The environmental, social, and governance (ESG) agenda is rapidly gaining prominence in today’s business world — not just in terms of buzzwords, but also in terms of how organisations are being held accountable for their ESG performance.
More than ever, companies are expected to play a key role in addressing societal challenges such as climate change, social inequality, and corporate governance issues.
In Singapore, small and medium-sized enterprises (SMEs) are also being asked to be ESG-compliant, given that they create 48% of our GDP, and contribute 71% to our employment.
With the economic significance of Singapore’s SMEs, their successful integration of ESG standards is vital in driving the country’s overall sustainability agenda.
Moreover, their transition towards sustainable business models could potentially increase their competitiveness, attracting more business from larger companies who are increasingly prioritising ESG in their supply chains.
But integrating ESG practices is not without its challenges, especially for less-resourced SMEs. These businesses often lack the expertise, resources, and financial incentives to invest in ESG initiatives.
So what exactly are the challenges SMEs are facing right now when it comes to balancing growth with ESG compliance, and how can Singapore’s ecosystem of trade and government support them? Let us take a look.
Related Read: How Does Sustainability in Singapore Help Firms Remain Relevant?
Key Challenges for SMEs in ESG Adoption
Balancing ESG Goals with Business Growth
Balancing ESG goals with business growth is a delicate task. A DBS survey of 800 SMEs across six Asian markets found that 63% of SMEs identified this as their top challenge in transitioning to sustainable business models.
It’s little wonder then that SMEs often end up prioritising profits over sustainability — after all, businesses have to turn a profit in order to survive and grow.
Lack of Access to Technical Know-How and ESG Specialists
That same study revealed that 60% of SMEs cited a lack of technical knowledge and access to ESG specialists as a significant hurdle. This deficit can lead to difficulty in understanding and implementing ESG frameworks which further compounds the challenge of balancing ESG goals with business growth.
Cost Pressures
The survey also found that 61% of SMEs face cost pressures when deploying ESG investments, which for any small SME is especially problematic.
It goes without saying that finances are often a major source of stress for SMEs, and this can lead to difficulties in understanding the right balance between cost savings and ESG-related investments.
Lack of Standardised Measurement in Reporting Standards
Furthermore, the study found the lack of standardised reporting standards further complicates SME ESG efforts. The DBS study found that 75% of SMEs found the lack of standards challenging, as the lack of standardisation makes it difficult to measure and report progress.
How SMEs Can Get Help From the Singapore Government and Financial Institutions
Despite these challenges, there are some answers out there for SMEs in Singapore. These are the various ways that they can receive support from the government and other financial institutions:
Banking’s SME Framework for Sustainable Finance
There are concerted efforts to facilitate SMEs’ transition towards sustainable business models. For instance, OCBC Bank has launched the SME framework for sustainable finance that provides green loans under S$20 million.
This framework lowers barriers to entry, enabling SMEs to access green loans without incurring high consultancy fees. OCBC global commercial banking executive Iris Ng also revealed that the bank has given green loans to more than 500 SMEs in the last two years, and only one-third of them provided a green certificate to validate the green criteria.
Rather than placing emphasis solely on their current green credentials, OCBC prioritised comprehending applicants’ product features, contract scope, and government grants that had been accessed.
This approach should give hope to SMEs looking to access funding for green investments. What is more, it also shows that there is an appetite in the financial sector to support sustainable projects.
OCBC is just one example of many leading banks which are providing green finance solutions to SMEs.
Government Grants and the Enterprise Sustainability Programme
The Singapore government offers various grants and assistance schemes to support SMEs in their sustainability journey.
Notably, the Enterprise Sustainability Programme (ESP), launched by Enterprise Singapore in 2021, aims to empower Singaporean companies, especially our SMEs, to maximise their potential and capitalise on emerging opportunities.
The ESP boasts a series of courses designed to help businesses make sense of their sustainability journey, coupled with capability and product development projects supported under the Enterprise Development Grant (EDG).
These grants and educational courses offer an excellent starting point for SMEs embarking on the ESG journey. They help alleviate financial pressures associated with implementing green initiatives and provide access to invaluable technical knowledge and ESG expertise.
By leveraging these resources, SMEs can develop tailored sustainable solutions, making their transition to greener business practices more manageable.
With these provisions, the challenges highlighted by the DBS survey become less daunting, making it clear why it is crucial for SMEs to avail themselves of these opportunities.
Related Read: How Singapore Creates the Best Business Environment for a Sustainable Future
Priority Strategies to Overcome ESG Challenges for SMEs
Of course, knowing where to start is half the battle, so here is how we would recommend an SME begin their ESG journey:
Determine ESG Focus Areas
Begin by identifying the Environmental, Social, and Governance (ESG) focus on the low-hanging ESG fruit of your operation. This might include:
- Environment: Assess your company’s environmental footprint and identify areas for improvement such as energy efficiency, waste management, or reducing carbon emissions
- Social: Evaluate your company’s social impact, including employee welfare, diversity and inclusion, and community engagement
- Governance: Take a look at your corporate governance practices, ensuring they uphold transparency, accountability, and ethical business conduct
Leverage Available Support
There’s a wealth of support available for SMEs embarking on their sustainability journey. Ensure you explore all avenues, including the green bank loans mentioned earlier, the ESP, reach out to your network of colleagues, or get professional advice from an ESG specialist like InCorp.
Adopt a Long-term Vision for ESG Integration
Embracing ESG is not a quick fix but a long-term commitment. Recognise the potential challenges of this transition and focus on the enduring benefits of cost savings, risk mitigation, brand reputation, and new business opportunities.
Measure and Track Progress
Finally, implement a robust system to measure and track your ESG performance over time. Regular monitoring and reporting will allow you to gauge your progress, make necessary adjustments, and demonstrate your commitment to stakeholders.
Remember, every SME’s ESG journey is unique. The key is to start with small, manageable steps that align with your business model and scale up your efforts as your capacity grows.
With patience, persistence, and the right support, you can make a meaningful contribution to sustainability while enhancing your business’ long-term resilience and growth.
Where to Next for SME ESG Integration
Ultimately, the journey towards sustainability is not a solitary one. It is a collaborative effort that requires both internal commitment and external support — and with those things, the problems mentioned earlier can be solved.
InCorp, with its expertise in ESG compliance, is here to help SMEs navigate this complex path. Whether you are just starting or wish to enhance your ESG strategies, InCorp can guide your sustainable growth journey.
Contact InCorp today to work together towards a sustainable and resilient future.
Related Read: What is Singapore’s Role in Sustainable Financing for SEA?
FAQs on Singapore ESG
What support is available for Singapore's SMEs to adhere to ESG standards?
- Several resources are available, including sustainable finance from banks and the Enterprise Sustainability Programme (ESP) where the Singapore government offers various grants and training programmes.
Why is it important for SMEs to adhere to ESG standards?
- Adherence to ESG standards can enhance brand reputation, increase competitiveness, and open up new business opportunities. Moreover, it allows SMEs to contribute meaningfully to societal goals, such as climate change mitigation and social equality.
What are some of the challenges that SMEs face in adhering to ESG standards?
- Balancing ESG goals with business growth, financial concerns, and a lack of technical knowledge are among the main challenges SMEs face.
Let InCorp show you how you can begin your ESG journey and stay compliant!
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