by Wong Kai Lu
Small and medium enterprises, or SMEs are crucial to Malaysia’s economy, making up 98–99% of businesses and contributing approximately 38.4% to GDP as of 2022. Recently, these enterprises have faced growing expectations to embrace sustainable practices amid global demands for corporate responsibility. The COVID-19 pandemic highlighted the need for resilience and sustainable strategies, prompting businesses to integrate Environmental, Social, and Governance (ESG) principles into their financial and strategic planning.
For SMEs, adopting ESG principles can significantly influence their long-term success and sustainability. Practical applications include reducing energy use, improving workplace conditions, and ensuring transparent and ethical governance. Integrating these elements into business strategy allows SMEs to enhance their reputation, reduce operational costs, and meet evolving stakeholder expectations.
In response, Malaysian authorities introduced supportive initiatives specifically aimed at SMEs. For instance, SME Corp Malaysia launched the ESG Quick Guide in 2024 to assist smaller businesses with practical steps toward sustainability. Additionally, Capital Markets Malaysia developed the Simplified ESG Disclosure Guide (SEDG), which outlines clear ESG reporting standards tailored to SMEs. These initiatives position Malaysia as a global pioneer in providing accessible ESG guidance for smaller businesses.
Policymakers have further incentivized ESG adoption through financial measures, such as tax deductions announced in Budget 2024, covering ESG-related expenditures. This reduces financial barriers, making sustainable practices more achievable for SMEs.
SMEs are adopting practices such as environmental management accounting, which quantifies sustainability-related activities like carbon emissions, energy efficiency, and community investments. These practices provide SMEs with clearer insights into their operational efficiencies and cost-saving opportunities, facilitating informed strategic decisions.
Globally recognized standards like the International Sustainability Standards Board (ISSB)’s IFRS S1 and S2 are reshaping sustainability reporting. Though initially targeting larger firms, these standards indirectly affect SMEs, who must provide ESG-related information to their partners within supply chains. This shift underscores the necessity for SMEs to adapt their accounting and reporting frameworks accordingly.
In Malaysia, professional bodies like the Malaysian Institute of Accountants (MIA) are proactively preparing accounting professionals for these changes. Accountants now increasingly engage in cross-departmental collaboration, integrating sustainability and finance teams. This integrated approach ensures ESG considerations become embedded in budgeting, performance measurement, and risk management, reinforcing sustainability as a strategic pillar for SMEs.
Similarly, Nets Printwork Sdn Bhd, a medium-sized printing company, has made sustainability central to its business identity. With certifications such as ISO 14001 (environmental management) and Forest Stewardship Council (FSC), Nets Printwork has successfully reduced waste and operational costs, and attracted environmentally conscious customers. Its proactive sustainability measures earned numerous accolades, including the Prime Minister’s Hibiscus Award in 2023, underscoring the business advantages of strong ESG practices.
These examples illustrate that ESG adoption is not limited to larger corporations but is equally feasible and beneficial for SMEs, offering improved operational efficiency, reputation, and financial performance.
Integrating ESG principles into finance and accounting is essential for Malaysian SMEs aiming for sustained growth and competitiveness. Embracing ESG provides SMEs with strategic advantages, including better risk management, improved stakeholder trust, and enhanced access to financial resources.
While the policymakers play a crucial role in facilitating this transition by providing clear guidelines, practical tools, and financial incentives, the SME leaders should view ESG integration not as merely regulatory compliance but as a strategic opportunity for creating long-term value.
The successful ESG implementation by Emerging EPC and Nets Printwork demonstrates tangible benefits ranging from cost savings and improved reputation to greater market competitiveness. As sustainability increasingly shapes business practices, proactive SMEs are well-positioned to thrive in the evolving economic landscape, demonstrating that business success and sustainability are inherently complementary.
Malaysian small and medium enterprises (SMEs) are adopting environmental, social and governance (ESG) principles to boost sustainability, cut costs, and attract investors, supported by tools like Bursa Malaysia’s guidelines and the ESG Quick Guide
Small and medium enterprises, or SMEs are crucial to Malaysia’s economy, making up 98–99% of businesses and contributing approximately 38.4% to GDP as of 2022. Recently, these enterprises have faced growing expectations to embrace sustainable practices amid global demands for corporate responsibility. The COVID-19 pandemic highlighted the need for resilience and sustainable strategies, prompting businesses to integrate Environmental, Social, and Governance (ESG) principles into their financial and strategic planning.
