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Small companies find ESG compliance easier said than done

Two years ago, Edmund Chan started a small company called Meat The Next which offers  plant protein products.

He came up with the idea soon after his child was born because he wanted to protect the  environment for the next generation through sustainable development.

“Sustainable development has the highest priority in our business,” Chan said. “We want to provide a solution to our customers and give them the platform to protect the environment.”

Tiger nut milk, made from the stem of the tiger nut plant, is the main product of the company Meat The Next

Chan’s company develops  their leading products in  an environmental, social and corporate governance or ESG philosophy. That means they are mindful of the company's sustainability, including its effects on the environment and the broader society.

According to the company’s website, the carbon emission in producing one kilogram of tiger nut milk is  less than 0.9 kg, far lower than the  3.2 kg in producing the same amount of cow’s milk.

Chan’s company aims to solve social problems and make children eat healthier and more environmentally friendly food

“Our society is becoming more concerned about our environment compared with the previous decade, and companies are embracing the idea of ESG as consumers are calling for more sustainable development,” said Davis Bookhart, Director of the Sustainability Office at the Hong Kong University of Science and Technology,

A Hong Kong Consumer Council survey in 2023 found that 87% of consumers said they would be willing to pay an additional 5% or more for products or services that are environmentally friendly or sustainably produced.

However, developing ESG is easier said than done for small to medium enterprises.  “The lack of talent is a major challenge for SMEs,” said Keith Chan, assistant professor of HKUST. “It will affect their ability to make their ideas financially feasible.”

Edmund Chan said his company has  cooperated with experts from different fields, such as  product development, test and retailing. “If small businesses do things individually, it is like trying to speak up but making no sound,” Chan said.

Meat The Next worked with Hiang Kie Coffee, a local business that sells  beverage and coffee machines. Hiang Kie Coffee produces environmentally friendly straws to Meat The Next, and helps distribute its tigernut milk to its customers.

To help SMEs with talent shortage, the Hong Kong Productivity Council held the “Foresight 2024” event and launched “ESG One”, a platform that SMEs can use to conduct industry exchanges and absorb talents and experience.

The government-sponsored platform consists of data capture, performance analysis, and automated reporting services. Users can get a free one-minute online survey to evaluate their organisation's ESG performance, according to their website.

Joseph Chan Ho-Kim, the Undersecretary for Financial Services and the Treasury, said the government would continue to enable SMEs to share the fruits of ESG and green finance development

Some SMEs also find it hard to follow the arbitrary ESG standards and regulations around the world.

In Hong Kong, all listed companies are required to disclose complete ESG reports but go with the “comply or explain” rule.The European Union uses the Sustainable Finance Disclosure Regulation as the standard for ESG and disclosure of ESG reports

While it varies in both Hong Kong and the EU. In Mainland China, companies only need to disclose an environmental report

Detlet, a company that makes soil-friendly outdoor portable toilets, is another example of an SME trying to navigate confusing ESG regulations.

As this company has expanded its consumer base worldwide, Lian Chan, Managing Director of Detlet, says the standards are getting more difficult for SMEs to follow.

“Whether to go with China or European Union ESG standards or adapt to local rules is left up to SMEs,” said Keith Chan. “Before investing in the ESG area, companies need to understand and comply with different rules.”

The shortage of funds is another problem SMEs face. A 2023 survey from the Hong Kong Productivity Council  reported that 64% of SMEs believe that the biggest difficulty in implementing ESG is the lack of relevant funds.

Producing an annual sustainability report for larger entities can easily cost over HK$ 780,000, according to CSRHub, a Big Data platform collecting Corporate Social Responsibility (CSR) data.

The total amount of green and sustainable bonds arranged for issuance in Hong Kong in 2022 was the highest in the Asian market, accounting for about one-third of the total share. However, relatively few SMEs qualified for these green funds.

Cora Chun, representative of the sponsor institution, Bank of China (Hong Kong) of the HKPC’s “ESG One” platform, said her company saw the struggle of SMEs applying ESG in their business because of the lack of funds. She hopes the sponsorship money can ease their burden.

Due to the problem of funds, Davis Bookhart suggests that SMEs should consider ESG as a financial risk factor that may influence their future development.

“SMEs should think of ESG as part of long-term financial health,” said Bookhart. “They can start embracing the idea but should think practically.”

Looking at ESG for SMEs in the future, Keith Chan said it shows there is a great demand for new blood “But students seem to have a prejudice towards university programmes related to ‘environment’ at present,” he added, “although we face huge supply and demand imbalances, young students have not yet changed their mindset”.

As trained professionals are rare, the industry lacks experts who can transmit descriptive actions into ESG reports that benefit sustainable development of businesses..

“Even many big companies choose to outsource their ESG parts and struggle with ESG talents,” said Keith Chan. “The situation could be only worse for SMEs.”


《The Young Reporter》

The Young Reporter (TYR) started as a newspaper in 1969. Today, it is published across multiple media platforms and updated constantly to bring the latest news and analyses to its readers.


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