Environmental Sustainability Practices and Financial Performance of SMEs: A Systematic Literature Review

Abstract

Aims: This study aims to investigate the adoption of environmental sustainability practices as predictor of financial performance. Study Design: This study employs a systematic review methodology to synthesize SME’s research on adopting environmental sustainability practices as predictor of financial performance. Place and Duration of Study: This study was conducted in Bacolod City for two months (March and April 2025). Methodology: Peer-reviewed articles focusing on environmental sustainability practices indicators such energy usage, water usage, chemical usage and waste management as predictor of financial performance. It analyzed 77 peer-reviewed publications from four academic databases, selected using exact inclusion and exclusion criteria that followed the PRISMA 2020 standards and requirements. To detect trends in environmental sustainability practices as drivers of financial performance across different types of SMEs, geographical areas, and academic disciplines, the study used thematic and comparative analyses. Because all of the data came from publically available sources, academic integrity was ensured, and ethical procedures involving human participants were no longer essential. Results: The review reveals significant variations in the adaptation of environmental sustainability practices influenced by indicators such as energy usage, water usage, chemical usage, and waste management as predictors of financial performance reflected in financial reporting. Adopting environmental sustainability practices have a significant positive impact that would increase and enhance financial performance among small and medium enterprises. But also, the study reveals challenges that hinders the integration of sustaisnability initiatives such as limited resources, knowledge and information gap, inadequate government support, regulatory burden and compliance costs, and cultural and operation constraints. This analysis shows how effective highlights how effective implementation leads to enhanced environmental obligation and financial performance. Conclusion: Environmental sustainability practices adoption is highly recommended. Specific environmental sustainability practices are crucial for successful implementation. Collaborative efforts and strategic planning of integration of practices are essential for enhancing financial performance and achieve long-term sustainability profitability and success.