals with regulatory and policy updates, market insights and case studies demonstrating successful transitions. They also often require technical support to identify, integrate, and maintain green solutions such as energy efficiency upgrades, renewable energy systems, and circular economy strategies. Finally, capacity-building support is essential for securing green finance, ensuring regulatory compliance, optimising supply chains, and training staff, enabling SMEs to enhance competitiveness while also meeting their sustainability goals.

Table 1.1. SMEs need different support based on their roles in the green transition

	Definition	Relevant financial support	Relevant non-financial support
Innovators	SMEs that develop breakthrough technologies and green solutions.	Patient capital, including R&D grants, equity, and quasi-equity funding, to support the development, research, and commercialisation of innovative green solutions.	Access to research, collaboration opportunities, streamlined regulatory processes, mentorship programmes, innovation hubs, and global market exposure to scale solutions.
Enablers	SMEs that provide products and services that help other businesses, including larger corporations, decarbonise and improve the sustainability of their operations.	Debt, grants, risk-sharing mechanisms and trade finance solutions to help scale operations and facilitate market access and supply chain integration.	Technical assistance, capacity building, standardisation, certifications, and access to industry networks to enhance operations and expand market reach.
Adopters	SMEs that adopt green technologies and processes to improve the sustainability of their operations.	Direct and indirect financing instruments which lower high upfront costs and de-risk green investments.	Educational and awareness raising services on the benefits of greening, as well as technical and capacity-building support on implementation and enhancing competitiveness.

This report examines effective public financial and non-financial support practices that help SMEs contribute to the green transition. It analyses a range of financial instruments, such as green loans, grants, equity financing, and guarantees, and complementary measures like capacity-building and technical assistance. Drawing on case studies, the report highlights successful and innovative programmes, synthesising key lessons to guide policymakers, development banks, and SME agencies in designing and scaling effective interventions that drive SME innovation, enable green activities, and reduce environmental impacts.

The report is organised in four chapters. Chapters 2 through 4 are structured around the three SME profiles - innovators, enablers, and adopters - examining both financial and non-financial support available to each subset of SMEs. Chapter 5 provides a summary of lessons learned from implementation of greening-related financing and non-financial support to SMEs, including key challenges and success factors, drawing on desk research as well as case studies. Annex A at the end of the report contains 21 case studies.

1.4. References

[5] Alliance for Financial Inclusion (2024), Green Transition Measures for MSMEs.

[9] Bpifrance (2023), Trésorerie, investissement et croissance des PME/TPE, https://lelab.bpifrance.fr/enquetes/la-tresorerie-des-tpe-et-pme-s-ameliore-et-les-marges-resistent-au-printemps-2023.

[14] Carvajal, A. and T. Didier (2024), Financing Mitigation and Adaptation to Climate Change for SMEs (forthcoming).

[13] Dalhuijsen, E. et al. (2023), Greening National Development Financial Institutions. Trends, Lessons Learned, and Ways Forward..

[8] European Comission (2024), Market practices compendium for sustainable finance: Report of the Platform on Sustainable Finance.

[6] European Commission (2024), Eurobarometer survey 2024: SMEs, resource efficiency and green markets, https://europa.eu/eurobarometer/surveys/detail/3221.

[12] European Investment Bank (2020), Banking in Africa: financing transformation amid uncertainty.

[10] International Finance Corporation (2017), MSME Finance Gap. Assessment of the Shortfalls and Opportunities in Financing Micro, Small and Medium Enterprises in Emerging Markets.

[2] ITC (2021), SME Competitivness Outlook 2021: Empowering the Green Recovery.

[3] OECD (2025), Powering the future: the evolution of cleantech manufacturing and implications for FDI and SME linkages across Europe, https://www.oecd.org/en/publications/the-evolution-of-cleantech-manufacturing_be87b21b-en.html.

[16] OECD (2024), Fostering convergence in SME sustainability reporting: A background study.

[1] OECD (2023), Assessing greenhouse gas emissions and energy consumption in SMEs: Towards a pilot dashboard of SME greening and green entrepreneurship indicators, https://www.oecd-ilibrary.org/environment/assessing-greenhouse-gas-emissions-and-energy-consumption-in-smes_ac8e6450-en;jsessionid=hXk9cJQk0B7u_-cYU4fFqBkgn3uQrThkXphqB2ee.ip-10-240-5-34.

[15] OECD (2023), Financing SMEs for sustainability – Financial institution strategies and approaches: Results of an OECD survey of public and private financial institutions, OECD SME and Entrepreneurship Papers, No. 46, https://doi.org/10.1787/b3fe3647-en.

[7] SME Climate Hub (2025), SME Climate Hub Small Business 2025 Survey, https://smeclimatehub.org/the-sme-climate-hub-survey/.

[4] SME Climate Hub (2023), Small Business Climate Action, 2023 Survey, https://smeclimatehub.org/sme-climate-hub-survey-2023/.

[11] United Nations Environment Programme (2022), Assessing Green Financing Mechanisms for Micro, Small and Medium Enterprises (MSMEs) in Africa.