ESG Reporting Practices in SMEs: A Systematic Literature Review of Motivations, Challenges, and Performance Links

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Background Small and medium enterprises constitute the overwhelming majority of global economic activity, yet their engagement with environmental, social, and governance reporting remains fragmented, inconsistent, and poorly understood relative to their large-cap counterparts. This study synthesizes the fragmented academic discourse on environmental, social, and governance (ESG) disclosure practices within small and medium enterprises (SMEs), contrasting their engagement with that of large-cap counterparts. Methods Adhering strictly to PRISMA 2020 guidelines, the review analyzes a curated corpus of 20 foundational studies, augmented by broader Scopus and Web of Science screening covering the critical regulatory window of 2021 to 2026. The Theory-Context-Characteristics-Methodology framework is employed to map the intellectual terrain. Findings First, regarding drivers of disclosure, the review identifies that coercive regulatory pressures most notably the European Union’s Corporate Sustainability Reporting Directive alongside mimetic supply chain dynamics, serve as the primary exogenous drivers, frequently superseding endogenous ethical motivations. Second, concerning barriers and distinctive behaviors, the analysis uncovers a critical resource and expertise deficit, a heavy reliance on external consultancy, and a counterintuitive practice termed “greenhushing,” wherein firms actively suppress communication about substantive sustainability achievements to avoid administrative burden and increased scrutiny. Third, and most critically, the synthesis reveals a paradoxical financial outcome: robust evidence of an SME-specific cost of capital penalty associated with environmental transparency, an effect significantly moderated by family ownership structures. Conclusion The paper contributes a novel conceptual model elucidating how the size effect moderates ESG outcomes. It concludes with actionable policy recommendations advocating for proportionate, tiered regulatory frameworks and digitally enabled reporting solutions tailored to the operational realities of SMEs.

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