ESG and why should SMEs in Hong Kong care about it

In today's rapidly evolving business landscape, sustainability and responsible business practices are increasingly becoming top priorities for companies worldwide. This shift towards Environmental, Social, and Governance (ESG) criteria is driven by growing consumer awareness, investor interest, and regulatory demands. As a dynamic and influential business hub, Hong Kong is no exception. SMEs in the region are now facing increased pressure to adopt ESG best practices to remain competitive and relevant in the global market.

Despite this global trend, a survey conducted by DBS Bank in December 2022 found that only 67% of Hong Kong’s SMEs prioritise ESG, significantly lagging behind the 83% average in other Asian economies, such as Singapore and Taiwan. As highlighted in the survey, this gap could potentially hinder Hong Kong’s SMEs when competing for international projects, where strong ESG performance has become an essential factor in selecting business partners. This blog explores the growing importance of ESG for SMEs in Hong Kong, focusing on how sustainability and responsible business practices can help them stay competitive in today’s dynamic global environment.

What is ESG?

ESG stands for Environmental, Social, and Governance, a set of criteria used to evaluate a company’s sustainability and ethical practices. Understanding the meaning of ESG in business practices involves recognising how these three areas impact both the company's operations and its reputation:

• Environmental: This focuses on a company’s impact on the planet, such as its carbon footprint, waste management, and energy conservation. Reducing environmental impact is key to maintaining sustainable growth and demonstrating responsibility toward global ecological concerns.

• Social: The social aspect relates to how a business interacts with its employees, communities, and society at large. Prioritising employee welfare, fostering diversity, and engaging in meaningful community work help businesses build a strong social reputation.

• Governance: Governance encompasses ethical business leadership, transparency, and regulatory compliance. Strong governance ensures that companies are managed ethically and responsibly, reducing the risk of corruption and ensuring accountability.

Why ESG is important for businesses lies in its ability to enhance long-term sustainability, attract investors, and build consumer trust. By integrating ESG regulations, businesses not only improve their ethical standing but also position themselves to meet future regulatory requirements and market expectations.

The growing importance of ESG globally and in Hong Kong

The importance of ESG criteria has steadily risen in the global business landscape, and this trend is becoming increasingly relevant in Hong Kong. Companies worldwide are recognising that sustainable and responsible business practices are no longer optional but essential for long-term success. This shift is driven by several key factors, including investor demand, consumer preferences, and evolving regulatory requirements.

• Investor demand for responsible investments: Investors are increasingly prioritising ESG factors when making decisions, favoring companies with strong ESG performance. This trend highlights the need for businesses to adopt sustainable practices to attract investment.

• Consumer preference for sustainable brands: Consumers, particularly Millennials and Gen Z, are placing greater emphasis on sustainability in their purchasing decisions. Many are willing to pay more for environmentally friendly and ethically produced products, pushing companies to align with these values.

• Local and global regulatory requirements: For instance, in Hong Kong, the Green and Sustainable Finance Cross-Agency Steering Group aims to make climate-related disclosures mandatory by 2025. This aligns with global trends towards increased ESG reporting, encouraging businesses to be more transparent about their environmental, social, and governance practices.

A survey by HKTDC revealed that most respondents view Hong Kong as a strong platform for ESG, with expectations that its relevance will continue to grow. For Hong Kong SMEs, integrating ESG practices is crucial not only for regulatory compliance but also for attracting investors and consumers who prioritise sustainability.

Taking a strategic and systematic approach is crucial for SMEs looking to integrate ESG practices in Hong Kong. 

• Assess current practices: Conduct an ESG audit to evaluate your company’s existing practices. This will help identify strengths and areas needing improvement, ensuring your ESG efforts are well-targeted and effective.

• Set goals and targets: Establish clear, measurable ESG goals that align with your company’s mission and values. These goals should be ambitious yet achievable, setting a strong foundation for long-term sustainable growth.

• Implement sustainable practices: Introduce eco-friendly initiatives across your operations. Encourage employees, customers, and suppliers to participate in efforts such as energy-saving measures, waste reduction, and responsible resource use. These actions not only contribute to environmental conservation but also enhance operational efficiency.

• Engage stakeholders: Involve key stakeholders—employees, customers, and suppliers—in your ESG initiatives. Their active participation will drive your ESG efforts forward, fostering a culture of sustainability within your organisation.

• Monitor and report: Track your progress and transparently report on your ESG performance. Regular updates on your achievements and areas for improvement will help maintain momentum and demonstrate your commitment to ESG principles.

Integrating ESG best practices is not just beneficial but essential for SMEs in Hong Kong aiming to thrive in today’s business environment. By adopting these practices, SMEs can enhance their reputation, attract investment through sustainable investing, and ensure long-term success.

DHL Express supports this journey through its GoGreen programme, which offers sustainable logistics solutions tailored to the needs of SMEs. From logistics initiatives to sustainable shipping options, DHL GoGreen helps businesses stay green while maintaining high service standards. Taking proactive steps towards sustainability today not only secures your company’s future but also contributes to a more sustainable and equitable global economy. Open a business account and ship with DHL Express today.