Based on the resource-based view and institutional theory, this study investigates the impact of their environmental management capabilities and environmental, social, and governance (ESG) pressure on the non-financial performance of small and medium-sized enterprises (SMEs). In particular, it examines the interaction effect of ESG pressures on the relationship between SMEs’ environmental management capabilities and non-financial performance. For this study, a total of 1865 SME lists were obtained through Jeonnam Techno Park and Jeonnam Small Business Job and Economy Promotion Agency. Based on this, a total of 127 questionnaires were returned as a result of a telephone, e-mail, and online survey, and finally, an empirical analysis was conducted based on 120 questionnaires. We conducted an empirical analysis of Korean SMEs and obtained the following results: First, environmental management capabilities have a significant, positive effect on SMEs’ non-financial performance. Second, ESG pressure has a significant, negative effect on the non-financial performance of SMEs. Next, we analyzed the moderating effect of ESG pressures and observed that ESG pressures strengthen the positive effect of environmental management capabilities on non-financial performance. Based on the resource-based perspective and institutional theory, this study provides meaningful academic implications by examining environmental management capabilities and ESG pressures, which have not been identified in previous studies, as factors of non-financial performance that are becoming important under the new management paradigm, such as climate change and ESG. Furthermore, while ESG pressure has a significant negative effect on non-financial performance, we find that it is a moderating variable that strengthens the relationship between SMEs’ environmental management capabilities and non-financial performance, which has useful academic and practical implications for ESG and strategic management.

Alkatheeri, H., Markopoulos, E., Hamdan Al-qayed, H. (2023). An Organizational and Operational Capability and Maturity Assessment for SMEs in Emerging Markets towards the ESG Criteria Adaptation. Human Interaction & Emerging Technologies, 111, 682–692.

Al-Mamary, Y. H., Alwaheeb, M. A., Alshammari, N. G. M., et al. (2020). The Effect of Entrepreneurial Orientation on Financial and Non-financial Performance in Saudi SMEs: A Review. Journal of Critical Reviews, 7(14), 270–278.

Alves, I., Lourenco, S. M. (2022). The Use of Non-financial Performance Measures for Managerial Compensation: Evidence from SMEs. Journal of Management Control, 3(2), 51–187.

Anwar, M., Shah, S. Z. (2021). Entrepreneurial Orientation and Generic Competitive Strategies for Emerging SMEs: Financial and Nonfinancial Performance Perspective. Journal of Public Affairs, 1(1), 1–17.

Appiah-Kubi, E. (2024). Stakeholder Pressure and SMEs Sustainability Information Disclosures: Why Perceived Benefits and Sustainability Knowledge Matter. Journal of Accounting & Organizational Change, 1–17.

Bakos, J., Siu, M., Orengo, A., Kasiri, N. (2020). An Analysis of Environmental Sustainability in Small and Medium‐sized Enterprises: Patterns and Trends. Business Strategy and the Environment, 29(3), 1285–1296.

Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99–120.

Bitektine, A., (2011). Toward a Theory of Social Judgments of Organizations: The Case of Legitimacy, Reputation, and Status. Academy of Management Review, 36(1), 151–179.

Bouichou, S. I., Wang, L., Zulfiqar, S. (2022). How Corporate Social Responsibility Boosts Corporate Financial and Non-financial Performance: The Moderating Role of Ethical Leadership. Frontiers in Psychology, 13, 1–15.

Chatterjee, S., Hadi, A. S., Price, B. (2006). Regression Analysis by Example. Wiley-Interscience.

Choi, S. W., Yim, M. S. (2012). An Understanding the Effect of Institutional Pressures on IT Investment Decision Making of Managers. Journal of Digital Convergence, 10(11), 175–183.

DiMaggio, P. J., Powell, W. W. (1983). Iron Cage Revisited: Institutional Isomorphism and Collective Rationality in Organizational Fields. American Journal of Sociology, 48(2), 147–160.

Donbi, D., Zinkhan, G. M. (1990). In Search of Brand Image: A Foundation Analysis. Advances in Consumer Research, 17(1), 110–119.

Eneizan, B. M., Abd-Wahab, K., Zainon, M. S., et al. (2016). Effects of Green Marketing Strategy on the Financial and Non-financial Performance of Firms: A Conceptual Paper. Social Science Electronic Publishing, 5(12), 14–27.

Ermaya, H. N. L., Mashuri, A. A. S. (2020). The Influence of Environmental Performance, Environmental Cost and ISO 14001 on Financial Performance in Non-financial Companies Listed on the Indonesia Stock Exchange. Jurnal Akuntansi Terapan, 1(2), 74–83.

