The global emphasis on sustainability has elevated the importance of standardized climate-related disclosures, such as IFRS S2, for corporate reporting and financing decisions. Small and medium-sized enterprises (SMEs), however, face significant challenges in adopting these standards due to low awareness, limited technical expertise, and constrained resources. This study provides an overview of the current evidence on SME engagement with IFRS S2, focusing on awareness, incentives to disclose, and the financial implications of non-disclosure. A systematic review of literature, reports, and official publications from 2020 to 2025 was conducted, covering sources from the IFRS Foundation, OECD, ACCA, ISSB, and peer-reviewed journals. Findings indicate that SMEs often struggle to interpret technical reporting requirements and operationalize climate disclosure practices. Furthermore, the absence of explicit financial, regulatory, or reputational incentives reduces voluntary participation, while non-disclosure exposes SMEs to potential financing barriers, including restricted access to loans, smaller loan sizes, higher interest rates, and stricter collateral requirements. These results highlight a divide between disclosure-ready SMEs and non-disclosure SMEs, emphasizing both operational and financial vulnerabilities within the sector. The study underscores the need for tailored guidance, capacity-building initiatives, and incentive mechanisms to enhance SME readiness and promote broader adoption of IFRS S2. By synthesizing current evidence, the research provides actionable insights for policymakers, standard-setters, and financial institutions to facilitate SME engagement with climate reporting, mitigate perceived credit risks, and support equitable access to sustainable finance.