Capital Markets Malaysia’s timely ESG guide empowers SMEs with clarity for seamless alignment with environmental, social and governance principles
THE launch of the Simplified ESG Disclosure Guide (SEDG) in October by Capital Markets Malaysia (CMM) — an affiliate of the Securities Commission Malaysia (SC) — offered small and medium-sized enterprises (SMEs) a definitive understanding of what is expected of them within the environmental, social and governance (ESG) landscape.
The aim of the SEDG is to ensure that businesses, irrespective of size, are ready to comply with global ESG standards and respond to disclosure requests from stakeholders including customers, investors, banks and regulators.
Acknowledging that SMEs face unique risks associated with supply chain vulnerabilities, the SEDG strives to assist and position SMEs as proactive leaders in an ever-changing global marketplace.
The guide aligns with recent national policy endeavours focused on propelling businesses in Malaysia towards commercial success and sustainability, including the New Industrial Master Plan 2030 (NIMP), i-ESG Framework (i-ESG) and the National Energy Transition Roadmap (NETR).
The benchmarking process for the SEDG involves examining existing global and local standards and frameworks, as well as assessing market requirements and through consultations with stakeholder groups.
This includes the Global Reporting Initiative (GRI), FTSE4Good, International Finance Reporting Standard by the International Sustainability Standards Board, Bursa Malaysia’s Listing Requirements and Sustainability Reporting Guide, Principles-based Sustainable and Responsible Investment Taxonomy for the Malaysian Capital Market, and various multinational and local large company assessments of their supply chain, to name a few.
The guide offers a list of priority disclosures under 15 topics across the environmental, social and governance pillars from emissions, energy and waste to human rights and labour standards, risk management and reporting, and anti-corruption.There are 35 key indicators with clear description, practical tips and resources for further guidance, and are divided into Basic, Intermediate and Advanced to cater for the different levels of sustainability maturity in each company, with no mandatory adoption timeline for the disclosures.
SME Association national president Ding Hong Sing notes that the SeDG has helped with the general receptiveness towards critical issues such as greenhouse gas emissions, which was previously a taboo.
To promote inclusive and widespread adoption, CMM will be introducing the Bahasa Malaysia and simplified Mandarin versions at the end of the year.
Adopting the SEDG is fairly simple and straightforward. SMEs will first need to review the full map of disclosures before deciding which sustainability maturity level they are on.With the Basic as a starting point, companies can look for Intermediate or Advanced disclosures if they have been on the sustainability journey for one to two years, or three to four years respectively.
They can then tick off on the disclosures that they can already report on now before identifying which to work on in the next year.
An additional guide on what to report is provided, as well as a template for companies to track and report their disclosures.
Clear and accessible path towards ESG alignment
SME Association of Malaysia national president Ding Hong Sing believes that SMEs are at a crossroads, being introduced with a number of ESG frameworks and guides that, while intended to provide clarity, has added a layer of complexity for many of them.
“The SEDG has definitely provided a clearer path on what is expected of SMEs, being part of the supply chain in the Malaysian economy.
“There are also SME members of the association that have taken steps and participated in the workshops by CMM to deepen their understanding of ESG disclosure under the SEDG.
“While it is still too early to learn any success story, I do observe the positive impact to the overall receptiveness of certain critical issues such as greenhouse gas emissions, which in the past, was a taboo to many.”
Ding points out that the SEDG offers SMEs a clear and accessible path towards ESG alignment, thereby opening doors for them to actively engage with and contribute to the broader narrative of sustainable business practices.
“Prior to this, SMEs faced the challenge of Bursa’s Sustainability Reporting Guide — a sophisticated framework designed for listed companies. The guide posed a hurdle for SMEs as they were not able to afford the resources required for compliance, nor were the SMEs able to adopt the complexity of the reporting guide.”
The SME Association has been championing ESG awareness among its members, aligning with the ESG development in the country.
However, awareness on ESG as far as SMEs in Malaysia are concerned, is undoubtedly at its infancy stage, Ding notes.
Nestle (Malaysia) Berhad chief executive officer Juan Aranols says that establishment of the SEDG further supports Nestle’s suppliers and partner SME vendors in ESG adoption, facilitating better understanding of requirements and providing clear guidance in disclosure and reporting standards.
“There are SMEs who form part of the global supply chain supporting multinational corporations; they are in a better position, having been gradually acclimatising to ESG principles over the years by their clients.
“These SMEs are familiar with ESG-related issues through their subscriptions to international supply chain assessment platforms, such as Sedex, EcoVadis and more. This places them at the forefront of the ESG landscape.
“Having said this, the SMEs that have implemented ESG to a certain extent, represent a small fraction of the SME community. A lot more work needs to be done to elevate overall awareness of ESG principles among SMEs,” emphasises Ding.
ESG disclosure cannot be overlooked
While it is a matter of compliance, ESG disclosure has far-reaching benefits, including improved stakeholder relations, risk management, cost-efficiency and long-term competitiveness.
Multinationals are already ensuring that their suppliers on the supply chain practice sustainability; failing which, SMEs risk losing business opportunities.
For Nestlé (Malaysia) Berhad, understanding ESG performance across their supply chain is key to advancing their ESG agenda and goals for the sustainable development of the Group.
Its chief executive officer Juan Aranols shares that obtaining consistent ESG disclosures from their supply chain can provide quantitative data to benchmark progress over time and create clarity on impacts in key areas, such as Scope 3 carbon emissions.
“This is all the more important for us, as the main contributor of carbon emissions is not our factories or trucks, but the raw ingredients we use for the manufacturing of our products.
“ESG disclosure would allow us to identify gaps and areas for improvement where we can work with our suppliers, such as reducing carbon emissions or driving sustainable solutions that can enhance the sustainability of their operations.”
An ongoing project of Nestlé’s that they embarked on this year was engaging with over 100 long-term partners on the installation of solar panels as renewable energy source. This has resulted in the adoption of the solar panels by some, while others are in the process of evaluating it.
“Collaborating closely with our partners across the supply chain to drive improved ESG outcomes is part of our overall Creating Shared Value (CSV) approach to create value for our business, relevant stakeholders and society as a whole.
“Ultimately, strengthening supply chain disclosures can help to strengthen our own ESG reporting, contributing to our progress towards our sustainability goals,” reminds Aranols.
In building a responsible supply chain, the ESG practices and performance of their suppliers, including SMEs, are taken into consideration during Nestle’s procurement process.
To Nestlé, considering ESG practices in procurement can help to reinforce positive practices and provide an incentive for continuous improvement among suppliers.
“In tandem, it is important to recognise the challenges faced by SMEs and work together with relevant stakeholders to close these gaps.
“We engage closely with our suppliers to ensure they fully respect and adhere to our Responsible Sourcing Standard (RSS) requirements. Should there be any non-compliance, we work with our suppliers to address this and improve their practices,” Aranols points out.
RSS outlines the requirements and ways of working that Nestle’s suppliers must comply with; suppliers are regularly audited to ensure they meet the standards pertaining to labour practices, health and safety, the environment and business integrity.
Aranols notes that the establishment of the Simplified ESG Disclosure Guide further supports Nestle’s suppliers and partner SME vendors in ESG adoption, helping to demystify ESG, facilitating better understanding of requirements and providing clear guidance in disclosure and reporting standards.
“We are committed to working collaboratively with our suppliers and partners across the value chain to continue enhancing their ESG practices and reporting, as this subsequently enables them to be in line with international benchmarks and supports our own responsible sourcing commitment and overall ESG agenda.”
