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The green balancing act: How Singapore SMEs can navigate sustainability and costs

SMEs continue to face challenges in becoming more sustainable, such as lack of resources and manpower, reveals survey

Imagine running a small business in Singapore. Higher prices of raw materials and rising energy bills threaten your profit margins, but customers are increasingly demanding sustainable options. 

This reflects the complex quandary that small and medium-sized enterprises (SMEs) face; embracing sustainability is crucial for long-term success, yet hurdles stand in their way.

“We are seeing changes in consumer preferences and investor requirements for businesses to be sustainable,” observes Professor Lawrence Loh, director of the NUS Business School’s Centre for Governance and Sustainability.

SMEs that provide goods and services to other companies must also become sustainable not just for themselves, adds Prof Loh, but also as the companies they work with may prefer or require green suppliers.

This is even more so if they want to serve global markets like the European Union, he says, which has developed sustainability regulations including the disclosure of carbon footprints.

“It’s never too early for companies to be sustainable. Even if they’re late, it’s better late than never,” he says.

Challenges in going green

Yet, some SMEs simply don’t know where to begin. The Singapore Business Federation’s (SBF) recent National Business Survey, released in January, found that 41 per cent of businesses do not know where or how to start to become more sustainable.

The survey was conducted from mid-September to mid-November 2023, and polled about 1,050 firms in Singapore. SMEs made up 82 per cent of companies surveyed.

Meanwhile, the UOB Business Outlook Study 2024 found that top barriers include the lack of knowledge to identify and execute the right sustainability initiatives (28 per cent), and a lack of manpower (26 per cent).

These are compounded by economic challenges. Over half (52 per cent) of businesses surveyed by the SBF cited increased business costs as a top concern.

Hoe Boon Chye, chief executive officer of Singapore-based energy-saving solutions provider bbp, says that the survey findings tally with his experience: “Many SMEs are concerned that energy efficiency initiatives will not only increase costs but dilute staff’s focus on existing operations.”

Compared with multinational companies (MNCs), “SMEs are more cost-sensitive and may not have the technological know-how to navigate an increasingly complex and regulated sustainability industry,” adds Samantha Thian, founder of Seastainable, a local social environmental consultancy that supports marine conservation in South-east Asia.

Thian is also an executive member of the Climate Action Singapore Alliance, a ground-up initiative that focuses on advocacy and raising public awareness on climate issues.

Bridging the gap

How can we encourage more SMEs to take steps towards sustainability?

For a start, the Government has unveiled new Budget initiatives on Feb 16 to address some of these issues. 

The Energy Efficiency Grant, which provides funding support for energy-efficient equipment, will be expanded to include more sectors. This includes manufacturing, construction, maritime, and data centres and their users. It was initially open only to businesses in the food services, food manufacturing and retail sectors.

The Energy Efficiency Grant will adopt two tiers of support – a base tier that provides up to $30,000 support for pre-approved energy-efficient equipment, and an advanced one for firms wanting to make larger investments to drive greater energy efficiency.

Companies can also tap the Enterprise Financing Scheme-Green to adopt green solutions, in addition to its original purpose of funding the development of such innovations. The scheme is part of Enterprise Singapore’s (EnterpriseSG) Enterprise Sustainability Programme.

What else can SMEs do? Here are the answers to some key questions.

Q: What are some easy first steps that companies can take to become more sustainable?

A: Start small. “Companies often think that they must start with big things,” observes Thian, “but even smaller moves like digitalising paperwork can cut costs and reduce the need to constantly print things.”

Hoe agrees. He advises SMEs to “focus on low-hanging fruits with significant impact”. For example, air-conditioning or cooling systems can take up significant energy usage. SMEs can switch to more energy-efficient systems and then use the savings for other green initiatives, he says.

SMEs with limited funds can also explore performance-based contracts, says Hoe. One example is the company’s “pay as you save” model, which sees bbp bearing the cost of the implementation, extraction and maintenance of energy-saving solutions. The actual savings, which are certified by third-parties annually, are then shared between the company and bbp.

Another way to start is by focusing on the critical aspects of your company, such as materials that are crucial to the firm, or what you need to do business with other companies, says Prof Loh. This is especially so for SMEs that operate in regions with more stringent sustainability regulations.

Q: What about in the longer term? How can companies identify the right green strategies?

A: To further reduce energy consumption, companies can undertake an energy efficiency opportunity assessment (EEOA) to find out where they can make the most improvements relative to cost, says Hoe.

This will help them prioritise and select strategies less disruptive to their operations, he says.

Thian recommends SMEs to start tracking the company’s environmental footprint and setting achievable targets. “Businesses often don’t even track their carbon footprint, and it’s hard to reduce what you don’t know,” she says. They can then build on such efforts with annual reviews.

Sustainability reporting is also gaining importance as large companies and MNCs increasingly require their SME suppliers to disclose sustainability practices. To enable SMEs to meet this demand, EnterpriseSG is launching a programme in late-2024 to help them develop their first sustainability reports.

The programme will run for three years, with EnterpriseSG defraying 70 per cent of eligible costs in the first year and 50 per cent for the following two years.

Q: Where can companies get help to become more eco-friendly?

A: Companies can leverage existing support measures such as the Energy Efficiency Grant and the Enterprise Financing Scheme-Green.

Thian also recommends companies to make use of the SkillsFuture programme to equip staff with sustainability-related skills, or the SG Eco Fund for their sustainability initiatives.

The SG Eco Fund supports projects that involve the community and advance environmental sustainability. It is open to companies, as well as individuals and community groups, to build a sustainable Singapore together.

Meanwhile, Prof Loh suggests that large companies and SMEs can band together, coupled with financial institutions, to form learning networks. “We can study how sustainability collaborations can be encouraged among companies of all sizes,” he says.

The Alliance for Sustainability Innovation, launched last October, is one example. The alliance, led by Nanyang Polytechnic, provides opportunities for SMEs and larger organisations to share experiences and best practices.

In partnership with the National Climate Change Secretariat of Singapore

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