Supply Chain Pressures and ESG Compliance

This chapter examines how supply chain dynamics shape the environmental, social, and governance (ESG) compliance landscape for micro, small, and medium enterprises (MSMEs). As global buyers, regulators, and international markets increasingly embed sustainability requirements into procurement and reporting systems, MSMEs face growing pressure to align with ESG expectations to maintain competitiveness and market access. It explains how ESG demands flow through supply chains via regulatory mandates, buyer-driven standards, traceability requirements, and evolving consumer preferences. It also analyses the influence of upstream suppliers and downstream lead firms on MSME sustainable practices, highlighting the asymmetric power relations and capability gaps that intensify compliance challenges. Key barriers, including financial constraints, limited bargaining power, knowledge deficits, and regulatory fragmentation, are examined alongside strategies that enable MSMEs to respond effectively. These include collaborative supply chain partnerships, phased ESG adoption, technological innovation, and enhanced access to financial and advisory support. The chapter underscores the importance of robust ESG measurement systems and concludes that strengthening MSME capabilities is essential for building resilient, transparent, and sustainable global value chains.