Environmental, social, governance: why it’s essential for SMEs

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Environmental, social, governance: why it’s essential for SMEs

Environmental, social and governance (ESG) issues are taking centre stage in Singapore’s business landscape, propelled by a global push towards climate change mitigation, with governments worldwide committing to net-zero targets. This shift has placed increased pressure on businesses to adopt responsible practices, emphasising social equity, transparency and accountability. Furthermore, evolving regulations aimed at enhancing safety and legitimacy within the business environment underscore the critical importance of ESG engagement for companies of all sizes.

It’s not just large corporations that are expected to embed ESG principles in their business operations. In Singapore, small and medium-sized enterprises contribute to 48 per cent of Singapore’s GDP and employ 71 per cent of the workforce, highlighting the role SMEs have in driving sustainable and ethical business practices that contribute positively to the overall health of the economy. As such, SME owners and business leaders are pivotal in shaping a more sustainable, equitable and responsible business future.

In this article, we explore what environmental, social and governance is and why implementing robust ESG practices and processes is not just critical but a strategic advantage for SMEs. We also uncover related opportunities for organisations and provide insights on where business owners and leaders can find the necessary support to implement these ESG practices and policies.

Understanding environmental, social and governance and its relevance to SMEs

Environmental, social and governance is a set of practices adopted by companies to guide how they should conduct business ethically and sustainably. At a broad level, ESG covers the following elements:

  • Environmental responsibility focuses on a company’s impact on nature. For example, a small enterprise could adopt energy-efficient operations, reducing both environmental impact and operational costs.
  • Social accountability measures how a company manages relationships with employees, communities and suppliers. For SMEs, this could involve creating inclusive workplace policies, engaging in community development projects or ensuring fair trade practices with suppliers.
  • Governance concerns practices around a company’s leadership, ethics and transparency. Good governance in SMEs could include developing transparent reporting systems to build stakeholder trust.

Recognising that there is no ‘one size fits all’ approach to integrating ESG practices into business strategy and operations is crucial, as implementation will vary significantly across industries. For example, professional services firms may find greater leverage and opportunities for impact within social and governance, while a consumer goods manufacturer may prioritise environmental and social aspects more heavily.

Why do ESG and sustainability matter?

ESG is a response to a range of concerns, including climate change, rising social inequality and the changing nature of economies.

Investors and stakeholders are increasingly taking ESG into account in their decision-making. Society, customers and clients also expect the companies they interact with to be environmentally and socially responsible. Companies that have robust ESG strategies to manage risks can meet these expectations and compete successfully and strongly in the market.

In Singapore, implementing robust ESG practices offers SMEs the opportunity to differentiate themselves from their competition, attracting more investment, appealing to a larger customer base and ensuring long-term success.

For SMEs eyeing European markets, showcasing solid ESG practices is vital. Europe’s strict corporate social responsibility and sustainability regulations dictate that businesses adopt and visibly demonstrate their ESG commitment.

The Singapore Stock Exchange weighs in

In compliance with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations, the Singapore Exchange (SGX) requires all issuers, including the many SMEs listed, to incorporate climate-related reporting in their sustainability reports. This requirement means companies will have to report on their social and environmental impacts and performance.

The date from which companies have to comply with this mandatory reporting depends on the relevant industry. For example, those in financial services, energy and agriculture are required to report under the TCFD framework from the financial year 2023. Building and transport industries will be required to report from 2024.

The Singapore Stock Exchange weighs in

Challenges and opportunities of ESG adoption

There’s no doubt that ESG is a priority for growing businesses and SMEs of all sizes, but implementing new policies and procedures into business operations can also increase pressure on owners, managers and staff. For small businesses particularly, implementing sustainability practices can be expensive. Busy small business owners, absorbed in the day-to-day running of their business, may not have the time to gain the knowledge needed to implement new practices effectively and give their employees the skills they need to focus on ESG issues.

Although ESG strategies can potentially yield long-term financial benefits, the immediate challenge for many SMEs lies in maintaining profitability in the short term. Balancing ESG objectives with business growth can be daunting, especially when faced with limited access to technical know-how, which stops many SMEs from even trying.

However, integrating ESG into everyday business practices does not have to be overwhelming. Beginning with small, manageable actions can set the foundation and lead to effective long-term change.

Some examples include:

  • Adopting energy-efficient practices, starting with something as simple as switching to energy-efficient light bulbs.
  • Seeking financial support from government bodies and initiatives designed to support businesses implementing ESG practices.
  • Forming partnerships with multinational companies, other SMEs and non-profit organisations to increase ESG knowledge and understanding through collaborative forums.
  • Engaging with a service provider experienced in facilitating ESG integration, to guide and support your business along this path.

Tina Thomas, Head of Environmental, Social, and Governance (ESG) at BoardRoom Group, highlighted, “Small and medium-sized enterprises often lack the comprehensive knowledge required for initiating and executing effective ESG strategies. Additionally, they may encounter significant resource limitations. Nevertheless, this is precisely the juncture at which our expertise becomes invaluable. The ESG team at BoardRoom is adept at managing these processes efficiently and in a cost-effective manner, offering a seamless solution for businesses aiming to enhance their sustainability practices.”

