How is the green transition changing the criteria for evaluating investment in SMEs?

Abstract

Driven by the climate crisis and the EU Green Deal, the global green transition is redefining investment appraisal criteria for SMEs, shifting the focus from traditional net present value to the integration of environmental, social, and governance factors. The aim of this study is to identify changes in the investment appraisal criteria for small and medium-sized enterprises resulting from the green transition. Using a modified Net Present Value analysis incorporating the Green Transformation Index (constructed using the Criteria Importance Through Intercriteria Correlation and Technique for Order Preference by Similarity to Ideal Solution methods). The study confirms the cost-effectiveness of investments in sustainability, especially over the longer time horizon, where the green transformation index often reinforces positive net present value results, signaling lower risk. The implication is that SMEs should proactively implement green solutions to build competitive advantage, reduce costs, and improve reputation for long-term sustainability and growth.