Overcoming ESG Challenges for SMEs in Singapore

As a country that is heavily dependent on imports, supply chain management and sourcing locally prove to be uphill tasks. When you are not operating in the same economies of scale that MNCs do, can Singapore SMEs afford to be ESG (Environmental, Social, Governance) friendly?

The paragraph in itself presents an issue. For many reasons and unfamiliarity being one of them, SMEs are hesitant to make the move. Conversations with business owners and topic experts revealed these common misconceptions.

  • ESG is for large companies with a big budget and human resources.
  • ESG is about the environment and mitigating climate change.
  • ESG is relevant for certain industries. I.e. Energy, Manufacturing and F&B.
The Case for ESG: Why SMEs in Singapore Should Prioritise Sustainability

Representing Environmental, Social and Governance, ESG is a business strategy. While climate change takes the hot seat, businesses should look into the social and governance components as well.

  • Social factor refers to a business’s impact on society, including labour practices, diversity and inclusion, community engagement, and supply chain ethics. In general, Singapore businesses are faring well in this component.

  • Governance factor refers to the systems and processes that a business has in place to manage and govern itself, including board diversity, executive compensation, risk management, and transparency.

Opportunities for Expansion and Investment

Issues such as social responsibility, responsible innovation, data governance and cybersecurity all link back to the big topic of ESG. With our positioning as a global FinTech Hub, Singapore is not only a launchpad for start-ups but also a gateway into the wider ASEAN market. In fact, Mergers and Acquisitions (M&A) numbers are expected to pick up.

From a compliance perspective, annual sustainability reporting is mandatory for companies listed in SGX. In addition, with effect from FY2022, SGX mandates climate reporting and board diversity disclosures in sustainability reports. This means that SMEs building their brands for listing or M&A must get themselves ESG-ready to be in compliance with the requirements of SGX or the party of interest.

What’s Your Social Impact Narrative?

Despite the behaviour-intent gap in paying more for sustainable products and/or services, consumers are shifting towards brands that align with their personal values. “Heritage” and “prestige” are no longer enough. We are now in the generation of “transparency” and “accountability”. Market intelligence agency, Mintel reports on global consumer trends. 

  • 91% of Chinese consumers say they are likely to buy from a brand that demonstrates social responsibilities (e.g., donating to public welfare).
  • 60% of US consumers prefer to be associated with companies/brands that align with their values.

Housing a café and free trade retail area, The Social Space works towards promoting sustainability and conscious living. As a strategic partner of Senoko Energy’s #CycleForChange, the parties worked together to introduce lifestyle changes.

To introduce a behavioural shift, it is important for consumers to understand what they are really consuming and the impact of their everyday decisions. The successful rollout of the Nutri-Grade label ahead of the stipulated deadline is another example of how partnerships and alliances can accelerate the conversation.

With key milestones in 2030 and 2050, businesses – MNCs and SMEs – have to be aligned with National Standards. For instance, in a conversation with the Chief Sustainability Officer of FairPrice Group, Mr Chan Tee Seng, we learned about its four immediate topics of interest: Carbon Emissions, Energy, Plastic Packaging, and Food Waste. The charging of plastic bags was the first step, with data suggesting a behavioural shift; 7 out of 10 consumers bring their own bags and refuse plastic bags.

Not all SMEs would have a narrative ready to tell or a purpose to advocate for, and this is a great opportunity to initiate their transformation journeys.

Making ESG Palatable for SMEs of Varying Appetites

“Net zero by 2050” and “30 by 30” to name some, Singapore has charted ambitious targets. ESG compliance is no longer a matter of “why” but “when”? Being an SME has its advantage – agility.

As with all business strategies, the ESG roadmap needs key focus areas and this is where the concept of “Materiality” or significance comes in.

The Materiality of ESG: Proceed with Purpose

To create an impact with limited resources, SMEs have to analyse their value chains and determine which ESG factors are “material” or significant for the continuity of the business. Identify the business risks and opportunities, as well as stakeholders’ expectations and concerns.

Material issues are those with the potential to affect financial performance, reputation, or ability to create value. Prioritise and focus your efforts and resources on the most important ESG issues to move the needle.

Singapore-based logistics provider, Ninja Van shared its two new sustainability initiatives: 1) A pilot trial of 10 electric vehicles (EVs) to study the feasibility of electrifying its fleet in Singapore; and 2) the launch of a new line of environmentally friendly poly mailers, Eco Ninja Packs.

Source: Ninja Van

From Barriers to Opportunities: ESG Funding and Support

Higher operational costs, lack of expertise to see through the process, mentality shift and uncertainty about market response are real challenges SMEs face. To alleviate some of these concerns, SMEs can tap into incentives to fund their sustainability projects. For instance, the Enterprise Development Grant and Career Conversion Programme (CCP).

Taking a Gradual and Strategic Approach

The considerations for SMEs may differ from larger organisations but the formula is the same. Conduct a materiality assessment, set realistic targets, and engage with internal and external stakeholders. With ESG, brands must live by the values of transparency and accountability, be it for compliance or consumer engagement.

This article was first published on ASME Singapore.

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