As the global economy shifts toward a green growth model, small and medium-sized enterprises (SMEs) in ASEAN can no longer remain on the sidelines. Accessing sustainable finance - aligned with environmental, social, and governance (ESG) standards - has become vital for maintaining competitiveness and ensuring long-term growth.

SMEs account for 97% of private-sector businesses and 85% of the workforce in ASEAN. However, as the world embraces sustainability, these enterprises are facing growing pressure to integrate ESG - short for Environmental, Social, and Governance - into their business operations.

(i) Environmental (E) factors include reducing carbon emissions, adopting renewable energy, and managing waste.

(ii) Social (S) factors relate to labor rights, gender equality, employee welfare, and community engagement.

(iii) Governance (G) covers transparency, risk management, and business ethics.

These standards are increasingly becoming mandatory requirements for participation in global supply chains and access to international capital.

According to the Asian Development Bank (ADB), ASEAN will require around US$210 billion in infrastructure investment annually through 2030, much of which must comply with ESG criteria to attract both public and private capital. This underscores that sustainable finance is no longer optional - it is a prerequisite for survival in an economy that is now intrinsically linked to sustainability.

Banks as a Bridge for ESG Transition

Financial institutions across the region are playing a pivotal role in helping businesses -particularly SMEs - access green financing and advisory services to support their sustainability transitions.

Many regional banks have expanded portfolios of green loans, sustainability-linked bonds, and ESG-related financing, while also providing specialized tools and advisory services to guide businesses.

For instance, UOB has developed a sustainable finance portfolio worth ten of billions of Singapore dollars and introduced tools that help businesses assess ESG readiness and develop tailored action plans.

According to Bonar Silalahi, Managing Director and Head of Sector Solutions Group at UOB, “Many SMEs understand the importance of sustainability but still struggle with two key questions: Where do we start? And how do we manage costs? With the support of the financial system, these barriers can turn into opportunities for meaningful impact.”

This reflects a broader trend where banks are evolving beyond their traditional role as lenders to become strategic partners enabling comprehensive green transformation among businesses.

Barriers and the Need for Coordinated Action

Despite clear opportunities, many ASEAN SMEs continue to face significant obstacles in implementing ESG practices - including limited technical expertise, high initial costs, and challenges in measuring outcomes.

Moreover, varying levels of readiness across ASEAN countries - due to differences in regulatory frameworks, infrastructure, and institutional capacity - have slowed regional progress. Some economies, such as Singapore, Malaysia, and Thailand, have introduced green taxonomies and ESG reporting standards, while emerging economies are still in the early stages of development.

This calls for public–private collaboration and regional coordination to build an integrated sustainable finance ecosystem where banks, consulting firms, governments, and businesses share roles and responsibilities in advancing ESG adoption.

In this context, the ASEAN Taxonomy Board (ATB) developed the ASEAN Taxonomy for Sustainable Finance, which serves as a foundational framework to define what constitutes sustainable economic activity across member states. This document was endorsed by ASEAN Finance Ministers and Central Bank Governors. The Taxonomy provides a common classification system to guide investments toward green and transitional activities. Version 3 (released in December 2024) refines technical screening criteria for key sectors such as energy, transportation, and real estate, ensuring inclusiveness while aligning with the Paris Agreement’s 1.5°C target.

By harmonising national and regional taxonomies, the ASEAN Taxonomy helps mobilise sustainable investment, enhance transparency, and promote interoperability with global standards - thus creating an enabling environment for SMEs to transition towards low-carbon and resilient business models.

From Compliance to Long-Term Strategy

Integrating ESG is not merely about meeting compliance requirements or attracting investment; it is also an opportunity for SMEs to restructure their business models toward greater efficiency, agility, and alignment with international market expectations.

Leading companies in sectors such as energy, construction, and retail are demonstrating that investing in ESG is an investment in the future, enhancing competitiveness, attracting talent, and strengthening brand reputation.

At the same time, as banks and financial institutions transition from traditional lenders to sustainability partners, businesses are gaining access to more resources, tools, and networks to realize their green transformation goals.

In the era of the green economy, sustainable finance serves as the foundation for the resilience and long-term growth of ASEAN SMEs. Those that proactively embrace ESG transformation will not only gain easier access to preferential financing but also secure a competitive advantage in global value chains - where “going green” has become the new standard of competitiveness.

Source: Compiled by the Multilateral Trade Policy Department, Ministry of Industry and Trade of Viet Nam