Sustaining Sustainability for SMEs in ASEAN

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More small and medium-sized enterprises (SMEs) have seen the benefits of emerging technologies like artificial intelligence (AI) and have started adopting them to improve their business productivity and efficiency. However, many do so at the expense of deprioritising a crucial business focus – sustainability, due to a lack of resources, significant initial costs and insufficient experience. According to EY’s April 2024 Global CEO Outlook Pulse survey, approximately six in 10 Singaporean CEOs are deprioritising their sustainability efforts as other key focus areas like the incorporation of AI technologies and the enhancement of data management emerge.

As SMEs rapidly adopt AI to keep up with the ever-evolving business landscape, concerns regarding the continued deployment of AI are becoming increasingly prevalent. A report by Schneider Electric found that the energy required to run AI tasks is accelerating at an annual growth rate of up to 36 per cent. This means that by 2028, AI tasks could require more power to operate than the entire country of Iceland.

SMEs find themselves in a difficult position where they have to find a balance between incorporating new technologies, be it AI or future emerging technologies, and being intentional about their sustainability footprint. This challenge magnifies as most SMEs have a limited understanding of the best practices to incorporate new technologies while having to adhere to sustainability requirements that are constantly changing.

The increasing demand for ASEAN SMEs to go green

SMEs in ASEAN have to actively adapt and incorporate green practices to comply with increasing demands by regulators and consumers while remaining competitive. In 2024, the Singapore Exchange extended their mandatory climate reporting to all listed companies in the materials and buildings, and transportation industries, increasing the number of industries from three to five in the previous year.

Consumers are also more conscious of sustainable sourcing when purchasing products. PwC’s 2024 Voice of the Consumer Survey states that 85 per cent of consumers have experienced the disruptive impacts of climate change, leading to 46 per cent of them buying more sustainable products.

Such sustainability regulations and customer-changing preferences place increasing pressure on ASEAN SMEs to adopt sustainable practices, but they struggle with how and where to begin. UOB’s Business (SME and Large Enterprises) Outlook Study 2024 showed that 87 per cent of ASEAN companies view sustainability as important to their business, but only 44 per cent have adopted green practices. These companies face major barriers to implementation such as increased costs to customers, the impact it will have on their profits and the lack of proper infrastructure for renewable energy. Coupled with the intensifying pressure to remain technologically competitive, SMEs now turn to solutions providers and industry experts to achieve their sustainability goals.

The rise of ASEAN greentechs

As more SMEs choose to go green, there is a natural increase in demand for innovative greentech solutions to help them accomplish their objectives, spurring the expansion of the greentech industry in ASEAN.

According to UOB’s FinTech in ASEAN 2023 report, as regulators impose climate reporting requirements on more businesses, greentechs that offer innovative solutions have a growth advantage and can grow alongside the upward trend of greentech funding from 2021 to 2023. ASEAN greentechs now play a vital role in developing innovative solutions to meet sustainability objectives and requirements and help businesses kick-start and/or sustain their green initiatives in areas relating to Environmental, Social and Governance (ESG) reporting, carbon management and accounting.

Each company’s sustainability journey is unique, and its demands and needs vary. For some companies, it is about finding easy-to-implement solutions to begin their green journey. For others, it is about meeting regulatory requirements with technology assistance in applying best practices.

Hence, it is important for the greentechs to be well-informed of the challenges SMEs face to deliver solutions that are tailored to their concerns. A two-way communication system is required between the greentechs and SMEs to achieve this effectively. This would allow greentechs to efficiently pilot and deploy effective solutions that cater to the evolving demands and critical pain points of SMEs.

Full circle of collaboration

According to data from the Association of Southeast Asian Nations (ASEAN), SMEs and micro businesses currently account for over 97 per cent of businesses in the region and contribute at least 85 per cent of the region’s employment. As such, they are integral to the region’s economy and serve as the primary vehicle for meaningful change throughout the business landscape. Given their majority share, SMEs are also key to the overall adoption of sustainable practices in the region, and they require substantial support to achieve their sustainability goals, especially from the private and public sectors.

Currently, SMEs learn the best practices and strategies for adopting sustainable practices from private and public sector organisations. Yet, there is still room for improvements to better facilitate the supply of information. Private organisations, such as financial institutions, can play a role in facilitating SMEs’ sustainability adoption through education and collaboration with the industry. This is achieved by organising networking sessions with industry experts and like-minded companies, arranging practical, in-depth workshops and providing access to a wide range of online resources. One example is UOB FinLab, the accelerator arm for UOB. It has helmed the GreenTech Accelerator since 2022 to support the growth of regional greentechs and the Sustainability Innovation Programme to assist SMEs in their sustainability transition.

It is also crucial for governments to have ongoing conversations with SMEs and other industry players to finetune initiatives that can support SMEs in their sustainability journey. For instance, the Singapore government has been providing ongoing financial support for SMEs through the SG Eco Fund. This SG$50 million fund was introduced in 2020 to support projects that enable the community to create a sustainable and green Singapore. It has helped resolve a critical pain point that has prevented SMEs from kickstarting their sustainability journeys. This coordinated effort among all ecosystem partners can enable collective growth and we have seen progress among SMEs to leverage emerging technologies to meet their technological and sustainability goals. Some examples include the recent use of AI to predict weather changes and empower waste management systems. If these efforts to foster a successful transition to a sustainable future continue, ASEAN can potentially become a leading hub for greentech innovation and sustainability adoption.

Article originally appeared on Tech Collective Southeast Asia. The original article can be found here.

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