Singapore is progressively implementing mandatory ESG reporting requirements. As announced late last year, ACRA (Accounting and Corporate Regulatory Authority) and SGX (Singapore Exchange) will require public and large private companies to provide climate-related disclosures aligned with the new ISSB disclosure standards.

As of now, only listed companies in select sectors (finance, agriculture, food, forest, energy) are mandatorily required to provide TCFD-aligned climate reporting, while the other listed companies is required to report on a “comply-or-explain” basis. The plan says that as soon as the beginning of FY2025, it will be mandatory for all listed companies in Singapore to report. Starting FY2027, non-listed companies with at least S$1 billion in revenue are required to do so too. Subsequently in FY2030, non-listed companies with revenues of at least S$100 million would be onboarded too.

Still, that leaves behind the majority of businesses in Singapore, which are SMEs. SMEs make up more than 99% of the businesses in Singapore (298.5 out of 299.8 thousand businesses) and employ twice as many as the non-SMEs (2.59 million v. 1.03 million). The combined nominal value of the SMEs is slightly less than the non-SMEs (284.1 billion v. 307.6 billion) but almost half of the total nominal value of the business economy. Yet, ESG still seems like a remote topic for the SMEs, and the policies are not helping to push the agenda along.

While pushing the larger players to adoption may lead the market in the direction. The larger corporates may work with the SMEs and in turn require the SMEs to comply with the standards as well. But the change created by these spill-over effects will be indirect and slower. The attitude and mindset are often reluctant.

Why is the attitude and mindset so important for real change to happen? While our society tends to favour the measurement of outcomes, the motivation behind the actions are often the determinant of how effective and sustainable the outcomes would be. Greenwashing is rampant precisely because it is motivated solely by the need to “comply” with external requirements or expectations.

Without the internal raison d’être, it is easy to succumb to temptations of short-cuts and superficial methods to achieve quick apparent results.

Perhaps the policy-makers should also look into how to inspire real changes in the overlooked but significant sector of SMEs, from alignment of principles and why, to the implementation and incentivization of sustainable efforts.

Putting myself in the shoes of a SME in Singapore, I would love to know why I need to understand and implement ESG into my business. Not only because it provides me with a competitive advantage in the market and more business opportunities, but because it is a moral responsibility of a business and an individual to the world we live in. I could look at it as a charitable deed (that may build good karma if I believe in that), but the most important is my belief that my SME business and how I do it makes a difference. In fact, all our work makes a difference. No one should be more obligated, no one should be left behind.

While the government has rolled out certain incentives and helps to the SMEs who are implementing ESG, including grants, loans etc., the point here is about the promotion of the why and not what (and what is in it for me). Although dangling some carrots may seem like good motivating factors, external incentives will not promote nor sustain genuine efforts which are motivated by internal reasons. In fact, external incentives may reduce the internal motivation to act for a nobler purpose, because the incentives cheapen the whole endeavour. This is known as the over-justification effect, or motivational crowding-out.

So what more could be done? Awareness-building campaigns and more support for ground-up initiatives? Advertising, messaging and educational workshops that seek to engage and influence? Re-looking at policies and the unintended messages it could be sending? Somethings for the policy-makers to think about.

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