In the ASEAN region, small and medium-sized enterprises are among the largest drivers of the economy. However, they often lag in adopting environmental, social, and governance practices required to support sustainable business activities. Therefore, government intervention is essential in creating a supporting ecosystem, such as through environmental policies specifically targeted at greening SMEs. 

SMEs as Key to Sustainable Economy

Small and medium-sized enterprises (SMEs) are the backbone of the ASEAN economy, as they represent 97-99% of businesses and provide the majority of employment opportunities. Therefore, prioritizing and supporting the transition of these SMEs into environmentally and socially sustainable practices would create a significant impact and be key to sustainable development. 

Despite the importance of this transition, many SMEs are still facing challenges in adopting green practices as their main concerns often focus on survival and daily operations. Challenges such as the cost of transitioning, limited knowledge about green practices, poor access to financing, and skill deficits further hinder their ability to transform their businesses to become responsible and sustainable.

ASEAN Member States have adopted the ASEAN framework for transitioning to a circular economy in 2021. Then, what is the current state of national-level strategies supporting SMEs’ green transition in the region?

ASEAN’s Policy Index in Greening SMEs

The SME Policy Index 2024 by ERIA (Economic and Research Institute for ASEAN and East Asia) assesses the environmental policies targeting SMEs in ASEAN member countries and the incentives and instruments for greening these businesses.

On a scale of 1 to 6, Singapore and Malaysia achieved the highest scores among ASEAN countries, each with a total of 5.56. With a regional median score of 4.15, countries with medium scores include Thailand (5.01), Indonesia (4.96), and the Philippines (4.51). In contrast, those scoring below the median are Laos (2.35), Cambodia (2.47), Myanmar (2.48), Brunei (3.02), and Vietnam (3.79).

The environmental policies targeting SMEs among member countries vary. Countries with advanced environmental policies, like Malaysia, Singapore, and Thailand, have specific strategies to support green SME development. 

However, those with early-stage environmental policies, such as Cambodia, Myanmar, and Laos, do not emphasize tailored strategies for SMEs, meaning SMEs must comply with general regulations instead. Policies in these countries primarily focus on supporting the development of eco-efficient products through incentives and encouraging energy- and material-efficient processes. 

ASEAN member countries primarily use financial assistance and regulatory incentives to support greening SMEs. Malaysia provides financial incentives and grants through low-carbon transition facilities for SMEs, while Vietnam has proposed incentives for clean technology investment projects. Additionally, both Indonesia and Singapore offer soft loans to help SMEs with their greening efforts.

Key Recommendations

The call for SMEs to integrate sustainable business practices becomes more pressing amidst the concern of natural resource depletion and climate change. Following the assessment, the report concludes with key recommendations to support the greening of SMEs. Some of them are:

• Create national greening policies that specifically focus on SMEs for early-stage policy countries
  Specific policies that regulate SMEs and provide tailored regulations to meet their needs will be more strategic and will have a greater impact than having SMEs follow broadly targeted policies.
• Establish one-stop shops and tailor national environmental and climate change strategies to focus on and further support SMEs for mid-stage policy countries. This will raise their awareness of the importance of sustainable practices and help ensure their ongoing commitment to going green with further governmental support.
• Create environmental regulations distinguishing between SMEs and larger enterprises for advanced-stage policy countries.
  Allows for more appropriate and manageable compliance requirements tailored to the unique challenges and capabilities faced by smaller businesses.

Read the full report here.

Editor: Kresentia Madina & Nazalea Kusuma

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Dinda Rahmania

Reporter at Green Network Asia | Website |  + postsBio

Dinda is an Assistant of International Partnerships at Green Network Asia. She holds a bachelor’s degree in International Relations from President University. As part of the GNA In-House Team, she supports the organization’s partnerships with international organizations, governments, businesses, and civil society worldwide through digital publications, events, capacity building, and research.

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