Small- and medium-sized enterprises (SMEs) are key to driving market development in sustainable finance, to ensure wider and deeper economic and social impacts, says Iris Ng, Managing Director at OCBC.
The importance of SMEs to the future of the sustainability journey in Singapore cannot be overstated.
With these businesses accounting for more than 95% of all local enterprises, and over 70% of the workforce, their influence matters. For example, the Singapore Business Federation’s National Business Survey 2022/2023 revealed 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 & safety’ (81%), ‘Fair and equitable employee pay & rewards policies’ (71%), and ‘Documenting, monitoring and reporting business governance, risks and compliance’ (57%). Looking forward, companies are planning to do more in areas such as ‘Increasing sustainability in business supply chains’ (45%), ‘Mitigating supply chain risks’ (43%), and ‘Inclusion & diversity in business’ (43%) [2].
These and similar initiatives have benefits beyond key issues such as climate and society. They also enhance a company’s market position and enable it to capitalise on related business opportunities.
Put simply, sustainability is a business imperative for SMEs. It goes hand-in-hand with greater financial inclusion, plus can empower SMEs to do well while doing good.
Taking sustainability one step at a time
The role of SMEs in driving a more sustainable Singapore also aligns with the government’s Green Plan 2030. Various associated regulations and measures to reduce its environmental impact in line with internationally agreed targets requires collective action.
Yet for SMEs, transitioning business activities, processes and approaches to spearhead new opportunities in the green economy cannot happen overnight.
In particular, companies in high-emitting sectors such as power, oil and gas, real estate, steel, aviation and shipping, tend to be at the beginning of their sustainability journey, and typically face the greatest challenges to decarbonise.
More broadly, it is understandably overwhelming for any SME new to this space. It is important not to pursue large, complex – and likely costly – projects from the outset. Instead, companies of all sizes should break their sustainability journey into smaller, actionable steps.
It is also common for SMEs to feel they only represent a single business in a vast landscape, so would not be able to have the desired impact or be a force for change. The correct mindset, however, is to focus on their potential and responsibility to engage in meaningful work with customers and networks.
This also involves SMEs taking a more measured approach to tracking and monitoring environmental impact, based on information that can be accessed and is within their control. For many businesses, this will typically include tracking energy, water, waste and fuel consumption – data that is readily available and, in most cases, has the highest impact.
Further, SMEs need to view sustainability as a core part of the business, not an extra layer of effort, or even an afterthought. Bringing environmental and social impact to the forefront of any decision will empower the business, as well as staff, partners and the supply chain, to make better holistic decisions.
Empowering SMEs with more targeted finance
Given the opportunity to embed sustainability in all aspects of an SME’s strategy and decision-making, the next stage is to engage these companies more directly and effectively in their own business transition.
Sustainability-linked loans (SLLs) offer one route. This is evident as smaller SMEs become more cognisant of the need to measure their carbon emissions and obtain ESG ratings on an enterprise level, to boost their sustainability credentials. OCBC has seen SLLs gain traction with SMEs, executing 24 transactions in 2023 compared with just one the year before.
OCBC has also focused on providing sustainable finance to SMEs. The bank’s SME Sustainable Finance Framework, for instance, has a clear goal: to make it simpler and less costly for SMEs to gain access to sustainable financing.
This means SMEs across nine categories of business[3] do not need to develop their own frameworks, seek consultants, or conduct verification on their own, reducing time and complexity of the process. This also applies to regional businesses, applying a similar streamlined eligibility assessment wherever the business operates from.
This goes beyond Singapore, too. After expanding to Malaysia, Indonesia and Hong Kong, OCBC’s SME sustainable financing commitments have now doubled year-on-year to over S$7 billion (US$5.2 billion) as of end-2023. More specifically, more than 1,200 companies have benefited from green loans availed under the Framework. And notably, over 80% of the SMEs that undertook the bank’s sustainable financing in 2023 were from the built environment, clean transportation, energy efficiency and renewable energy sectors.
In short, with easier access to green loans, SMEs can adopt green practices to lower the carbon footprint of their common business assets such as their offices, warehouses and commercial vehicles.
The Framework is also forward looking, reflected in recent innovative green tech projects funded by OCBC’s green loans:
- Built environment – funding services, research and development, and manufacturing in advanced fabrication, material technologies and construction projects relating to sustainable construction.
- Clean transportation – supporting expenditures in research and development, green maritime transport technologies and solutions, and sustainable aviation fuel (SAF), green maintenance, repair and overhaul.
- Climate adaptation – focusing on services, facilities, research and development for adopting technology, procuring equipment or providing engineering services to enhance capacity and resilience, as well as reduce vulnerability, to climate change.
Watch how OCBC’s green financing solutions empowers SMEs like Kimly Construction, a pioneer in the built environment industry and Energetix, which delivers clean energy solutions, to make a real impact in shaping a greener landscape.
The scope for the Framework, as well as SLLs, continues to grow. The motivations may vary across industries and companies, but going green is definitely a priority that companies cannot ignore. As more large and international corporates formalise their net-zero ambitions, they also require their supply chains to be sustainable. In turn, this shift fuels new business opportunities for SMEs. Ultimately, sustainable finance is a main catalyst of climate actions which will boost business viability and long-term survivability.
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[1] Source: My Careers Future – https://content.mycareersfuture.gov.sg/singapore-businesses-kickstart-their-sustainability-journey/#:~:text=The%20Singapore%20Business%20Federation’s%20National,towards%20a%20low%20carbon%20economy.
[2] Source: Singapore Business Federation’s National Business Survey 2022/2023 – chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://www.sbf.org.sg/docs/default-source/advocacy-policy/sbf-research-reports/national-business-survey/summary-report/sbf-nbs-2022-2023-report.pdf?sfvrsn=bcf614c9_1#:~:text=For%20ESG%2C%2075%25%20of%20businesses,57%25)%2C%20’Transparency%20in%20corporate
[3] https://www.ocbc.com/business-banking/smes/loans/sustainable-financing
