Small and Medium Enterprises (SMEs) play an important role in Africa’s economy. They create jobs, support local communities and provide goods and services that larger businesses depend on. In Nigeria, the 2021 national MSME survey found that micro, small and medium-sized enterprises accounted for 96.9 percent of businesses, contributed 46.32 percent to GDP and represented 87.9 percent of employment, according to figures cited in PwC’s 2024 MSME Survey. In Ghana, MSMEs contribute approximately 70 percent of GDP and employ more than 80 percent of the labour force, while in Kenya, the sector accounts for around 85 percent of non-farm jobs. These figures illustrate the significant contribution smaller businesses make to economic activity and employment across different parts of Africa.
Yet many of these businesses operate under difficult conditions, including unreliable electricity, limited access to finance, rising operating costs and inadequate infrastructure. For SMEs already working with tight margins, Environmental, Social and Governance (ESG) practices may seem like an additional expense. The challenge is finding practical ways to make ESG work without the big budget.
Why ESG Matters for African SMEs
Environmental, Social and Governance (ESG) considerations are becoming increasingly relevant to how businesses operate, manage risks and compete for opportunities. For African SMEs, the value lies not simply in meeting sustainability expectations, but in running more efficient businesses, protecting employees and preparing for changing customer and market requirements.
The benefits can begin with everyday business decisions. Reducing unnecessary electricity and water consumption can lower operating costs, while maintaining safe working conditions and treating employees fairly can improve morale and reduce workplace disruptions. Similarly, a company with transparent financial records, responsible business practices and clear internal controls may be better prepared to respond to questions from lenders, investors and prospective corporate customers.
ESG is also becoming relevant to market access. Large companies increasingly face expectations to understand the environmental and social impacts of their supply chains. As a result, their suppliers may be asked to demonstrate compliance with applicable environmental regulations, maintain safe working conditions, manage waste responsibly and provide basic information about their business practices. SMEs that understand and address these expectations may be better positioned to retain customers and compete for business opportunities.
The trend is relevant across Africa. The United Nations Environment Programme’s SWITCH Africa Green programme has supported greener business practices among micro, small and medium-sized enterprises in countries including Ghana, Kenya, Uganda, Mauritius, South Africa and Burkina Faso. Its work has focused on resource efficiency, sustainable production, eco-innovation and access to greener markets, demonstrating how environmental improvements can also support business performance.
Access to finance is another consideration. Although adopting ESG practices does not guarantee funding, businesses that maintain reliable records, understand their risks and demonstrate responsible management may be better prepared to meet the due-diligence requirements of potential lenders and investors. This becomes particularly important for SMEs seeking to grow, enter new markets or establish relationships with larger organisations.
Access to Finance and Business Opportunities
Access to finance remains a major concern for many African SMEs. While lenders typically assess financial performance, cash flow and repayment capacity, environmental and social risks are also becoming relevant to financing decisions, particularly where they may affect a business’s long-term viability.
Preparing for these conversations does not necessarily require expensive consultants or sophisticated reporting systems. By keeping accurate financial statements, documenting workplace safety procedures, maintaining relevant permits and monitoring resource consumption, businesses can build a stronger foundation for responding to financing requests while identifying risks that could affect their performance.
Across Africa, initiatives are also emerging to support green businesses and expand access to sustainable finance. The United Nations Development Programme’s Africa Green Business and Financing Initiative highlights opportunities in sectors such as renewable energy, sustainable agriculture, water management and waste management, where SMEs can contribute to addressing environmental challenges while developing commercially viable products and services, provided the opportunities align with their capabilities and market needs.
The CircularNet can complement these efforts by providing access to sustainability learning resources and connections within the ESG ecosystem, helping SMEs strengthen their knowledge, prepare for potential investment opportunities and identify relevant business networks. While funding ultimately depends on investor criteria and business readiness, access to the right information and connections can help SMEs make more informed decisions about their growth.
Managing Climate Risk and Low-Cost Resilience
Climate-related disruptions can be particularly damaging to SMEs because many have limited financial reserves, inadequate insurance and few alternative sources of income when their operations are interrupted. Nigeria’s experience with the 2022 floods illustrates the scale of the problem: an assessment by the National Bureau of Statistics, in collaboration with other agencies, found that 91.3 percent of surveyed non-farm businesses in the affected areas experienced adverse impacts, with total business loss among the impacts reported. For SMEs, the priority is not to invest in every available climate solution, but to understand where the business is vulnerable and take proportionate steps to reduce disruption.
Across Africa, the risks vary by location and sector, with flooding threatening businesses in parts of West Africa, drought and changing rainfall patterns affecting agricultural enterprises in East and Southern Africa, and water shortages and extreme temperatures disrupting production in several regions. Even where a business is not directly exposed to a climate hazard, disruptions to suppliers, transport networks and electricity supply can increase costs and delay deliveries.
