5 steps to transform your SME into a sustainable business

As sustainability becomes top-of-mind for corporations and investors, small and medium-sized enterprises (SMEs) who lag behind on Environmental, Social and Corporate Governance (ESG) risk losing their competitive edge.

During the Singapore FinTech Festival 2022, DBS led a panel discussion on “Transforming SMEs into Sustainable Businesses”. Moderated by Yulanda Chung, Head of Sustainability, Institutional Banking Group, DBS, the panel featured Jakob Lambsdorff, CEO of waste management solutions provider ALBA Singapore, along with Jason Gregory, Chief Product Officer, Terrascope, a smart carbon measurement platform. The trio shared insights on the rising importance of sustainability, and how SMEs can get on the path of transition.

“Sustainability reporting is becoming necessary, prompting large enterprises to look at their supply chain and choose suppliers with better ESG credentials,” observed Gregory. “Corporates are demanding that SME suppliers provide emissions data and factoring it into their disclosures and purchase decisions.”

Financing-wise, more banks and investors are also expecting businesses to adopt ESG practices.^[1] “Increasingly, there’s financial risk in not reducing your carbon emissions,” Gregory noted.

Today, over 9 in 10 Singapore businesses believe that integrating sustainability into their business strategy is important. Yet 56% have not set well-defined sustainability goals, and 39% still struggle to measure outcomes.^[2] To help SMEs achieve sustainable transformation, here’s a recap of insights from the panellists. From data tracking to sustainable financing, here’s how SMEs can plan for sustainability in five steps.

Step 1: Assess your current sustainability performance

The first step to sustainability begins with calculating your SME’s current environmental footprint. By gathering data insights on your business activities, you can pinpoint opportunities for improvement.

One key data point to track is the carbon emissions generated at every step of your value chain. “We believe carbon is fundamentally a data problem. It’s about producing deep, accurate measurements of your emissions to find plausible paths to reduce your emissions,” shared Gregory.

For a start, SMEs can calculate their Scope 1 and 2 carbon emissions, as defined by the Greenhouse Gas Protocol (GHG).^[3]

• Scope 1 emissions refer to direct emissions from a business’ operations, such as fuel consumption from vehicles and equipment use.

• Scope 2 emissions refer to emissions indirectly generated from a business’ operations, such as the consumption of purchased electricity and heating.

Next, tackle your Scope 3 emissions. These emissions are generated from across your value chain – from suppliers to customers – and can account for over 70% of a business' carbon footprint.^[4] This includes, but is not limited to:

• Sourcing and supply chain – Emissions generated from the production of the materials you procure for your business and from the transportation of materials

• Waste management – Emissions generated from the disposal and treatment of waste generated from your business operations

• Packaging – Emissions generated from the production of the packaging that your business utilises

If all these questions sound daunting, there are smart tools to help you do the job. Yulanda Chung, Head of Sustainability, Institutional Banking Group, DBS Bank, highlighted that machine learning is simplifying measurement of emissions and is able to provide insights for preventive or predictive measures to bring emissions down.

One example is Terrascope, a smart carbon measurement SaaS platform that is partnering with DBS to help enterprises decarbonise. Enabled by machine learning, Terrascope can provide a total picture of your carbon footprint based on your activity data, pinpoint your biggest emission sources, and calculate alternative scenarios to reduce emissions.

Let’s say you’re a palm oil producer in Indonesia,” Gregory explained. “The way your farmers till the soil, the fertiliser they use, the methane released from wastewater – all these details go into our precise measurements. Your next question might be: how can I reduce my emissions, for example, with methane capture? We can then calculate the impact of this solution to build your path to net-zero.”

Step 2: Define realistic goals and KPIs

With a data-driven picture of your current impact, you can now develop realistic goals for sustainability and identify KPIs to track your progress.

Goal-setting poses a challenge for many SMEs. 49% of Singapore businesses report that they struggle to integrate sustainability goals with their overall business strategy.^[5] The United Nations Global Compact recommends focusing on “strategically important” issues that enable you to tap into new business opportunities.^[6]

When ALBA Singapore began optimising their waste collection routes, they discovered that purpose could go hand-in-hand with productivity. CEO Jakob Lambsdorff shared that data tracking has enabled ALBA to not only reduce emissions and boost operational efficiency, but also create more value for customers. 

“We basically built a digital twin of Singapore and turned our trucks into IT platforms. We’re tracking waste generation rates and what type of waste is produced at which site, in order to optimise our collection logistics,” explained Lambsdorff.

“But we’ve also realised that data improves our value to customers, because we have useful figures to share about the waste they produce over time. With this information, our customers are empowered to enhance their operations and explore solutions to reduce their waste.”

Step 3: Create an action plan of sustainability initiatives

The next step is to brainstorm actionable initiatives that will bring your sustainability goals to life. At this stage, gather ideas from all members of your team, from operations to marketing, as they have on-the-ground insights into the feasibility of your initiatives.

“One way to start is building a small team of sustainability champions across different functions – you’d be surprised how many people would put up their hands to join,” shared Gregory. “Once their initiatives get traction, it can grow into a team and then a business function.”

In your action plan, map out the costs, internal resources, and external solutions providers needed for implementation.

“For SMEs who might not know which solutions providers to reach out to, we could recommend and work together with relevant service providers for SMEs,” explained Chung. “Through such partnerships, we can leverage better data on SMEs’ sustainability performance to provide financing as well.”

Step 4: Get started with ESG reporting

ESG reporting refers to the public disclosure of data about a company’s environmental, social, and governance performance. For SMEs, such transparency is essential to unlock access to sustainable financing.

Not exclusive to large multinationals, today’s investors expect smaller businesses to perform ESG disclosure as well.^[7] Nearly 3 in 5 investors in the Asia-Pacific are looking to incorporate ESG in their decision-making.^[8]

Furthermore, as corporates, who are buyers of many SME products and services, face more stringent disclosure requirements, they will also expect verified ESG data from smaller businesses in the supply chain.

Step 5: Secure sustainable financing

Among Singapore businesses who have yet to implement sustainability strategies, 41% cite lack of budget as a top reason.^[9] The good news, however, is that sustainable and green loans are becoming more accessible to Singapore SMEs.^[10] Sustainable financing can boost your cash flow and diversify your funding, making sustainability a viable part of your business model.

DBS has been a first mover in the sustainable finance space, with the aim of providing S$50 billion in sustainable financing by 2024, a target that the bank has since exceeded ahead of schedule.  

“In structuring a sustainability linked facility, we work with SMEs to figure out what material sustainability targets to set. It could be anything from water consumption to health and safety,” explained Chung. “When you meet these targets, you get a discount on interest margins, so there’s a tangible incentive of cheaper financing to aim for.”

In addition, DBS offers a wide range of financing options that can be used for green purposes, including the SME Working Capital Loan. “For us, sustainable finance has become mainstream,” Chung shared. “It’s relevant every time we do any financing, whether it’s trade or supply chain financing.”

Conclusion: Achieving sustainability, one step at a time

Sustainability is no longer a trend but a key factor in any business model. As corporates and investors prioritise sustainability, SMEs like yourself must step up your ESG efforts to thrive in a new age of responsible business.

A trusted banking partner like DBS can smoothen your sustainability journey. Tap into the support of our sustainable financing and consulting services to progress faster and dream bigger. Pledge your commitment to sustainability with us today.

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