The sustainability agenda - unlocking opportunities for a greener future
The Covid-19 pandemic has increased awareness of the positive impact of sustainability on business operations among small and medium-sized enterprises. Christie Chu, head of emerging business and commercial banking cash, global commercial banking at OCBC Bank explores some of the key challenges faced by businesses over the past 18 months and the opportunities that lie ahead for Southeast Asian SME’s as they play their part in global efforts to become carbon neutral by 2050.
It is critical that multi-national corporations comply to ESG standards and diversify their suppliers, actions that, due to their sheer size and footprint, will have a significant positive impact on global sustainability efforts. Increasingly, MNCs are facing pressure from investors and other stakeholders to do so.
In a similar way, SMEs across industries need to adopt green and sustainability-focused practices if they are to win new business from these larger institutions and corporations. For some SMEs, sustainability is sometimes still viewed as a “good to have” although more are becoming aware of the impact it has on business performance. They have a better understanding of why embracing green and sustainable factors creates new growth opportunities – but there is still work to be done in terms of raising awareness and changing mindsets, which is something that larger corporations can assist with.
The pandemic sent shockwaves through supply chains, which had already been a key area of focus for businesses prior to 2020. Resilience has become a consideration of paramount importance, with more businesses diversifying beyond China, tapping on ASEAN for their manufacturing needs. Therein lies opportunities for ASEAN SMEs to grab a slice of the pie, especially for those who have the competitive advantage of having more sustainable practices.
The shift towards alternative energies across some parts of Southeast Asia has also presented an opportunity to grow local industries, generate jobs and reduce fossil-fuel imports. This has increased demand for consulting services related to alternative energy, the circular economy and wastewater management, while also strengthening the capacity of local businesses across these areas.
While the last 18 months have proved to be challenging for businesses, many SMEs have been able to weather the storm with support of governments and communities. Despite being faced with disruptions in supply chains and inconsistent and unpredictable demand, the corporate sector’s adoption of a greener, more sustainable agenda did not stall.
The extent to which smaller companies comply with wider sustainability standards may well depend on the regulatory ecosystem of the market, as well as a business relationship with sustainability-minded and ESG-compliant multinationals. Furthermore, such standards are often very complex: different countries enforce different requirements, in many cases varying by industry.
Despite being faced with disruptions in supply chains and inconsistent and unpredictable demand, the corporate sector’s adoption of a greener, more sustainable agenda did not stall.
Larger organisations can step in to help SMEs navigate these complexities and to support the sustainability movement. For example, OCBC Bank launched a sustainable finance framework for SMEs in 2020 to break down barriers, simplify the navigation of these standards and enable the transition towards sustainability. Since then, SMEs across a range of industries have leveraged this framework and secured green loans from us. Collaborations are also key, whether they be with our customers or other ecosystem partners. Such collaborations lead to the creation of new sustainability standards, industry-specific sustainability solutions and green loans for SMEs. While larger organisations have a key role to play in driving the sustainability agenda, SMEs can also act as eco-innovators and eco-entrepreneurs by presenting sustainable options to larger firms. Eco-innovators are more likely to pioneer radical and disruptive innovations, especially those smaller firms as new entrants to the market can exploit the market opportunities overlooked by larger firms.
These initiatives help support the sustainability movement and underline the role that all organisations can play in improving the region’s adherence to ESG standards for long-term economic growth.
Carbon neutrality by 2050
While it will take a collective global effort to achieve net zero by 2050, governments must lead efforts to combat climate change. Governments can play a proactive role in transforming financial markets, establishing clear environmental and social standards, and imposing mandatory ESG reporting.
For example, Singapore’s government has unveiled the Singapore Green Plan 2030 – its roadmap for a whole-of-nation push for the sustainability agenda. The country has committed to peaking its emissions by 2030, halving that by 2050, and hitting net zero as soon as possible.
Banks will continue to support this transition to a low-carbon economy, working with companies that are on their way to becoming more sustainable. OCBC finances green projects including renewable energy, water and wastewater management, green buildings, and public transportation for example. Amidst the Covid-19 pandemic in 2020, we announced a new target of S$25 billion by 2025 for our sustainable financing portfolio, having eclipsed our previous target of S$10 billion two years ahead of the original 2022 schedule. At the end of 2020, OCBC has committed to S$20 billion of such loans.