Compliance challenges hinder African SMMEs from accessing green capital

As the global community intensifies its focus on sustainable finance and inclusive growth, small and medium enterprises (SMMEs) in South Africa find themselves struggling to emerge from the shadows of inadequate compliance structures.

With the G20 Summit on the horizon, the spotlight is on the need for effective governance that can facilitate access to green and impact investment capital, a crucial lifeline for SMMEs aiming to thrive in an increasingly competitive landscape.

Hiten Keshave, CEO of the SME empowerment organisation Unconventional CA (UCA), stresses the importance of governance amid soaring interest in Africa from global investors.

“The upcoming G20 Summit presents a pivotal opportunity for South Africa to showcase its commitment to reform, turning investor confidence into tangible economic outcomes,” he states.

However, the path to achieving this relies heavily on solid governance and comprehensive compliance strategies.

While discussions surrounding environmental (E) and social (S) dimensions of ESG (environmental, social, and governance) garner considerable attention, it is the governance (G) element that appears to be the Achilles' heel for many SMMEs.

The complexities involved in compliance, coupled with limited resources and prohibitive costs, place substantial burdens on these enterprises. In fact, research shows that nearly 90% of SMMEs struggle with tax obligations, a significant compliance gap hindering their readiness for funding.

“We need a fundamental shift so that compliance is the starting point for SMMEs, rather than an afterthought,” Keshave said.

“Only then will our SMMEs move beyond playing catch-up to becoming front-runners in the green and impact investment economy.”

This stark reality is underscored by UCA's compliance assessments through their Ember360 monitoring and evaluation platform, revealing a disconnect where 65% of SMMEs believe their compliance is satisfactory, while in-depth evaluations indicate that as many as 75% fall short of the required minimum standards.

“This persistent failure of compliance is the major choke point when SMMEs attempt to access funding, scale operations, or meet global reporting expectations. You cannot have sustainable finance without compliance. It is like putting the cart before the horse,” Keshave added. 

The governance gap in sustainability

The G20’s report on Strong, Sustainable, Balanced and Inclusive Growth highlights the urgent need for credible data and robust compliance frameworks.

As South Africa leads the G20 this year, a focus on inclusive growth, industrialisation, job creation, and reducing inequality aligns seamlessly with this agenda, positioning the nation’s SMMEs at the forefront of Africa's economic development.

Despite their critical role, the reality is that many SMMEs are inadequately prepared to meet evolving investor expectations.

UCA data shows that numerous enterprises struggle to implement environmental systems or develop social-impact programmes, often hindered by a lack of capital until compliance is established.

This results in a frustrating catch-22: no compliance means no access to capital, and without capital, sustainable and social progress remains unattainable.

“We’re at a tipping point. Investors are now demanding proof of compliance, transparency, and risk management. Without the G, the E and S in ESG cannot thrive. If Africa’s SMMEs do not get their compliance house in order, they risk missing the biggest wave of inclusive-growth capital in a generation,” Keshave said.

Bridging the compliance gap

For many African SMMEs, compliance feels more like an insurmountable barrier than a necessary enabler for business growth.

The overwhelming complexities associated with navigating regulations, paired with limited resources, create a daunting red tape effect, hindering access to much-needed capital.

Solutions must be sought to simplify compliance procedures—including standardised reporting templates and tiered regulatory requirements that scale according to business size.

Additionally, providing clearer guidance on ESG expectations and embedding compliance support within enterprise development programmes could significantly enhance SMME resilience.

Keshave advocates for innovative monitoring strategies, ensuring that businesses have reliable methods to track and evaluate their compliance performance.

“To unlock sustainable finance for Africa’s SMMEs,” he asserts, “we need a practical rethink of ESG readiness. This includes simplifying compliance, embedding support directly into enterprise programmes, and using sustainability reporting as a forward-looking tool that connects verified impacts to business performance and investor confidence.”

“African SMMEs have the talent, the drive, and the social impact vision,” Keshave further said. 

“However, without compliance at the core, they will continue to miss opportunities that could propel their businesses and foster enduring inclusive growth.”

BUSINESS REPORT