With the emergence of Corporate Social Responsibility (hereafter “CSR”) and Socially Responsible Investment (hereafter “SRI”), investors become increasingly socially and environmentally conscious and show an interest in ESG factors within investment selection [1]. This has created a driving force for small and medium-sized enterprises (hereafter “SMEs”) to integrate ESG factors into their business models and even extend this integration across supply chains.
Incorporating ESG practices into business operations and decisions assist SMEs in greening their operations and preventing tangible losses and intangible risks. ESG also benefit SMEs to create competitive advantages through differentiation of products/services and brand. In many cases, ESG could help increase productivity and reduce operational costs. In the long run, it can be a tool for SMEs to enjoy business growth and pursue new market opportunities by attracting potential investors.
By contrast, companies with poor ESG practices may have higher business risks and poorer marketing reputation. These practices harm company’s relationship with clients and hinder their ease in accessing capital. These could result in a loss of marketing opportunities, investors’ confidence and finally lower the company’s value.
Although global corporations tend to dominate the business pages, SMEs can be seen as the backbone of the Hong Kong economy and the global supply chains. As at March 2019, there were over 340,000 SMEs in Hong Kong, accounting for over 98% of the total business units [2]. Under Hong Kong’s regulatory regime, ESG is not a mandated practice for non-listed companies. Instead, it is seen as an extra step that SMEs do to help improve their local and global communities. The concerted efforts of SMEs are crucial for the development of a more sustainable Hong Kong.
[1] www.oxfam.org.hk/en/news_2830.aspx
[2] https://www.success.tid.gov.hk/english/aboutus/sme/service_detail_6863.html