Insights

The call for environmental, social, and governance (ESG) principles is no longer a distant echo but a prominent voice in the Malaysian business environment, particularly for Small and Medium Enterprises (SMEs). As global markets and local regulations increasingly emphasize sustainability, Malaysian SMEs find themselves at a crucial juncture, needing to integrate ESG practices to ensure long-term viability, competitiveness, and access to wider opportunities. This shift is being actively supported by national bodies like SIRIM Berhad and governmental initiatives, steering SMEs towards a more sustainable and responsible future.

The Rising Tide of ESG and SIRIM's Pivotal Role

Recent developments underscore the escalating importance of ESG. The ESG Positive Impact Awards 2024 Winners Showcase highlighted successful ESG programs, with organizations like OCBC Bank emphasizing sustainable financing and companies such as Iskandar Malaysia Studios and AIA Bhd sharing their award-winning sustainable practices. This trend signals a broader market movement towards embracing ESG.

SIRIM Berhad has emerged as a key enabler in this transition, proactively guiding Malaysian industries. Recognizing that sustainability is essential for modern businesses, SIRIM offers a comprehensive ESG ecosystem, including accreditation, certification, training, and consultancy. This ecosystem is aligned with national development frameworks like the Twelfth Malaysia Plan, the New Industrial Master Plan (NIMP) 2030, and the National Industry Environmental, Social, and Governance Framework (i-ESG).  

A significant development is SIRIM's aim to certify around 2,000 companies with ESG-related certifications by the end of 2025, with a more ambitious target of 10,000 companies by 2030. This push comes as ESG implementation is expected to become mandatory by 2027. SIRIM has already certified 300 companies since launching this initiative in 2024 and is building a platform to support this transition.

Frameworks and Support for SMEs

To facilitate ESG adoption among SMEs, SIRIM has introduced specific frameworks and services:

• SIRIM 55:2023 ESG Management System: This certification provides a clear blueprint for companies to establish, implement, maintain, and improve their ESG performance, helping them to identify and quantify ESG impacts and integrate these into their business processes. It is designed to be scalable for SMEs and mid-tier companies.  

• SIRIM 56:2024 ESG Reporting: This standard guides businesses in effectively measuring, reporting, and communicating their ESG performance.  

• Training and Consultancy: SIRIM Academy offers extensive training and consultancy, including programs for Certified Sustainability Professionals and Certified ESG Officers, and is a GRI Certified Training Partner. They aim to produce 10,000 certified sustainability practitioners by 2030.  

• Carbon Management and Eco-Labelling: SIRIM Industrial Research has been involved in carbon management initiatives for over two decades, including product carbon footprint analysis, greenhouse gas accounting, and developing product criteria for eco-labelling schemes.  

• Financial Support Awareness: While SIRIM focuses on standards and certifications, there's an acknowledgement of financial hurdles for SMEs. Bank Negara's Low Carbon Transition Facility, with around RM2 billion in funds, is aimed at helping SMEs adopt low-carbon technology. Government support through programs like HRD Corp and MIDA also offers training and certification grants.  

Government Backing and National Strategies

The Malaysian government, through ministries like the Ministry of Investment, Trade and Industry (MITI), is actively fostering an ESG-conducive environment. MITI is developing a National Industry ESG Framework for the manufacturing sector, focusing on four pillars: standards, capacity building, financing, and market mechanisms. This framework aims to align existing ESG-related policies, identify gaps, and coordinate agency roles to support businesses in their ESG transition systematically. The government also plans to make ESG compliance a criterion for accessing government incentives.  

Malaysia has also made pledges under the Malaysia Energy Roadmap (31% renewable energy usage by 2026, 40% by 2035) and the 12th Malaysia Plan (45% greenhouse gas emissions reduction by 2030, net-zero emissions by 2050). These national targets further emphasize the urgency for businesses, including SMEs, to adopt sustainable practices.  

Challenges and the Path Forward for SMEs

Despite the clear benefits and available support, SMEs face challenges in ESG adoption. These include:

• Financial Constraints: The cost of implementing ESG practices and obtaining certifications can be a barrier.  

• Lack of Awareness and Expertise: Many SMEs are still trying to understand what sustainability entails and how to produce sustainability reports. There's also a talent shortage in the ESG field.  

• Perception of Complexity: SMEs might perceive ESG as costly or too complex, not realizing that some practices they already follow (like energy efficiency) align with ESG principles and that documentation is key.  

• Post-Pandemic Recovery: Some SMEs are still focused on rebuilding after the COVID-19 pandemic and addressing supply chain issues.  

However, the message is clear: ESG compliance is fast becoming a necessity, not an option. Non-compliance risks exclusion from global value chains, as Malaysia's top trading partners place strict emphasis on ESG.  

The benefits of embracing ESG are manifold:

• Enhanced Market Access: Multinational firms and governments increasingly seek ESG-compliant suppliers.  

• Better Financing Options: Financial institutions are more willing to fund ESG-compliant businesses, potentially offering better interest rates and grants.  

• Reduced Operational Costs: ESG practices like energy and water efficiency and waste reduction can lead to significant long-term cost savings.  

• Improved Reputation and Branding: A commitment to ESG enhances a company's image, especially among younger generations.  

• Increased Resilience and Innovation: ESG integration helps businesses mitigate risks and can drive innovation.  

A Call to Action

The direction for Malaysian SMEs is unequivocally towards greater ESG integration. With robust support from SIRIM, government frameworks, and growing market demand, the pathway, though potentially challenging, is becoming clearer. SMEs are encouraged to view ESG not as a burden but as a strategic imperative that unlocks opportunities for growth, enhances resilience, and contributes to a more sustainable national and global economy. By taking proactive steps now – seeking knowledge, utilizing available support, and embedding ESG into their core operations – Malaysian SMEs can successfully navigate this evolving landscape and thrive in the future.