How ASEAN Can Help SMEs Go Green

Date Published
June 02, 2021
In Indonesia, the Centre of Forest Development Financing (Pusat P2H) offers soft loans to micro and small enterprises for activities related to timber and non-timber forest products. Photo credit: Asian Development Bank.

Small and medium-sized enterprises (SMEs) are critical to Southeast Asia’s transition to a green economy. They comprise more than 90% of businesses in the region and employ majority of the workforce. However, lack of access to finance, technology, and information makes the greening of SMEs challenging. The survival of their business, rather than environmental concerns, is their priority. The COVID-19 crisis has brought this dilemma into sharper focus.

Still, countries in the region are expected to continue their march toward sustainability in line with global efforts to build back better from the pandemic. The ASEAN Comprehensive Recovery Framework includes the shift to a green and circular economy. This means support for business recovery will be given in tandem with the promotion of environment-friendly practices and technologies.

In April 2021, the OECD, in cooperation with ASEAN, released a toolkit for policymakers to help SMEs “enhance their environmental performance and economic competitiveness.” OECD notes that a green economy offers many opportunities for SMEs, which may lack resources but are more agile than large businesses. For example, SMEs may be able to adopt cost-saving, energy-efficient technology and methods more easily than larger organizations, which can improve their bottom line in the long term.

The toolkit provides policy recommendations in three areas: finance, regulation, and information.

Finance

  • Improve SME’s access to green finance, develop green markets through green public procurement, encourage SMEs to take part in sustainable value chains, and offer tax and duty privileges on investments in more sustainable equipment.
  • Build the capacity of SMEs to apply for green financing and the capacity of lenders to evaluate and fund small-scale green investments.
  • Offer grants for the purchase of green technologies by SMEs or for an initial environmental audit. Subsidize compliance with green business practices or provide free technical assistance.

Examples in the region include the soft loans provided by Indonesia’s Centre of Forest Development Financing (Pusat P2H) to micro and small enterprises for activities related to timber and non-timber forest products.

In 2016, Malaysia set a target of 20% for green public procurement by 2020. It also helped SMEs comply with green standards through the MyHIJAU SME & Entrepreneur Development Programme, Green Technology Finance Scheme, and assistance on eco-labelling and certification and adoption of environmental management systems.

Information

  • Communicate the benefits of going green to SMEs, such as potential cost savings and new market opportunities, and guide them on how they can achieve environmental compliance. Use communication strategies that are tailored to the way SMEs access information.
  • Coordinate the efforts of the public and private sectors, such as business and trade associations, in promoting green practices among SMEs, such as outreach activities and compliance assistance programs. Build the capacity of government staff and non-government actors to provide guidance and advice on environmental compliance.
  • Recognize green practices and champions, such as through sector-specific certifications, eco-labeling, and environmental awards.

An example in the region is Thailand’s Green Industry Project, which uses a graduated approach to environmental certification. Five levels of certification have their specific requirements and conditions. This makes it easier for SMEs with less resources or experience to achieve minimum compliance and gives them an incentive to improve and move up to a higher level of certification.

Regulation

  • For SMEs, focus efforts on helping them adopt green practices rather than on punishing noncompliance that often involve low-risk facilities and activities. Instead, provide incentives for them to go beyond compliance, such as putting in place certified environmental management systems.
  • Simplify regulatory requirements for SMEs through standardized permits or general binding rules, and through e-government “paperless” services and a one-stop-shop or one-window facility.
  • Adopt sector-specific strategies for compliance assurance.
  • Clarify the minimum legal requirements for compliance to avoid unnecessary costs, which is especially important for small businesses.

Created by the government in 2003, the Philippine Environment Partnership Program provides incentives for compliant SMEs, such as a priority lane for processing permits and clearance, relaxation of reportorial requirements, and a seal of environmental excellence. It also supports industry self-regulation by facilitating an environment consent agreement between industry groups or SMEs and the Department of Environment and Natural Resources. The legally binding agreement provides for self-monitoring and compliance with environmental standards within an agreed period of time.