Small and Medium Sized Enterprises

It is critical to improve our understanding of how companies can build resilience to external shocks like pandemics, while at the same time generating long-term, sustainable value that benefits society as a whole. While many of the biggest corporations have outlined related plans, small and medium-sized enterprises (SMEs) - which account for about 90% of all companies worldwide - play a crucial role in any economy and can also be major drivers of social and environmental progress. But what exactly do we mean by SMEs? According to the Organisation for Economic Co-operation and Development, they are often defined as firms with fewer than 250 employees, and in terms of annual revenue the European Union, for example, defines them as those with less than €50 million (the separate category of “micro” enterprises usually includes those with fewer than 10 employees).

SME ESG obligations – the lion with a pig’s tale

In Singapore, while SMEs make up more than 99% of the businesses in Singapore (298.5 out of 299.8 thousand businesses) and employ twice as many as the non-SMEs (2.59 million v. 1.03 million) it is oftern regarded as the poor country cousins when it comes to getting stakeholder attention and support. The combined nominal value of the SMEs is slightly less than the non-SMEs ($284.1 billion v. $307.6 billion) but almost half of the total nominal value of the business economy (ie more capital at risk than is actually deployed).

The top business environment challenges cited by SME executives without the added burden of more reporting include talent acquisition and retention (52.5% respondents), growth and expansion (43.8%), funding and access to finance (35.7%), non-supportive policy environment (21%), and the difficulty of maintaining a strong culture and clear company purpose and value (20%).

SMEs can balance the cost of implementing ESG initiatives with the potential long-term benefits:

Start Small and Scale Gradually: SMEs shouldn't feel overwhelmed by trying to implement every ESG initiative at once. Begin with small, achievable steps that align with their specific business context and resources. For example, focus on one area like waste reduction or employee well-being. As they gain experience and see positive results, they can gradually expand their efforts.

Prioritize Initiatives with Clear ROI: SMEs should prioritize initiatives that offer a clear return on investment (ROI). This could include initiatives that reduce operational costs, improve efficiency, or enhance brand reputation. For example, investing in energy-efficient equipment can save money on utility bills while reducing environmental impact.
Seek Funding and Support: SMEs should explore funding opportunities and support programs designed to help them implement ESG initiatives. Government grants, subsidies, or loans specifically for sustainability projects can significantly reduce the financial burden. Additionally, they can look for partnerships with organizations or NGOs that offer expertise and resources in ESG.
Leverage Technology and Innovation: Technology can play a crucial role in making ESG initiatives more cost-effective. For example, using data analytics to track energy consumption or implementing digital solutions for waste management can streamline processes and reduce costs.
Focus on Long-Term Value: SMEs should view ESG initiatives as investments in long-term value creation rather than mere expenses. By prioritizing sustainability, they can build a more resilient business, attract environmentally conscious customers, and enhance their brand reputation, ultimately leading to increased profitability and growth.
Highlight the Benefits to Stakeholders: SMEs should communicate the benefits of their ESG initiatives to all stakeholders, including employees, customers, investors, and the community. This can help build trust, attract talent, and improve brand perception, ultimately contributing to long-term business success.

Specific quick roll out examples:

Waste Reduction: The document mentions that waste reduction and management initiatives are common among SMEs. This can be a cost-effective way to improve environmental performance and reduce operational costs.
Employee Well-being: Investing in employee well-being programs, such as health and safety initiatives or work-life balance programs, can lead to improved employee morale, reduced absenteeism, and increased productivity, ultimately benefiting the business in the long run.
Community Engagement: While there has been a decline in community initiatives, SMEs can find cost-effective ways to engage with their local communities, such as partnering with local organizations or offering volunteer opportunities. This can enhance brand reputation and foster positive relationships with the community.

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