Understanding ESG Principles
ESG comprises three interconnected areas: environmental responsibility, social impact, and ethical governance. Previously viewed primarily as a corporate social responsibility exercise, ESG principles are now considered essential for creating competitive advantage and resilience. SMEs implementing ESG practices often benefit from improved reputation, cost savings through efficiency measures, and easier access to finance, as investors increasingly favor businesses demonstrating strong ESG commitments.For SMEs, adopting ESG principles can significantly influence their long-term success and sustainability. Practical applications include reducing energy use, improving workplace conditions, and ensuring transparent and ethical governance. Integrating these elements into business strategy allows SMEs to enhance their reputation, reduce operational costs, and meet evolving stakeholder expectations.
Bursa Malaysia’s Role in promoting ESG
Bursa Malaysia has played a pivotal role in encouraging sustainability reporting among publicly listed companies. Starting in 2016, listed firms were required to publish sustainability statements, with guidelines updated in 2018 aligning with global standards like the Global Reporting Initiative and the Task Force on Climate-related Financial Disclosures (TCFD). Though SMEs are not directly obligated to follow these guidelines, their roles in supply chains mean they are indirectly affected as larger firms increasingly demand ESG compliance from their suppliers.In response, Malaysian authorities introduced supportive initiatives specifically aimed at SMEs. For instance, SME Corp Malaysia launched the ESG Quick Guide in 2024 to assist smaller businesses with practical steps toward sustainability. Additionally, Capital Markets Malaysia developed the Simplified ESG Disclosure Guide (SEDG), which outlines clear ESG reporting standards tailored to SMEs. These initiatives position Malaysia as a global pioneer in providing accessible ESG guidance for smaller businesses.
Policymakers have further incentivized ESG adoption through financial measures, such as tax deductions announced in Budget 2024, covering ESG-related expenditures. This reduces financial barriers, making sustainable practices more achievable for SMEs.
Evolving Accounting Practices to Support ESG
Accounting and finance practices are undergoing significant changes to accommodate sustainability. Traditionally, accounting emphasized financial performance and regulatory compliance; today, it increasingly encompasses tracking non-financial ESG data, recognizing their material impact on long-term financial performance.SMEs are adopting practices such as environmental management accounting, which quantifies sustainability-related activities like carbon emissions, energy efficiency, and community investments. These practices provide SMEs with clearer insights into their operational efficiencies and cost-saving opportunities, facilitating informed strategic decisions.
Globally recognized standards like the International Sustainability Standards Board (ISSB)’s IFRS S1 and S2 are reshaping sustainability reporting. Though initially targeting larger firms, these standards indirectly affect SMEs, who must provide ESG-related information to their partners within supply chains. This shift underscores the necessity for SMEs to adapt their accounting and reporting frameworks accordingly.
In Malaysia, professional bodies like the Malaysian Institute of Accountants (MIA) are proactively preparing accounting professionals for these changes. Accountants now increasingly engage in cross-departmental collaboration, integrating sustainability and finance teams. This integrated approach ensures ESG considerations become embedded in budgeting, performance measurement, and risk management, reinforcing sustainability as a strategic pillar for SMEs.
Leading by Example: Malaysian SMEs Embracing Sustainability
Several Malaysian SMEs demonstrate the tangible benefits of integrating ESG into their business models. Emerging EPC Sdn Bhd, an engineering services firm, voluntarily published a comprehensive sustainability report in 2023. As the first Malaysian SME recognized by the United Nations Global Compact Network for sustainability reporting, Emerging EPC demonstrated transparency in ESG practices, gaining national recognition and reinforcing its market position.Similarly, Nets Printwork Sdn Bhd, a medium-sized printing company, has made sustainability central to its business identity. With certifications such as ISO 14001 (environmental management) and Forest Stewardship Council (FSC), Nets Printwork has successfully reduced waste and operational costs, and attracted environmentally conscious customers. Its proactive sustainability measures earned numerous accolades, including the Prime Minister’s Hibiscus Award in 2023, underscoring the business advantages of strong ESG practices.
These examples illustrate that ESG adoption is not limited to larger corporations but is equally feasible and beneficial for SMEs, offering improved operational efficiency, reputation, and financial performance.
Integrating ESG principles into finance and accounting is essential for Malaysian SMEs aiming for sustained growth and competitiveness. Embracing ESG provides SMEs with strategic advantages, including better risk management, improved stakeholder trust, and enhanced access to financial resources.
While the policymakers play a crucial role in facilitating this transition by providing clear guidelines, practical tools, and financial incentives, the SME leaders should view ESG integration not as merely regulatory compliance but as a strategic opportunity for creating long-term value.
The successful ESG implementation by Emerging EPC and Nets Printwork demonstrates tangible benefits ranging from cost savings and improved reputation to greater market competitiveness. As sustainability increasingly shapes business practices, proactive SMEs are well-positioned to thrive in the evolving economic landscape, demonstrating that business success and sustainability are inherently complementary.