Although some adaptation measures require significant investment, SMEs can begin by identifying the risks most likely to affect their operations and taking affordable steps to reduce potential losses. A retailer in a flood-prone area, for instance, can protect important documents, raise stock above floor level and identify a safer location for essential equipment. An agricultural business can improve storage, explore water-efficient methods and identify alternative suppliers before a disruption occurs.
Energy management is another practical starting point, particularly for businesses that rely heavily on diesel generators. Tracking fuel consumption, maintaining equipment and reducing unnecessary electricity use can help identify avoidable costs. Businesses with suitable operating conditions can also assess solar power, shared energy systems or financing arrangements that spread the initial cost over time.
Across Africa, women-led enterprises are also demonstrating how clean-energy solutions can address environmental challenges while creating economic opportunities. In Senegal, for example, women entrepreneurs have been trained and supported to distribute solar lamps, solar home systems and other clean-energy products to underserved communities. Similar models in countries including Nigeria, Kenya and Tanzania combine access to clean-energy products with business training and ongoing support for women entrepreneurs. These examples illustrate how responding to energy-access challenges can create livelihoods while meeting an important community need.
For SMEs, the lesson is not that every business needs to invest in renewable energy or develop a climate programme immediately. Rather, resilience begins with understanding where the business is vulnerable, taking proportionate steps to reduce disruption and considering investments that make commercial sense. By incorporating these measures into everyday decisions, smaller businesses can protect their operations, manage avoidable costs and become better prepared for climate-related risks without needing a large budget.
Building a Fair and Inclusive Workplace
Social responsibility begins with how people are treated within a business. Providing written employment contracts, ensuring fair and timely pay, maintaining safe working conditions, adopting fair recruitment practices and creating opportunities for women can strengthen employee loyalty and build trust without requiring substantial investment.
These practices can also improve productivity, reduce staff turnover and support business performance. For SMEs, creating social value starts with building a workplace where employees are treated fairly, feel safe and have the opportunity to contribute and grow.
Good Governance on a Small-Business Budget
Good governance is not limited to businesses with formal boards or elaborate policies; for SMEs, it begins with knowing who makes decisions, keeping accurate financial records and ensuring that payments and other important transactions are properly authorised. Simple practices such as separating personal and business finances, documenting key decisions and establishing clear procedures for handling complaints or suspected fraud can reduce errors, prevent disputes and help business owners maintain control as their operations expand.
Over the long term, these practices help SMEs protect business assets, manage risks and maintain consistency as responsibilities change or the business grows. Establishing clear processes early also reduces the time spent resolving avoidable problems and provides a stronger foundation for sustainable growth.
Making ESG Practical for SMEs
Despite its benefits, ESG adoption can be challenging for African SMEs facing high operating costs, unreliable infrastructure, limited expertise and competing business priorities. Complex reporting requirements and expensive tools can make implementation seem out of reach, particularly when business owners are unsure where to begin.
In Nigeria, preparation is becoming increasingly important as the Financial Reporting Council’s amended roadmap provides for mandatory adoption of IFRS Sustainability Disclosure Standards by SMEs for accounting periods beginning on or after 1 January 2030. Rather than waiting until the deadline approaches, businesses can begin with practical steps that fit their operations and available resources.
- Focus on what matters most: Identify the environmental, social and governance issues most relevant to the business, such as energy use, workplace safety, waste management or financial controls.
- Use existing records: Start with utility bills, fuel receipts, employee records and other information already available, using a simple spreadsheet to monitor progress instead of investing immediately in specialised software.
- Build knowledge gradually: Use accessible training, industry associations and business support organisations to understand relevant ESG practices and prepare for applicable reporting requirements.
- Track progress and improve: Set realistic targets, review results periodically and introduce more advanced measures as the business grows or its reporting obligations evolve.
By taking these steps, SMEs can begin managing ESG risks, improving operational efficiency and preparing for future reporting expectations without making sustainability an unnecessarily expensive exercise.
African SMEs do not need the budgets of large corporations to improve how they operate; they can start by identifying their most significant risks and making affordable, practical changes. The CircularNet supports this process through sustainability learning resources, practical insights and connections within the ESG ecosystem, helping businesses understand relevant requirements and apply that knowledge to their operations. For SMEs looking to make ESG part of everyday business, having access to the right information and networks can be a useful place to start.
References
- UNEP SWITCH Africa Green. Green Financing Mechanisms for MSMEs in Africa.
- PwC Nigeria. MSME Survey 2024: Report and Findings.
- Ghana News Agency. MSMEs’ Contribution to Ghana’s Economy.
- Kenya State Department for MSME Development. About MSMEs.
- United Nations Environment Programme (UNEP). SWITCH Africa Green: Programme Overview.
- United Nations Development Programme (UNDP). Africa Green Business and Financing Initiative.
- National Bureau of Statistics. Nigeria Flood Impact, Recovery and Mitigation Assessment Report 2022–2023.
- Financial Reporting Council of Nigeria. IFRS Sustainability Disclosure Standards Roadmap. The SEC’s September 2026 circular also confirms the SME implementation date.