Why MSMEs Hold the Key to Inclusive Green Finance and Climate Action in Asia-Pacific

The Asian Development Bank’s 2025 report finds that while micro, small, and medium-sized enterprises are essential to Asia-Pacific economies and the green transition, they face major barriers in accessing green finance due to high costs, complex reporting requirements, and limited capacity. It argues that targeted policies, simplified green standards, and digital financial technologies are critical to ensure MSMEs can decarbonize, strengthen food security, and remain competitive in global markets.

Produced by the Asian Development Bank together with the Asian Development Bank Institute, the Asia-Pacific Financial Inclusion Forum, and the Griffith Asia Institute, this December 2025 report looks at a central challenge facing Asia and the Pacific: how to ensure that micro, small, and medium-sized enterprises (MSMEs) can access green finance. MSMEs are the backbone of most economies in the region, providing the majority of jobs and playing a major role in production and trade. At the same time, they contribute to greenhouse gas emissions and are highly exposed to climate risks. The report argues that without bringing MSMEs into the green finance system, the region’s climate and development goals will remain out of reach.

What Green Finance Really Means

Green finance refers to financial products and services that support activities with positive environmental outcomes. These include green loans, renewable energy financing, energy-efficiency investments, green insurance, carbon offsetting, and sustainable microfinance. Green finance is part of a broader concept known as sustainable finance, which also includes social and governance goals. The report explains that while governments and regulators have developed green taxonomies and standards to guide investment, these systems are often complex and designed for large companies. For MSMEs, meeting green definitions and reporting requirements can be difficult, costly, and confusing, which limits their ability to participate.

Barriers Facing MSMEs

The report highlights a clear mismatch between the importance of green finance for MSMEs and their actual access to it. Survey results from APEC economies show that while green finance is seen as highly relevant, especially in manufacturing, agriculture, and retail, most MSMEs face serious obstacles. These include low awareness of green finance options, lack of technical skills, limited access to data, and weak credit histories. A major challenge is environmental, social, and governance reporting. Large companies increasingly require emissions data from their suppliers, but most MSMEs lack the resources to measure and report this information. As a result, they risk being excluded from supply chains and losing access to markets and finance. This creates a paradox: MSMEs need green finance to become greener, but they must already be green to qualify for it.

Food Security and Climate Risks

A key focus of the report is food security. Food systems account for about one-third of global greenhouse gas emissions and are highly vulnerable to climate change. MSMEs dominate farming, food processing, and distribution across Asia and the Pacific, particularly in developing economies. The report shows that access to green finance in agriculture remains uneven. While some MSMEs can obtain green loans or microfinance, many lack access to insurance, venture capital, or carbon finance. Without better financial support, climate shocks such as droughts, floods, and extreme weather could worsen food shortages, raise prices, and deepen rural poverty. Green finance, if properly designed, could help MSMEs invest in climate-resilient farming, reduce emissions, and stabilize food systems.

Technology and the Policy Way Forward

The report identifies technology as a powerful tool for expanding green finance access. Financial technology and regulatory technology can reduce costs, simplify reporting, and reach MSMEs that traditional banks struggle to serve. Tools such as mobile banking, digital wallets, peer-to-peer lending, and cash-flow-based credit models can help overcome barriers like a lack of collateral and geographic isolation. Digital platforms can also automate environmental reporting and improve transparency. Looking ahead, the report calls for coordinated policy action. Governments should adapt green finance rules to MSME realities, create incentives for banks to lend to green MSMEs, invest in training and awareness, and support digital infrastructure. With the right policies, green finance can become a driver of inclusive growth rather than another hurdle for small businesses.