About 50% of the micro-, small- and medium-sized enterprises (MSMEs) in Southeast Asia are surveying their plan to increase their environmental, social and governance (ESG) budgets by 2027, according to a new report released by the Centre for Impact Investing and Practices (CIIP).
However, many have cited high upfront costs as a deterrent, adds the report, titled “Transforming for Sustainability: Driving Impact and Value through Supply Chain Action”. The report, launched at Ecosperity Week’s impact investing roundtable 2025 on May 7, surveyed over 3,500 MSMEs across Indonesia, Malaysia, Singapore and Vietnam. The report also interviewed 85 organisations across Asia, including multinational corporations (MNCs), solution providers and ecosystem enablers.
Even though MSMEs are making progress in meeting new sustainability requirements, many of them continue to face practical challenges in making inroads. This includes the lack of capacity for dedicated positions to oversee the adoption of more ESG practices due to lean, multi-functional teams.
About 60% of the MSMEs polled say they face “moderate to significant” difficulties in hiring staff for sustainability or ESG roles.
Many also cite the inability to derive immediate benefits from adopting ESG practices. Of the MSMEs surveyed, about 32% say that the ability to attract new clients or enter into new markets would be a “key motivating factor” to adopt ESG practices.
In addition, 39% of the MSMEs recognise that adopting sustainability practices will help their businesses lower costs and improve long-term efficiency. About 27% of them note that adopting these practices may help attract or retain talent in a values-driven workforce.
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The report also found that 84% of MSMEs have adopted at least one ESG practice. Social practices were found to be the most common due to mandated social employee protection policies in each of the countries studied. Waste management was the most common environmental practice, reflecting this key concern across the region.
“MSMEs are the backbone of Southeast Asia’s economies and essential partners in advancing sustainable supply chains,” says Dawn Chan, CEO of CIIP.
“Their growing interest in ESG signals a real opportunity to unlock business resilience and long-term value. This report aims to provide a clearer view of what MSMEs need to succeed, and how ecosystem players, from industry leaders to governments and financial institutions, can work together to accelerate scalable, sustainable impact,” she adds.
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At the same time, the report found that many global MNCs are making long-term sustainability commitments and setting higher expectations across their supply chains.
“As MSMEs often serve as key suppliers, aligning with these evolving standards – including MNC supplier codes – is becoming increasingly critical to remain competitive and secure long-term growth opportunities,” the report notes.
Recommendations
With this in mind, the report has made five suggestions to raise ESG awareness and the adoption rate among MSMEs.
First, ESG should be made clear and simple. This means commercial benefits of ESG practices, such as cost savings to increased revenue opportunities, should be clearly highlighted. “Companies should be assured that adopting ESG practices is not a formidable task and can be done in gradual steps,” says CIIP in its May 7 statement.
Second, the industry should build capacity in the form of industry-specific toolkits or simple and actionable education materials with global standards and local inputs. These toolkits should also leverage MSMEs to tap on external expertise for ad-hoc support and personalised guidance, states the CIIP.
Third, win-win customer-supplier partnerships should be encouraged. Beyond MSMEs seeing the benefits of adopting ESG practices, MNCs, too, should consider offering incentives such as longer-term contacts, paying more for sustainable products or services, as well as implementing shorter payment cycles.
Fourth, the CIIP report recommends investors put their money into innovative MSME-targeted solutions. Venture capital firms and impact investors, by providing catalytic funding, can incentivise innovation and reducing the barriers to adopting ESG practices. “[Investors] can play a particularly important role by backing early-stage solutions and business models that are priced and designed for MSMEs.”
Fifth, financing the change. The report found that MSME uptake of sustainability-linked loans remains low, which suggests that concessional rates alone are not enough. Instead, a more holistic approach is recommended. This approach combines fit-for-purpose financing with practical guidance, stronger support for early adopters, and tools like digital platforms to assess ESG baselines and customise loan terms. “These elements must work together to drive meaningful, scalable ESG adoption.”
