Enabling MSMEs to adopt ESG practices is key to sustainable supply chains: report
[SINGAPORE] There is growing momentum among micro, small and medium-sized enterprises (MSMEs) in South-east Asia to adopt sustainability practices, but stumbling blocks such as financial constraints remain.
This issue was raised in a report by the Centre for Impact Investing and Practices (CIIP), titled Transforming for Sustainability: Driving Impact and Value through Supply Chain Action, released on Wednesday (May 7) at an Ecosperity Week event.
The report found that MSMEs in the region recognise the business value of adopting sustainability practices, with 39 per cent of respondents agreeing that they lower costs and improve long-term efficiency. Twenty-seven per cent believe these practices can attract or retain talent in a values-driven workforce.
This is a crucial trend as many multinational corporations are setting higher expectations across their supply chains in pursuit of their long-term sustainability commitments, the report noted.
MSMEs are often key suppliers for these global companies. Therefore, aligning themselves with the evolving standards is increasingly vital for these businesses to remain competitive and secure long-term growth opportunities, the study added.
Dawn Chan, chief executive officer of CIIP, said: 'MSMEs are the backbone of South-east Asia's economies and essential partners in advancing sustainable supply chains.'
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The findings are based on a survey of more than 3,500 MSMEs from countries in the region – such as Indonesia and Vietnam – as well as interviews with about 85 organisations in Asia.
The report also revealed that 84 per cent of MSMEs have adopted at least one environmental, social and governance (ESG) practice, with social measures being the most common due to mandated employee protection policies in each of the countries studied.
However, financial constraints remain a key hurdle to adopting more of such practices, with many of the MSMEs surveyed citing high upfront costs. This is despite half of them planning to increase their ESG budgets by 2027.
Manpower also remains an issue, with 60 per cent of respondents reporting moderate to significant difficulties in hiring staff for sustainability or related roles.
Some also cited the inability to derive immediate benefits from embracing ESG practices. Thirty-two per cent said the ability to gain new clients or enter new markets would be an important motivating factor for the future adoption of ESG approaches.
Enabled to thrive
To help MSMEs, the report identified five key enablers – among them is making the concept of ESG clear and simple. This would require the commercial benefits of ESG practices to be emphasised.
Another enabler is financing the change. While sustainability-linked loans are increasingly available, uptake by MSMEs remains low. This suggests that concessional rates alone are not enough, and investments in innovative MSME-targeted solutions are needed.
To this end, venture capital firms and impact investors are a third vital enabler. They play a crucial role in facilitating ESG adoption across supply chains by providing catalytic funding to incentivise innovation and reduce the barriers to adopting such practices.
These investors are particularly important in backing early-stage solutions and business models which are priced and designed for MSMEs.
'(These enterprises') growing interest in ESG signals a real opportunity to unlock business resilience and long-term value,' Chan said.
'This report aims to provide a clearer view of what MSMEs need to succeed (in), and how ecosystem players, from industry leaders to governments and financial institutions, can work together to accelerate scalable, sustainable impact,' she added.
Themed 'Impact for Outcomes – Perspectives from the Ground', the Impact Investing Roundtable 2025 where the report was released was co-organised by CIIP and Temasek.
Fashioning a solution
In the same vein, CIIP on Wednesday signed a memorandum of understanding with the Singapore Fashion Council (SFC) to advance supply chain sustainability within the fashion industry – with a particular focus on empowering MSMEs.
Under the agreement, SFC will lead the development and implementation of three key initiatives to support the sustainability transformation of the fashion and textiles sector. CIIP will contribute insights and ecosystem-building support.
The initiatives comprise:
a sectoral plan identifying the key challenges and strategic priorities for the local and regional fashion industries;
a guidebook with resources and practical road maps to help companies at different stages of their sustainability journeys; and
a digital toolkit providing MSMEs with access to ESG tools to facilitate decarbonisation and broader adoption of sustainability practices.
Zhang Ting-Ting, CEO of SFC, said: 'The future of fashion lies not just on the runway, but in the roots of our supply chains. MSMEs are the heartbeat of Asia's fashion industry – collective action and practical support are key to meaningful progress in sustainability.'
She added: 'By partnering with forward-thinking organisations like Temasek Trust's CIIP, we are bridging insight with implementation – empowering businesses with the tools and knowledge to future-proof their supply chains and thrive.'
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