Building back greener


By JOY LEE

AS economies come back to life, some trends are beginning to take centre stage in the general effort to rebuild better. One of these trends is a greater awareness and appreciation of climate change.

Consumers are increasingly looking for more eco-friendly products and investors are taking a keener look at the environmental, social and governance (ESG) aspect of a company.

The government has also highlighted the importance of the environment under Budget 2021 with the RM2bil Green Technology Financial Scheme.

Larger companies have started incorporating ESG elements into their operations to appeal to both customers and investors. However, this is still not a priority for small enterprises even as they rebuild their business.

“SMEs are primarily still looking at their survival. A lot of these new trends are not a priority for them, ” says an industry observer.

Ernst & Young Advisory Services Sdn Bhd director of Climate Change and Sustainability Services Arina Kok notes that SMEs’ awareness level of climate change and the implications of energy transition to their business is still low.

“Many SMEs do not consider climate change or energy transition to be near-term priorities and therefore, have minimal or no strategy in place, unless they are in the energy-related or agriculture sectors.

“However, the most imminent threats to SMEs’ business resilience lie in the broad-ranging ESG risk.

“SMEs have found themselves confronted with a host of challenges ranging from how they handle waste disposal, manage workforce and customer safety, source responsibly to maintaining profitability amid extremely difficult trading conditions, ” she says.

Nonetheless, as larger corporations begin to address ESG concerns, SMEs along their supply chains will also need to embrace ESG. Businesses will also eventually be compelled to take climate change into consideration to remain in consumers’ good books.

Some SMEs have taken measures to reduce emission and transition to low-carbon energy, such as through installing solar panels on the rooftops of their factories. This would also help them reduce energy cost in the long run.

SMEs in the manufacturing sector are also differentiating their brands by pursuing nature-based solutions and innovating eco-friendly products, recycling and upcycling waste that would otherwise end up in landfills.

Kok points out that there is a stronger need for SMEs to address this because while they face the same climate risks as larger businesses – reduced agricultural productivity, property damage due to floods, disruption of supply chains and uninsurable losses – their level of resilience and future proofing is much lower.

Notably, the lack of resources and knowledge or required skill sets to handle climate change issues remain one of the major barriers for SMEs to future-proof against climate change. They also have limited access to research and development, support infrastructure and climate-smart technologies.

According to HSBC Singapore head of corporate sustainability Frances Chen, more and more banks are looking to offer green financing solutions that are more suitable for SMEs.

“SMEs are very important in pushing ahead with this sustainability agenda because they essentially sit in the supply chains of a lot of the big companies.

“We see the difficulties that SMEs have in accessing sustainable financing products that are available in the market. Those require you to align to international standards and have a strategy.“We understand that this is difficult for the SMEs, ” says Chen.

HSBC Singapore had launched its SME tailored green loan in Singapore to reduce many of these requirements without compromising on the integrity of these green loans.

Chen notes that many of the enquiries for the loan were mainly for equipment upgrade.

In Malaysia, CIMB Bank Bhd launched the CIMB GreenBizReady, a one-stop sustainability solution for SMEs to transition towards the green economy.

Apart from access to financing, Kok also highlights that a coordinated national development and sector-specific support such as government funding in research and mitigation measures would be critical in driving larger scale impact.

“Effective solutions deployed at the right time, to the right sectors could help increase awareness of climate risks and the opportunities arising from the global transition towards a low carbon economy.

“For example, early warning systems such as timely weather forecasts could help SMEs cope and better plan for extreme weather events. Technical research and development, such as climate-resilient crops and better farming techniques, can help SMEs in the agriculture sector increase and protect their yields.

“Increased investments and support from the public and private sectors would be critical to driving SMEs towards the adoption of ESG measures and sustaining the ecosystem, ” says Kok.

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