ESG Practices and SME Performance: A PLS-SEM Analysis of Financial Forecasting and Sustainable Practices

Abstract

SMEs are quickly adopting ESG practices to boost organisational performance, deepen their sustainability commitment and increase their capacity to make wise financial decisions. The aim of this research is to analyse the impact of environmental, social and governance practices on financial projections, standards of sustainability, and SMEs. Partial Least Squares Structural Equation Modelling (PLS-SEM) was conducted using ADANCO using data from 230 SME owners in Odisha. People were given the questionnaire. The model has seven components: SMEs’ performance, environmental, social, governance, financial predictions and sustainable methods . The measurement model was shown to be accurate and valid with adequate Average Variance Extracted (AVE) values and significant explanatory power (R2 values over 0.88 for all endogenous constructs). The structural model illustrates that ESG activities are substantially beneficial for environmental, social and governance practices. The structural model also revealed that ESG practices might enhance financial predictions and sustainability. Financial projections and sustainable methods boost the performance of SMEs, which demonstrates the strategic value of incorporating environmental, social and governance principles into the operations of a firm. The results demonstrate that ESG-led financial planning and sustainability initiatives are important to long-term competitiveness, resilience and company development. This study offers practical recommendations for SMEs and policymakers.