Hong Kong SMEs show signs of uptake of sustainability and ESG

Photo by Singkham from Pexels
Photo by Singkham

ESG and sustainability issues alike have been moving up the corporate agenda in recent years. According to Google Search Trend, the keyword ‘ESG’ search popularity in Hong Kong has been soaring and surpassed ‘Sustainability’ in May this year.

However, public curiosity about the topic doesn’t seem to convert into actual practice, according to the territory-wide small and medium-sized enterprises (SME) sustainability survey (the Survey) conducted by the Centre for Civil Society and Governance (CCSG) at The University of Hong Kong.

From November 2021 to April 2022, the Survey solicited views from 1,400 SMEs (SMEs) in Hong Kong to understand their perceptions, practices, and preparedness towards achieving sustainability.

The findings of the ‘Diagnostic Study for SME Sustainability Survey’, which provides a landscape analysis of the uptake of ESG and sustainability by Hong Kong SMEs, and identifies the pain points that hinder their capacity to take further action. The Study also provides a baseline for any future research and market analysis on SMEs’ sustainability efforts and achievements.

SMEs tend to perform better in resource management

According to the findings, slightly over one-third (36.7%) SMEs rated themselves as effective at advancing sustainability goals compared to only 4.4% of SMEs rated ineffective. Among the 24 practices across five dimensions, namely governance, workplace culture, customer-supplier relationships, resource management and innovation, the study reveals that the average number of sustainability practices adopted was 7.7 across all industries.

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No particular sector has an impressive performance across all five dimensions, but SMEs tend to perform better in resource management while there seems to be considerable room for improvement in innovation and corporate governance.

Top three most pressing sustainability challenges for SMEs

The majority of SMEs (98.3%) indicated that they encounter sustainability challenges now and the top three sustainability challenges are namely economic and financial instability (65.4%), global health crisis (e.g. COVID-19) (53.8%), and consumer expectations (22.9%), which suggest that SMEs are struggling to stay resilient and recover from the unstable economic environment.

In contrast, long-term social-ecological risks such as climate change, human rights, and inequality only received 6.3%, 4.8%, and 3% of respondents identified them as a challenge.

This might suggest that SMEs are less concerned about the potential risks induced by climate change, or not aware enough of social challenges such as inequalities at workplace that could cause serious implications for their businesses in the long run.

This implies the need to educate SMEs about the importance of integrating the ESG framework as an enterprise risk management practice so that they can realise potential risks early on and mitigate the impact.

Government and industry support to speed up the sustainability advancement

According to the findings, the most needed support for integrating sustainability into the SMEs business operations, strategies and business models are namely financial support (47.7%), and marketing support (41.2%), whilst such support is ideally provided by the Government (69%), followed by business associations, and banks and financial institutions, both received 30.8% of the response.

This implies the most effective way to encourage SMEs to integrate sustainability is to offer financial incentives. It urges the government to accelerate the development of Green and Sustainable Finance and offer an actionable timeline and policy framework for financial institutions and business organisations to follow.

Professor Wai-Fung Lam, Director of the Centre for Civil Society and Governance (CCSG), and Professor of Politics and Public Administration at the University of Hong Kong remarked: “The business sustainability agenda has been steadily gaining momentum. However, the spotlight remains on the role of multinational corporations and listed companies.

“As the engine of economic progress, SMEs have made diverse contributions to social and environmental well-being. Yet, their unique challenges and constraints have not been widely studied.

“This points to the need to understand the role and positioning of SMEs in creating the impulse to achieve widespread positive, social, environmental and economic change for a more sustainable future.

Mr. Him Lo, Senior Manager, Cultural and Community Engagement, Nan Fung Development Ltd said, “Achieving sustainability such as the transition towards circular economy and an inclusive society has become increasingly dependent on partnerships with diverse stakeholders along the value chain and across different sectors.

“Companies and organisations including large corporates, SMEs, start-ups, social enterprises and NGOs should pull together resources, knowledge and skills with the aim to accelerate sustainability innovations and lead on better social and environment outcomes.”