Bridging the SME sustainability gap

Small and medium-sized enterprises (SMEs) play a key role in developing the sustainable finance market, delivering broader and deeper economic and social impact, says Iris Ng, managing director of OCBC.

The importance of SMEs to Singapore’s future sustainable development cannot be overstated.

Since these businesses account for more than 95% of all local businesses and more than 70% of the workforce, their influence is significant. For example, the Singapore Business Federation’s 2022/2023 National Business Survey found that 75% of businesses in Singapore have implemented efforts in at least one environmental, social and governance (ESG) area. ^[1].

Among the most common were “Employee Health and Safety” (81%), “Fair and Equitable Employee Pay and Benefits Policies” (71%) and “Documenting, Monitoring and Reporting Business Management, Risk and Compliance” (57%). Looking to the future, companies plan to do more in areas such as “Improving the resilience of business supply chains” (45%), “Reducing supply chain risks” (43%) and “Inclusion and diversity in business” (43%). ^[2].

These and similar initiatives have benefits that extend beyond key issues such as climate and society. They also improve the company’s position in the market and enable it to capitalize on relevant business opportunities.

Simply put, sustainability is a business imperative for SMEs. This goes hand in hand with greater financial inclusion and can also give SMEs the opportunity to thrive while delivering value.

Step by step achieving sustainable development

The role of SMEs in making Singapore more sustainable is also in line with the government’s Green Plan 2030. Various associated regulations and measures to reduce environmental impact in accordance with internationally agreed goals require collective action.

However, for SMEs, the transition to business activities, processes and approaches to create new opportunities in the green economy cannot happen overnight.

In particular, companies in high-emissions sectors such as power, oil and gas, real estate, steel, aviation and shipping tend to be at the beginning of their sustainability journey and tend to face the biggest challenges to decarbonization .

In a broader sense, it is clear that this is an overwhelming task for any SME new to this space. It’s important not to start large, complex—and likely expensive—projects from the very beginning. Instead, companies of all sizes should break down their sustainability journey into smaller, more actionable steps.

SMEs also often feel that they are just one business in a large area and therefore will not be able to have the desired impact or be a force for change. However, the right mindset is to focus on your potential and responsibility to engage in meaningful work with clients and networks.

It also requires SMEs to take a more deliberate approach to tracking and monitoring environmental impacts, based on the information they have access to and control over. For many businesses, this typically involves tracking energy, water, waste and fuel consumption—data that is easily accessible and, in most cases, has the greatest impact.

Additionally, SMEs must view sustainability as a core part of the business, rather than as an additional layer of effort or even an afterthought. Bringing environmental and social impacts to the forefront of any decision will enable the business, as well as its staff, partners and supply chain, to make more holistic decisions.

Empowering SMEs through better targeted financing

Given the opportunity to embed sustainability into all aspects of SMEs’ strategy and decision-making, the next step is to more directly and effectively engage these companies in their own business transition.

Sustainability linked loans (SLLs) offer one path. This is becoming clearer as smaller SMEs become increasingly aware of the need to measure their carbon emissions and obtain enterprise-level ESG ratings to improve their sustainability credentials. OCBC noted that SLL is gaining traction among SMEs, with 24 transactions in 2023 compared to one last year.

OCBC has also focused on providing sustainable finance to SMEs. For example, the bank’s SME Sustainable Finance Program has a clear goal: to make it easier and cheaper for SMEs to access sustainable finance.

This means that SMEs in nine business categories^[3] there is no need to develop your own schemes, look for consultants or carry out verification yourself, which reduces the time and complexity of the process. This also applies to regional businesses, where a similar simplified eligibility assessment applies wherever they operate.

This goes beyond Singapore. Following its expansion into Malaysia, Indonesia and Hong Kong, OCBC’s commitment to sustainable SME finance has doubled year-on-year to more than S$7 billion (US$5.2 billion) at the end of 2023. In particular, more than 1,200 companies have benefited from green loans provided under the Framework Program. Notably, more than 80% of the SMEs that took on the bank’s sustainable finance in 2023 were from the built environment, clean transport, energy efficiency and renewable energy sectors.

In short, with easier access to green loans, SMEs can adopt green practices to reduce carbon emissions from their general business assets such as offices, warehouses and commercial vehicles.

The Framework is also forward-looking, as reflected in the recent innovative green technology projects financed by OCBC Green Loans:

• Built environment – financing services, research and development, and production in the areas of advanced manufacturing, materials technologies and construction projects related to sustainable construction.
• Clean transport – supporting spending on research and development, green technologies and solutions for maritime transport, clean aviation fuel (SAF), green maintenance, repairs and overhauls.
• Climate adaptation – Focus on services, facilities, research and development to implement technologies, acquire equipment or provide engineering services to improve capacity and resilience, and reduce vulnerability to climate change.

See how OCBC’s green finance solutions are helping SMEs like Kimly Construction, a pioneer in the built environment industry, and Energetix, which offers clean energy solutions, make a real impact on shaping a greener landscape.

The scope of the Framework, as well as SLL, continues to expand. Motivations may vary by industry and company, but sustainability is definitely a priority that companies cannot ignore. As more large and multinational corporations formalize their net-zero ambitions, they are also demanding that their supply chains be sustainable. In turn, this shift opens up new business opportunities for SMEs. Ultimately, sustainable finance is a key catalyst for climate action that will improve business viability and long-term survival.

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