05 May 2020

How SMEs can transform and go green for the future

Many still have misconceptions about sustainability in their business models.

Li Lian Ng

Head of Business Banking, HSBC Singapore

What percentage of SMEs are currently green?

There are two main groups of SMEs in Singapore when it comes to the subject of green. The first are “pure-play” green businesses, those which are creating new business models to respond to the growth in environmental awareness – for example Sustenir, the vertical farming pioneer and Durapower, which provides lithium-ion batteries for electric.

The second group are traditional SMEs, which make up the vast majority of businesses in Singapore and whose operations are not specifically related to tackling environmental issues, such as manufacturers, F&B sector or construction companies.

The first category of pure-play green SMEs is small - but growing. However the traditional SME group is huge and is waking up to both the business opportunity of going green, and the fundamental imperative to realign their business models to be more sustainable.

Is there any particular sector that is going green faster and why?

The property and construction sectors are making the transition more swiftly as the Government focuses on developing greener infrastructure across the nation.

That said, we’re increasingly hearing from our clients across various sectors about their desire to shift towards green. Directionally, SMEs are heading for a greener future – and that’s also backed up by research. HSBC’s Navigator business sentiment survey – which sought the views of 200 businesses, of which 50% were SMEs - revealed that Singapore’s businesses are aware of the potential business benefits that await them if they go green. From the businesses that were surveyed, 33% wanted to improve operational efficiency to pare down expenses, while 29% wanted to gain a competitive edge.1

What are some of the reasons why SMEs are not going green? What are some of the myths and truths?

One of the key myths is that sustainability is costly, affects the bottom line and should only be undertaken by larger companies with deep pockets. This is not the case. Green finance, for example, can be used to fund and upgrade equipment, which can in turn reduce costs – like better wastage systems and renewable energy. Additionally, sustainability strategies have historically matched or outperformed conventional strategies. In 2015, academics analysed more than 2,000 studies and found that in roughly 90 per cent of cases, companies with strong environmental, social and governance profiles achieved equal or better financial performance than companies that had weaker ESG profiles.2

There is another myth that Sustainability is for larger companies, not SMEs. It’s true that bigger companies have the resources to more effectively influence government policy and their supply chain to be sustainable. But SMEs can be just as effective as their larger counterparts in almost every other respect when it comes to adopting sustainable business practices. For example, enterprises of all sizes are increasingly decoupling business growth from environmental impact by adapting to a ‘circular economy’ business model. This means establishing processes to repair, reuse, refurbish, remanufacture and recycle. Many businesses are also cutting costs by reducing their use of energy, water and other resources.

Smaller companies’ competitiveness often depends on being lean, resourceful and nimble, and sustainability enables just those things.

Where and how can a business start the ball rolling on becoming more sustainable?

To start becoming more sustainable, SMEs can:

  • Take a holistic look at businesses processes and technology to identify possible areas to reduce and reuse resources, or cut energy use.
  • Consider green financing as a means to funding change in business models. It doesn’t have to be complex, but speak to your banking partners.
  • Be aware of government policies under the Climate Action Plan that make sustainability inaction costly. Start implementing processes to prevent these unnecessary expenses.
  • Take advantage of funding schemes, such as the Productivity Grant and Energy Efficiency Fund, that are designed to help SMEs go green.

How does one balance sustainability and profitability?

The ultimate cost-saving of green finance is yet to be determined, but in many cases green finance is a route to achieving lower cost bases in the future, as a result of making sustainable investment today, for example:

  • Practically in an operational sense: cost saving on lower energy bills through purchase of greener equipment.
  • Pressure from customers and suppliers: businesses of all sizes are coming under pressure to shift their sustainability credentials, e.g. large MNCs looking down their supply chains.
  • Sustainable business models: helps SMEs open up new areas of growth, inspires innovation, and boost margins through increased efficiencies and lower wastage.

Besides helping to prevent climate change, what are some of the advantages of going green?

Many traditional SMEs are waking up to both the business opportunity of going green, and the fundamental imperative to transition to more business models more sustainable. They may want to:

  • improve business efficiency
  • reduce business costs through using renewable energy, or reusing materials
  • gain a competitive advantage in reaching out to investors and partaking in government tenders
  • encourage the younger generation to have a vested interest in family businesses
  • Attract younger employees in the work place

A contribution piece by Li Lian Ng, Head of Business Banking, HSBC Singapore. A version of this piece was first published on sgsme.sg on 30 April 2020 and subsequently in The Business Times on 5 May 2020.

1 HSBC Navigator Survey, November 2019
2 Global Research Institute, ESG & Corporate Financial Performance: Mapping the global landscape, 2015.

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