Indian SMEs back drive for ESG – but most don’t know how to achieve it

Some 85% of medium-sized and 75% of small companies state that ESG (environmental, social and corporate governance) is a high priority, but only 37% have a clear roadmap on how to achieve their goals, according to a new a report produced by Bloomberg Media and DBS bank.

The report, called Catalyst of Sustainability, is based on the results of a survey conducted in August 2022 involving 800 SMEs across six markets in Asia – India, China, Taiwan, Hong Kong, Indonesia and Singapore.

The report found that, overall, business leaders have a positive attitude towards sustainability, with more than eight in 10 agreeing that their company’s operations should help protect the environment, and they should incorporate sustainability values when selecting investment projects.

On average, Asian companies that considered ESG a high priority allocated 18% of their budget to ESG projects. They expect allocation to reach 19.8% within the next three years, with most of the spend going towards environmental projects.

Decision makers in the study cited that the environment has the greatest impact on their industries with waste management, climate change and carbon footprint being key focus areas.

Although complying with regulations, attracting talent, boosting revenue, pleasing stakeholders, and simply doing the right thing were the main motivators for SMEs to embrace ESG, the survey respondents say that unclear reporting standards and financial concerns are the common barriers to ESG adoption.

Over a third of SMEs pointed out challenges around return on investment, cost of deployment and meeting growth targets. The lack of clarity on ESG standards presented another challenge.

The report also found that many SMEs are just starting out on their journey. Around 83% of small companies and 92% of medium-sized companies have a strategy in place or are creating one, but only 37% have a clear idea on how to achieve their goals.

Most SMEs are focusing more on identifying sustainability issues that are affecting their businesses rather than formulating ESG frameworks and long-term strategies that would take years to fulfil, the survey found.

While long-term planning may be difficult, Yulanda Chung, Head of Sustainability, Institutional Banking Group, DBS, suggests practical steps: “SMEs can start by identifying material ESG elements to focus on and then evaluate whether these elements could improve their bottom line.

“Analysing industry trends and best practices is another important step to take early on. SMEs can use the learnings to conduct risk analysis and understand the accompanying consequences if they do not align to industry standards and government guidelines. These exercises can also help them identify opportunities and begin to plan a course of action. Over time, they can turn this into a timebound, actionable and quantifiable roadmap.”

Reporting requirements can hinder the ESG journey for SMEs. SMEs do not have the same resources as large corporations to embark on ESG reporting. The lack of a homogenous framework or standardised guidelines also leads to wide inconsistencies in measuring success and performance.

Respondents to the survey also said that companies expect banks to first and foremost provide overall ESG consultancy, followed by financial assistance, then thought leadership. Many companies, SMEs in particular, are unsure if their ESG initiatives qualify for green financing.

“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,” said Piyush Gupta, CEO of DBS.

• The study was based on interviews with 937 decision-makers in industries covering real estate, mobility, power, agriculture and hospitality.