Small and Medium Enterprises in Emerging Economies : The Achilles’ Heel of Corporate ESGResponsibility Practices ?

The information contained in the Enterprise Survey—administered by the World Bank (WB), theEuropean Bank for Reconstruction and Development (EBRD), and the European Investment Bank (EIB)—is used to build afirm-level “Corporate Environmental, Social, and Governance Responsibility” composite indicator. The novelty of theindicator, compared with the corporate social responsibility scores and environmental, social, and governance (ESG)scores already available, is due to its unique coverage, namely, a large number of private sector small andmedium-size enterprises in selected emerging economies (morethan 40 economies covered by the Enterprise Survey). The composite indicator summarizes information on private sectoractions on environmental, social, and governance factors. The analysis shows that the actions of private sector smalland medium-size enterprises in emerging economies to foster sustainability and green growth significantly lag in thetransition to a more sustainable business environment, and large gaps persist. Among emerging economies, those in theMiddle East and North Africa—which deserve special attention due to the urgent need to green their growth model—are amongthe worst performers. Larger companies in the Middle East and North Africa show better environmental, social, andgovernance performance than small and medium-size enterprises in other areas; but smaller firms in the MiddleEast and North Africa show extremely weak performance in many aspects, even if controlling for the relative level ofeconomic development. The weakness of environmental, social, and governance practices among firms in the Middle East andNorth Africa is due to the social (with large gaps in female participation in the workforce and management) andenvironmental topics. This calls for urgent policy action to address such weaknesses and exploit the full potential ofthe region.