SINGAPORE: Financial concerns and unclear reporting standards are common barriers that hinder efforts by small and medium enterprises (SMEs) to be more sustainable, according to a study by DBS Bank.
The bank found that 83% of small companies and 92% of medium-sized firms have an environmental, social and governance (ESG) strategy in place or are creating one.
But only 37% of these businesses have a clear roadmap on how to achieve their goals.
“With cash flow being especially critical for these smaller businesses, financial barriers were the most common.
“Over a third of SMEs pointed out challenges around return on investment, cost of deployment and meeting growth targets,” said DBS, South-East Asia’s largest lender.
Over 800 companies – mostly SMEs – across Singapore, Hong Kong, India, Indonesia, mainland China and Taiwan were studied by the bank last August in partnership with Bloomberg Media Studios.
The firms were from the real estate, mobility, power, agriculture, hospitality, and food and beverage industries.
DBS chief executive Piyush Gupta said: “When it comes to SMEs, we understand the many challenges they face transitioning to more sustainable business models.
“But given that they are the lifeblood of economies, it is imperative that SMEs successfully make the transition.”
DBS group chief sustainability officer Helge Muenkel said SMEs increasingly face pressure to turn “greener” as their supply chain ecosystem often includes large companies that have adopted, or are compelled to adopt, ESG strategies and standards.
Companies that were surveyed said environmental projects will take up the lion’s share of their sustainability investments.
Most of them added that environmental factors have the greatest impact on their industries, in areas such as waste management, climate change and carbon footprint.
DBS said that incidentally, environmental initiatives are also low-hanging fruits that firms can show to investors and other stakeholders. “Access to funding and know-how likewise makes focusing on the E (part of ESG) easier.”
But while environmental factors have the biggest impact at the industry level, governance is most likely to influence business decision-making.
Data security, privacy as well as transparent decision-making and financial reporting are among the most common factors that nudge decisions in one direction or another, said the bank.
Its study also showed that SMEs prioritise initiatives to improve their bottom line, and those that can be immediately adopted. — The Straits Times/ANN