MECHANISMS OF INTEGRATING ESG-PRINCIPLES INTO THE STRATEGIC MANAGEMENT SYSTEM OF SMALL AND MEDIUM ENTERPRISES

Abstract

The article examines the functioning of small and medium-sized enterprises (SMEs) in the context of integrating sustainable practices. The study aims to determine the role of SMEs in Ukraine's national economy and to provide recommendations for integrating ESG principles into their strategic management systems.

The research identifies that the SME sector serves as the foundation of national economies, as it determines adaptability, innovation capacity, and social balance. SMEs shape competitive environments, enhance employment opportunities, and contribute to sustainable economic growth. Analysis reveals a general increase in production volumes within the SME sector, with medium-sized enterprises demonstrating the highest stability. At the same time, the contribution of small and micro-enterprises has been more volatile. Currently, the transformation of SMEs involves integrating ESG principles into their strategic management systems. In the context of European integration and the strengthening of EU regulatory standards, ESG implementation has become a necessity, as the new directive mandates corporate coverage and requirements for non-financial reporting.

The study of existing mechanisms for integrating ESG principles allowed the identification of the following directions: first, formalization of the enterprise’s ESG strategy and policy, ensuring the integrity and systematic implementation of responsible practices; second, the establishment of ESG reporting and monitoring systems, enabling the assessment of ESG strategy effectiveness, enhancing transparency, and increasing investor trust; third, consideration of ESG risks and opportunities in strategic planning, which strengthens business model resilience, mitigates environmental, social, and regulatory risks, and opens new development opportunities; fourth, transformation of operational processes through the implementation of resource-efficient and environmentally safe technologies, circular economy practices, material reuse, and waste reduction; fifth, ESG-oriented human resource management, ensuring decent working conditions, development of human capital, formation of corporate culture, motivation, and employee loyalty; sixth, attracting “green” grants, loans, and sustainable finance investments to support SME modernization and ecological transformation; seventh, development of communication and reporting systems with internal and external stakeholders to ensure business transparency.