Integrating ESG Criteria in Italian SMEs : A Systematic Literature Review on Sustainability and Circular Economy Transitions

Abstract

This systematic literature review examines how Italian small and medium-sized enterprises (SMEs) integrate Environmental, Social, and Governance (ESG) criteria to advance sustainability and circular economy transitions. SMEs represent over 99% of EU businesses and driving regional innovation, yet they face uneven ESG adoption due to resource limitations, knowledge gaps, and regulatory complexity. This study analyzes 71 academic and grey literature sources from the period 2015-2025 to address two research questions: Why should SMEs adopt ESG criteria? and What challenges hinder effective implementation? Findings reveal three thematic clusters of action for SMEs: (1) strategic ESG management (e.g., CSR, GRI frameworks), (2) sustainable innovation initiatives, and (3) circular economy transitions. Moreover, successful ESG integration depends on eco-innovation, stakeholder engagement, digitalization, and human capital, yet is constrained by financial limitations, capacity gaps, cultural resistance, and misaligned regulations. Hence, while strategic ESG embedding - beyond mere compliance - enhances financial performance, risk management, and stakeholder trust, it requires SME-tailored policies, simplified reporting tools, and targeted support and guidance. This review synthesizes fragmented literature into an integrated framework, offering actionable insights for researchers, practitioners, and policymakers to transform SMEs into drivers of sustainable development.