WHAT are some opportunities for our small and medium-sized enterprises (SMEs) to progress in their ESG journey?
By virtue of being part of the supply chain of Bursa Malaysia’s listed companies, SMEs will be increasingly expected to adopt better sustainable supply chain practices and provide data to the latter’s customers.
This includes demonstrating zero tolerance towards child labour and evidence of a consistent health and safety track record.
It is worth considering that some of these social considerations are already standard business practices for SMEs, even though they may not be publicly disclosed or labelled as “ESG”.
Baker says it is vital that SMEs, which make up 97% of business establishments in Malaysia in 2021, are not left behind in the pursuit of a just transition towards a low carbon economy.
Being at risk of losing RM292bil in revenue for ESG non-compliance according to Sustainable Finance Institute Asia 2022 research, it is vital that SMEs, which make up 97% of business establishments in Malaysia in 2021, are not left behind in the pursuit of a just transition towards a low carbon economy.
Taking into account the support available to SMEs as announced by the government, opportunities include:
• Increase in market share and exposure to new markets - although Budget 2025 had scant details on ESG proposals for SMEs, it is worth noting that SMEs supplying to companies in the iron and steel industries covered under carbon tax (by 2026) may find the latter’s customers requiring specific ESG data as part of their procurement processes. Stating their ESG credentials will show customers their commitment to sustainability.
• Reduction in operational costs – SMEs can take advantage of financing funds available to support the financing of renewable energy generation. Investment in these measures which includes purchase of energy efficient equipment and machinery, can lead to a reduction in their operating expenditure if their energy bills are lowered.
In increasing ESG awareness and understanding, SMEs should make full use of the incentives and grants made available to them by the various government agencies and financial institutions to facilitate upskilling investments including the procurement of physical training such as workshops or e-learns to educate their teams.
Existing avenues available in the market include sustainability resource platforms from the likes of United Nations Global Compact Network Malaysia and Brunei as well as seminars and workshops by financial institutions.
As observed from Budget 2025, along with the introduction of a carbon tax on the steel and iron industry, the government is also incentivising the adoption of ESG investments and practices with allocations for the National Energy Transition Facilitation Fund (over RM300mil) and the Green Technology Financing Scheme (a total financing of RM1bil until 2026).
These are proposed alongside incentives present from previous budgets such as the Green Investment Tax Allowance, which can be utilised for green technology equipment and asset purchases.
In addition, other platforms include the Domestic Investment Accelerator Fund ESG matching grant from the Malaysian Investment Development Authority to support SMEs and mid-tier companies in manufacturing and selected sectors in transitioning to ESG practices (covering the subscription of selected data collection software) as well as the Market Development Grant from the Malaysia External Trade Development Corporation.
Notably, while grants and incentives are available, these are targeted at specific sectors such as manufacturing.
Future budgets could look into expanding the scope and availability of these incentives and grants across more sectors to help all SMEs to not only begin and advance their ESG journey, but also enhance their participation in wider global value chains, using their progress in ESG as a competitive differentiator.
Richard Baker is the Sustainability and Climate Change director from PwC Malaysia.