Fenwick, M., Joubert, T., Van Wyk, S. V., et al. (2022). ESG as a Business Model for SMEs. SSRN Electronic Journal, 1–29.

Ferenhof, H. A., Vignochi, L., Selig, P. M., et al. (2014). Environmental Management Systems in Small and Medium-sized Enterprises: An Analysis and Systematic Review. Journal of Cleaner Production, 74, 44–53.

Fullerton, R. R., Wempe, W. F. (2009). Lean Manufacturing, Non-financial Performance Measures, and Financial Performance. International Journal of Operations & Production Management, 29(3), 214–240.

Garrido Ruso, M., Otero Gonzalez, L., Lopez Penabad, M. C., et al. (2024). Does ESG Implementation Influence Performance and Risk in SMEs? Corporate Social Responsibility and Environmental Management, 31(2), 1–21.

Gholami, A., Murray, P. A., Sands, J. (2022). Environmental, Social, Governance & Financial Performance Disclosure for Large Firms: Is This Different for SME Firms? Sustainability, 14(10), 6019.

Grant, R. M. (1996). Toward a Knowledge-based Theory of the Firm. Strategic Management Journal, 17(2), 109–122.

Gunarathne, A. N., Lee, K. H., Hitigala Kaluarachchilage, P. K. (2021). Institutional Pressures, Environmental Management Strategy, and Organizational Performance: The Role of Environmental Management Accounting. Business Strategy and the Environment, 30(2), 825–839.

Gupta, M. C. (1995). Environmental Management and its Impact on the Operations Function. International Journal of Operations & Production Management, 15(8), 34–51.

Hair, J. F., Anderson, R. E., Tatham, R, L., et al. (1998). Multivariate Data Analysis, Upper Saddle River. Prentice Hall.

Han, G. R., & Lee, J. E. (2024). The Moderating Effect of ESG Level in the Relationship between Digital Transformation Capability and Financial Performance: Evidence from Foreign Subsidiaries of Korean Firms. Sustainability, 16(9), 3764.

Han, G. R., Moon, D. C., Lee, J. E. (2022). Directive on Corporate Sustainability Due Diligence and ESG Strategies of Korean SMEs: Focusing on Keyword Network Analysis. Asia Pacific Journal of Small Business, 44(4), 41–66.

Hannan, M. T., Polos, L., Carroll, G. R. (2007). Logics of Organization Theory: Audiences, Codes, and Ecologies. Princeton University Press.

Hornungova, J. (2017). Non-financial Performance Evaluation as Significant Area of Strategic Business Management. Vilnius Gediminas Technical University, 18(1), 71–78.

Jang, K. Y. (2009). An Empirical Study on Relationship between Environmental Management and Sustainable Development. Journal of Environmental Policy, 8(3), 81–113.

Jang, Y. J., Han, G. R., Lee, J. E. (2023). The Effect of SMEs’ Perceptions of ESG Needs on Dynamic Capabilities: Focusing on the Moderating Effect of Innovation Orientation. Korean Corporation Management Review, 30(5), 75–91.

Jeong, K. W. (2022). A Study on the Development of Consumer Based ESG Scale [PhD thesis]. Chosun University.

Jung, J. H., Park, H. S. (2022). A Study on the Effect of Corporate ESG Activities on Business Performance: Focusing on the Moderating Effect of Corporate Values Perception. Industry Promotion Research, 7(2), 15–29.

Kang, J. R. (2016). The Impact of SME’s Corporate Social Responsibility on Financial Performance-For Service Industry [Master’s Thesis]. Seoul National University of Science and Technology.

Kim, H. C. (2007). A Study on the Implementation Alternatives of Environmental Management in Korean Enterprises. The Journal of Establishment Information, 10(2), 1–17.

Kim, K. H. (2019). A Study on the Effects of Entrepreneurship on the Performance of SMEs: Focused on Human Entrepreneurship [PhD thesis]. Hoseo University.

Kim, N. H. (2022). The Effect of ESG Perceived by Start-ups on Entrepreneurship: Focusing on ESG Awareness and Necessity [Master’s Thesis]. Keimyung University.

Lee, M. J., Pak, A., Roh, T. (2024). The Interplay of Institutional Pressures, Digitalization Capability, Environmental, Social, and Governance Strategy, and Triple Bottom Line Performance: A Moderated Mediation Model. Business Strategy and the Environment, 33(6), 1–22.

