Green economy suggests sustainable operations on all levels; governmental, businesses and individual. The most important level for the European Union and its future sustainability is the one including European small and medium enterprises. Small and medium enterprises make up for 99% of the business in the European Union. Basically, SMEs make up for the biggest part of the production and they employ the biggest number of European working force. Because of all this, the engagement of SMEs in the green economy is of fundamental importance for the sustainable growth of Europe. Unfortunately there are some challenges that SMEs face when they try to transition to the green economy or try to become resource efficient. The thesis examines these obstacles and their possible solutions as well as the role of the European Union and its programmes in tackling these obstacles, and finally offers some insights regarding European environmental future. Through different scientific methods and with successful examples from practice the working hypothesis is proven. Those SMEs that transition to the green economy will achieve economic growth, become more competitive and gain access to new markets. Along with this their employees will be more skilled and their brand will have greater value. The thesis also suggests that the costs that SMEs incur have to be viewed not as expenses but rather as an investment in the future. A future in which SMEs will achieve long term benefits and contribute to the sustainability of the entire European Union and its Europe 2020 strategy for a smart, sustainable and inclusive growth.