[Countries Where SMEs Struggle] ④ 'ESG' Preparation Lacking, Regulations in Disarray

While Recognizing the Necessity, 3 out of 4 SMEs Say "Not Ready for ESG Management" Due to Cost Burden and Workforce Shortage

#. Food manufacturing company A recently replaced the Styrofoam boxes used for courier shipments with eco-friendly paper insulated boxes as part of its ESG (Environmental, Social, and Governance) management efforts. Although the price was higher, the company decided to bear the cost considering its eco-friendly policy. However, during product shipment preparation, the courier company explained that same-day delivery was difficult except for iceboxes. Prioritizing the delivery of fresh products, A ultimately had to repackage the eco-friendly paper boxes back into iceboxes.

#. Airport ground handling company B considered introducing eco-friendly vehicles to reduce fine dust emissions caused by aging diesel ground handling equipment but hit a wall. Although the initial investment burden and operational risks of introducing eco-friendly vehicles for the first time were significant, government support was unavailable. This was because, under current laws, ground handling equipment or vehicles operating at airports are exempt from registration, inspection, and certification under the Automobile Management Act and the Air Quality Preservation Act, thus disqualifying them from government support. B decided to maintain its aging vehicles, some over 10 years old, for the time being.

Small and medium-sized enterprises (SMEs) are struggling with ESG management. Although they recognize the necessity amid imminent ESG risks, their preparations are still insufficient, causing increased confusion. Related government support and regulations are also not fully established, leading to frequent missteps. Industry voices are calling for support to establish an ESG ecosystem that encourages cooperation between large corporations and SMEs without infringing on market expertise.

According to the ‘SME ESG Management Response Trend Survey’ conducted this year by the Small and Medium Business Corporation (SBC), only 25.7% of companies responded that they were ‘ready or preparing’ for ESG management. Those with no plans to prepare accounted for 34.6%, while 39.7% said they planned to prepare. This means that three out of four SMEs currently have no preparation related to ESG management. Although 58.0% of respondents recognized the need to prepare for ESG management, only 23.7% had an organization dedicated to ESG management (5.3%) or plans to establish one in the future (18.3%), indicating a relatively low level of readiness.

◆SMEs Facing ESG Risks=Our SMEs are confronting ESG risks head-on despite insufficient preparation for ESG management. This trend began as sustainability regulations such as mandatory ESG disclosures, which were mainly implemented in Europe after the Biden administration took office, became a global market trend.

As global companies demand stringent ESG management from their partners, domestic SMEs are increasingly facing requirements related to eco-friendly raw materials, environmental certifications, and labor conditions. In particular, export SMEs face heightened demands for ESG performance from their clients, risking exclusion from supply chains or termination of business relationships. For example, a furniture company was asked to undergo an evaluation related to Corporate Social Responsibility (CSR) but failed due to safety issues in foreign workers’ accommodations, resulting in the cancellation of deliveries to global clients.

◆Concerns Over Use as Regulatory Tool=In the SBC survey, companies cited cost burden (37.0%), lack of professional personnel (22.7%), and absence of guidelines (16.3%) as the biggest challenges in adopting ESG management. Particularly, SMEs lack a unified information channel for ESG, evaluation criteria vary widely, and government support policies are not well organized, increasing the burden and confusion for SMEs.

Given the economic downturn caused by COVID-19, SMEs are wary that ESG management demands might be used as another form of corporate regulation. Moon Shin, Director of the Korea Mold Industry Cooperative, expressed, "There is concern that rapidly implemented carbon neutrality policies might become yet another regulation for SMEs already struggling in a challenging business environment."

Instead of tightening regulations indiscriminately, there is a call for phased policy support for ESG management adoption, such as eco-friendly technology development and professional workforce training. In response, the government has begun preparations for close support by forming a public-private council for SME ESG readiness. The council plans to listen to voices from the field, share information, and discover and link ESG support projects.

Experts emphasize that government support should enable large corporations and SMEs to collaborate in building an ESG ecosystem. Minseon Noh, Head of the Future Strategy Research Group at the Korea Institute for Small and Medium Enterprises, stated, "Policies are needed that encourage large corporations to actively participate in strengthening SMEs’ ESG capabilities and provide incentives at the government level for such active participation. ESG should not be left solely to SMEs; large corporations and the government must lead actively. It is very important that all institutions, including public organizations, work together."