The role of small and medium-sized enterprises in advancing supply chain sustainability: Avoiding greenwashing pitfalls

Abstract

As sustainability regulations tighten across the European Union, small and medium-sized enterprises (SMEs) are indirectly facing mounting pressure to align with new reporting and due diligence requirements. Frameworks such as the Corporate Sustainability Reporting Directive, the Corporate Sustainability Due Diligence Directive and Germany’s Supply Chain Due Diligence Act have increased the requirements for transparency across entire value chains. Many SMEs lack the infrastructure and support needed for compliance, placing them at risk of misrepresenting their sustainability performance and inadvertently engaging in greenwashing due to survival pressures or regulatory fatigue. Given their central role in global supply chains, their inability to meet these regulatory expectations may compromise the sustainability performance of larger firms and weaken sector-wide environmental, social and governance commitments. As environmental responsibility becomes a source of competitive advantage, adapting to these demands is no longer optional for SMEs seeking to remain viable and attractive to investors and business partners. The research described in this paper adopts a mixed-method approach to examine how SMEs, which form the backbone of supply chains, face disproportionate challenges in navigating this regulatory shift. Drawing on original survey data from German SMEs and expert interviews, the findings show that while sustainability awareness is high, operational capacity remains limited. Financial constraints, regulatory complexity and resource scarcity contribute to significant compliance gaps and reputational risks. The paper also explores emerging technological tools and highlights the urgent need for tailored support mechanisms, such as scalable compliance solutions and clearer guidance for smaller suppliers. This paper contributes to ongoing debates on regulatory fairness, supply chain transparency and the design of proportionate policies in the green transition. These insights are particularly relevant for policy makers, corporate procurement managers and compliance advisers aiming to strengthen sustainability in supply chains. This article is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.