Firms' Preferences for Environmental, Social, and Governance Policies: Evidence From Small and Medium Enterprises in Hong Kong

Abstract

Though large corporations have made significant strides in environmental, social, and governance (ESG) integration, small and medium enterprises (SMEs) face challenges due to limited resources and incentives. This study explores the preferences and priorities of SMEs in Hong Kong—a major financial hub with over 340,000 SMEs—regarding ESG policy instruments, addressing a critical gap in current scholarship that often overlooks the perspectives of regulatees. Utilizing a conjoint experiment, this research assesses SMEs' preferences for ESG policies with varying levels of specificity in ESG aspects. We find that SMEs generally favor some form of ESG regulation over none; preferences vary across policy fields and subsectors. The findings indicate that understanding SMEs' preferences is necessary to design effective policy tools that encourage ESG adoption. By focusing on regulatees' perceptions, this research contributes to a more nuanced understanding of ESG policy design, offering valuable insights for policymakers aiming to enhance corporate sustainability across diverse business sectors.