Impact of Supply Chains on Taiwan SMEs' ESG Efforts
Taiwan's expansive realm of environmental, social, and governance (ESG) considerations is already of significant magnitude.
For Taiwan's listed companies, the task of fulfilling their reporting obligations within this ambit is formidable despite their substantial resources. However, for the 1.59 million small and medium enterprises (SMEs) operating within Taiwan, as highlighted in the Ministry of Economic Affairs (MOEA) 2022 White Paper on Small and Medium Enterprises, this undertaking is undeniably even more daunting.
SMEs in Taiwan would be misguided to assume that they can bypass the need for an ESG programme of their own. Employing over 9.2 million individuals, which constitutes more than 80 per cent of Taiwan's entire workforce, these SMEs are a powerhouse.
Notably, these very SMEs generated revenue exceeding NT$26 trillion (US$817 billion) in 2021, wielding a pivotal role in resuscitating Taiwan's economy post-pandemic, both within its borders and on the global stage.
In the intricate web of domestic and international supply chains, SMEs play an indispensable role. Operating within a supply chain automatically entails an ESG impact, introducing ESG risks that cascade to companies reliant on the supplies provided. The lion's share of the environmental footprint and the most prominent social risks can be traced back to the specific position held within the supply chain.
Regrettably, well before ESG earned its acronym status, sustainability considerations were scarcely integrated into supply chain architecture, rendering them susceptible to violations, reputational harm, allegations of greenwashing, and operational hurdles in the broader pursuit of sustainability. The significance of the supply chain in the ESG domain cannot be overstated.
The origins and handling of materials matter deeply to customers. Prominent manufacturers have seamlessly woven ESG transparency into their sales strategies, and SMEs must inevitably follow suit.
Investors in Listed Companies
Imagine an SME being a supplier to a major listed corporation. Investors considering investing in this listed entity, who have emerged as proponents of ESG policies, indirectly seek insights into the SME's operations to inform their investment decisions.
While local Taiwanese regulators might not be intensively focusing on SMEs' ESG endeavours, the international arena, particularly the European Union (EU), paints a different picture. Supplying an EU entity, regardless of whether one is a major corporation or an SME, demands readiness to furnish evidence of production processes aligned with international standards.
Contrary to common perception, sustainability encompasses more than direct environmental impacts like facility-related emissions or office lighting upgrades. For most manufacturers, the crux of their environmental influence resides within their place in the supply chain.
SMEs need to be well-versed in both their own and their suppliers' greenhouse gas emissions. Emission reduction targets and the shift to renewable energy sources should be prioritised, aligning with the government's 2050 Net Zero Pathway.
While environmental indicators are crucial, it's the realm of social issues that can have the greatest impact on a brand's reputation. Hidden within supply chains, issues like forced labour and human rights violations can mar a company's standing.
Navigating the ESG landscape, intended to mitigate risks, poses challenges in and of itself. However, like any risk, effective management is imperative. Crafting ESG programmes is poised to be particularly arduous for Taiwan's SMEs.
The government and MOEA, recognising SMEs as the bedrock of stable economic growth, must extend comprehensive support, training, and perhaps initial templates to facilitate SMEs' entry into the ESG journey. The livelihoods of 80 per cent of Taiwan's workforce hinge on the successful navigation of this endeavour.
To view and compare company ESG Ratings and Sustainability Reports, visit our Company ESG Profiles page.
Source: Taiwan News