The benefits of a robust ESG strategy

The benefits of a robust ESG strategy

These challenges shouldn’t stop SMEs from exploring the benefits of ESG adoption for cost savings, improved efficiency and risk reduction.

Here, we take a look at some of the benefits:

  • increased cost savings from ESG policies, such as a reduction in water and energy usage;
  • ESG risks and opportunities can be easily identified if supply chain processes are streamlined;
  • reduction in waste and the costs associated with waste management;
  • reduction in the risk of regulatory fines due to non-compliance;
  • an increase in shareholder value and attracting increased investment;
  • appealing to a broader range of potential customers;
  • an increase in employee morale, efficiency and health and safety outcomes as a result of prioritising employee wellbeing;
  • an ability to attract and retain talent and build a stronger employee brand;
  • access to new markets;
  • access to tax incentives and government grants; and
  • differentiation, which can offer many SMEs a competitive advantage.

Clients, customers, investors and regulators now expect businesses of all sizes to reduce their harmful impacts on the environment and people while increasing their resilience to the effects of climate change.

SMEs with ESG cost-saving and other strategies in place that align with their business purpose are much better placed to adapt and meet the challenges of the future while capitalising on opportunities today.

Practical steps towards ESG integration

Practical steps towards ESG integration

Integrating ESG into business practices, strategies and goals can be straightforward and varied based on the individual business. A business could initially take several broad steps; however, it’s crucial to define your company’s ESG goals from the outset clearly. This involves engaging stakeholders and establishing regular monitoring to identify areas for improvement.

Tina adds that a good way to start weaving ESG into day-to-day operations is by collecting and analysing data on the performance of the business. She says, “Step one is making sure there’s a process in place where you collect data on a regular basis, perhaps quarterly. Then, assess the data to expose trends, and set ESG KPIs against the data.”

Other key steps to consider include the following:

Adopting more environmentally friendly practices
Switching to renewable and more energy-efficient sources, reducing waste and implementing robust recycling programs. For instance, your business could replace conventional lighting with LED bulbs to reduce energy consumption.
Encouraging a culture of fairness, inclusion and diversity
Implementing diversity training and adopting equal opportunity hiring practices is a step towards creating a workplace culture that values diversity and fairness.
Innovating through technology
Being open to innovation and leveraging available technology to streamline processes, reduce waste and save costs. A simple example could be switching to cloud-based software to reduce paper usage and streamline operations.
Investing in employee development
Offering employee skills training and wellbeing programs such as mental health support services and professional development workshops.
Community engagement
Engaging with and supporting community groups and charities through staff volunteer initiatives or partnerships.
Establishing ethical policies
Creating well-defined policies and procedures such as a supplier code of conduct and data protection and privacy policies as standard.
Maintaining transparency
Keep business operations transparent. Your business could achieve this by publishing regular sustainability reports and ensuring clear communication with investors and stakeholders.
Managing ESG risks
Introducing organisational and managerial frameworks that identify and manage ESG risks, such as conducting regular environmental audits or ethical supply chain assessments.
Aligning with suppliers
Partner with suppliers who share your business’ goals and ESG values, like sourcing materials from sustainable providers.
Government support and partnerships
Take advantage of government support and incentives for sustainable practices and collaborate with skilled and knowledgeable consultants for ESG transition strategies.

Where to find support

The Government of Singapore offers a range of incentives and grants to help SMEs adopt ESG best practices. If you’re looking for ESG grants in Singapore or need guidance on where to start, here are some helpful resources:

  • Enterprise Singapore’s Enterprise Development Grant (EDG) helps SMEs develop projects to upgrade and innovate their businesses, explore opportunities for growth and expand internationally. Additionally, SMEs can engage with a Registered Management Consultant like Tina for support with integrating sustainability into their business.
  • The Enterprise Sustainability Programme (ESP) supports companies in Singapore to learn about and adopt sustainable, green practices.
  • The Productivity Solutions Grant (PSG) gives SMEs a financial boost to adopt technical solutions to improve their productivity.
  • The Energy Efficiency Fund consists of five grants to support businesses in improving energy efficiency in their industrial facilities.
Discover the opportunities of ESG today

Discover the opportunities of ESG today

There’s no doubt that environmental, social and governance (ESG) issues are becoming increasingly important for Singapore’s businesses to address. SMEs have a large role to play, and if they don’t already have ESG policies and practices in place, there is mounting pressure to do so.

Implementing ESG offers more than compliance for SMEs. It unlocks innovation, sustainability, and market leadership by fostering long-term business resilience and distinguishing your brand in today’s eco-conscious market. With Singapore’s supportive incentives and leveraging the expertise of business consultants, SMEs can seamlessly integrate ESG now more than ever before.

With a dedicated team of experienced ESG consultants in Singapore, BoardRoom can help your business maximise its positive impact and make the most of opportunities with ESG Access. BoardRoom also offers a range of other services, including company incorporation and corporate secretarial. Contact us to find out more today.

Contact BoardRoom for more information:

Tina Thomas_profile

Tina Thomas

Head of Environmental, Social and Governance

E: [email protected]

T: +65 6536 5355

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