Lee, S. Y., Klassen, R. D. (2008). Drivers and Enablers that Foster Environmental Management Capabilities in Small and Medium-sized Suppliers in Supply Chains. Production and Operations Management, 17(6), 573–586.

Lim, H. C., Jung, M. S. (2021). Strategies to Expand SMEs ESG Management through Domestic and Foreign ESG Cases. Asia-Pacific Journal of Business, 12(4), 179–192.

Meyer, J. W., Rowan. B. (1977). Institutionalized Organizations: Formal Structure as Myth and Ceremony. American Journal of Sociology, 83(2), 340–363.

North, D. C. (1990). A Transaction Cost Theory of Politics. Journal of Theoretical Politics, 2(4), 355–367.

Ong, T. S., Teh, B. H., Ng, S. H., et al. (2016). Environmental Management System and Financial Performance. Institutions and Economies, 8(2), 26–52.

Park, S. W., Han, G. R., Lee, J. E. (2022). Future Direction of Academic Research and Support Policies for ESG of SMEs: Focusing on Keyword Network Analysis. Korean Corporation Management Review, 29(6), 71–95.

Park, T. Y., Kim, J. D. (2023). A Study on the Effect of Internal and External Pressures on ESG Activities and Business Performance. Journal of Society of Korea Industrial and Systems Engineering, 46(1), 1–14.

Perez-Sanchez, D., Barton, J. R., Bower, D. (2003). Implementing Environmental Management in SMEs. Corporate Social Responsibility and Environmental Management, 10(2), 67–77.

Pinheiro, A. B., dos Santos, J. I. A. S., Cherobim, A. P. M. S., Segatto, A. P. (2024). What Drives Environmental, Social and Governance (ESG) Performance? The Role of Institutional Quality. Management of Environmental Quality: An International Journal, 35(2), 427–444.

Reyes-Rodriguez, J. F. (2021). Explaining the Business Case for Environmental Management Practices in SMEs: The Role of Organisational Capabilities for Environmental Communication. Journal of Cleaner Production, 318, 1–11.

Sarkis, J. (2001). Manufacturing’s Role in Corporate Environmental Sustainability—Concerns for the New Millennium. International Journal of Operations & Production Management, 21(5/6), 666–686.

Sarkis, J., Gonzalez-Torre, P., Adenso-Diaz, B. (2010). Stakeholder Pressure and the Adoption of Environmental Practices: The Mediating Effect of Training. Journal of Operations Management, 28(2), 163–176.

Scott, P. (1995). The Meanings of Mass Higher Education. McGraw-Hill Education.

Shah, S., NaghiGanji, E., Hasan, S. (2016). An Analysis of Environmental Management and Sustainability in SMEs. In: Proceedings of the WSEAS Transactions on Environment and Development. pp. 353–365.

Strdman, C. (2023). ESG Strategy and Management: Complete Guide for Businesses. Available online: https://www.techtarget.com/sustainability/feature/ESG-strategy-and-management-Complete-guide-for-businesses/20230419 (accessed on 26 August July 2024)

Suh, J. M., Lee, M. H., Kang, B. S., et al. (1996). A Study on Environmental Management Practices of Small and Medium Companies and Supports of Government. Asia Pacific Journal of Small Business, 18(2), 131–156.

The Korea Chamber of Commerce ＆Industry(KCCI). (2021). Samjong KPMG. ESG Strategy for SMEs. KCCI. 1–15.

Utomo, M. N., Rahayu, S., Kaujan, K., Irwandi, S. A. (2020). Environmental Performance, Environmental Disclosure, and Firm Value: Empirical Study of Non-financial Companies at Indonesia Stock Exchange. Green Finance, 2(1), 100–113.

Wernerfelt, B. (1984). A Resource-based View of the Firm. Strategic Management Journal, 5(2), 171–180.

Yang, Y. S., Lee, J. E. (2022). The Non-linear Moderating Effect of Network Density in the Relationship between SME Size and Export Performance. Journal of International Trade & Commerce, 18(2), 113–123.

Yoon, J. H., Kim, Y. J. (2000). The Effects of Recognition and Operation of Environmental Management on Corporate Performance in Small and Medium Sized Firms. Asia Pacific Journal of Small Business, 22(1), 63–91.

Zorpas, A. (2010). Environmental Management Systems as Sustainable Tools in the Way of Life for the SMEs and VSMEs. Bioresource Technology, 101(6), 1544–1557.