Do ESG-Related Managerial Capabilities Pay Off for SMEs? Evidence From the Small and Medium-Sized Enterprise ESG Capability Measure (SM-ESG)

Abstract

Large companies have a long track record of environmental, social, and governance (ESG) initiatives, whereas many small and medium-sized enterprises (SMEs) lag in adopting sustainability-related practices, often acting voluntarily or in response to stakeholder pressures and incentives. This study develops and validates a competitiveness-based ESG capability measure for SMEs—the Small and Medium-Sized Enterprise ESG capability measure (SM-ESG)—that captures sustainability-related managerial routines embedded in everyday business practices. Building on a validated ten-pillar competitiveness framework, we operationalize ESG-related managerial capabilities across strategy, marketing, technology, online presence, administrative practices, finance, collaboration, innovation, human resources, and internationalization, and map them into environmental, social, and governance dimensions. We validate SM-ESG by examining its associations with marketing performance and owner value creation, proxied by equity accumulation. The results are consistent with SM-ESG mediating the association between firm size and equity accumulation, indicating that higher SM-ESG scores are concurrently associated with slightly stronger equity growth (indirect effect = 0.024, p = 0.028; 95% bootstrap CI: 0.003–0.045), conditional on firm size. The positive association between marketing performance and SM-ESG suggests that strategic marketing capabilities can complement ESG-related capabilities by enabling SMEs to differentiate themselves from competitors. These findings should be interpreted as theory-consistent associations based on cross-sectional, pre-CSRD data from Hungarian SMEs.