Driving Sustainability in the Services Sector: Why ESG and GHG Reductions Matter More Than Ever

Since 2020, sustainability has transitioned from a buzzword to a business imperative. Global awareness of environmental, social and governance (ESG) issues has intensified due to a growing recognition of climate change, biodiversity loss, pollution, and social inequality. This evolving landscape is reshaping how businesses operate, pushing them toward more responsible and sustainable models.

While sustainability efforts have traditionally focused on resource-intensive industries such as manufacturing, the services sector must no longer be considered a bystander. Despite its lower direct emissions, this sector plays a significant role in global economic activity and, increasingly, in greenhouse gas (GHG) emissions.

The perception that the services sector has a minimal environmental impact due to its intangible nature is outdated. Services encompass diverse activities, from data centres and healthcare to logistics and hospitality—each with varying levels of energy consumption and emissions. Notably, the European Union reports that the services sector accounts for a significant portion – 13.4% of final energy consumption, surpassing even agriculture and forestry when indirect emissions from electricity usage, business travel and supply chains are included.

The rapid digitalisation of economies further amplifies this issue. Data centres, essential for cloud services and artificial intelligence (AI) applications, are significant energy consumers. The World Economic Forum reports that data centres and transmission networks contribute approximately 1% of global energy-related GHG emissions—a figure expected to double by 2026¹. Consequently, IT service providers and technology companies face increasing pressure to adopt renewable energy and improve energy efficiency.

Global regulatory shifts and investor expectations are accelerating the integration of ESG into business strategies. Governments worldwide are introducing stricter policies, including carbon pricing and mandatory sustainability reporting. Simultaneously, investors and financial institutions are increasingly embedding ESG considerations into decision-making processes, favouring companies with robust sustainability commitments.

Furthermore, multinational corporations (MNCs) are raising the bar within their supply chains, requiring partners to align with ESG criteria, including the tracking of Scope 3 emissions. As a result, ESG practices are transitioning from optional value-adds to essential business requirements—especially for companies seeking to collaborate with listed entities or large corporations.

In Malaysia, the drive towards ESG is gaining substantial regulatory and institutional support. Bursa Malaysia has mandated ESG reporting for listed companies, moving towards globally recognised frameworks, such as the Task Force on Climate-related Financial Disclosures (TCFD) and International Sustainability Standards Board (ISSB), with the aim of enhancing transparency, comparability, and accountability in sustainability reporting.

Importantly, the implications extend beyond listed companies. Supply chain transparency is now a key reporting requirement, compelling vendors—including small and medium-sized enterprises (SMEs), to provide ESG data. Listed firms are expected to assess their suppliers on factors such as carbon emissions, waste management, labour practices, and governance. Vendors with strong ESG credentials will likely gain a competitive edge, while those lacking compliance risk exclusion from supply chains.

Recognising that SMEs in the services sector might face challenges in ESG adoption due to limited resources, Bursa Malaysia introduced the Simplified ESG Disclosure Guide (SEDG). Complementing this effort, MIDA offers the Domestic Investment Accelerator Fund for ESG Adoption (DIAF-ESG). This fund provides matching grants of up to RM500,000 to eligible SMEs and Mid-Tier Companies (MTCs) in manufacturing and selected services until December 2025, supporting crucial activities including validation, certification, ESG disclosures and the adoption of ESG data tracking technologies.

As demand for sustainable services increases, there are clear opportunities for services sector players to lead the way. Companies that proactively develop ESG capabilities—such as reducing energy usage, enhancing labour practices, and improving governance—will find themselves better positioned in the market.

For instance, logistics companies can gain recognition by optimising delivery routes and transitioning to low-emission fleets. IT service providers may enhance their value proposition by ensuring energy-efficient data centres and responsible e-waste disposal. Clients increasingly expect their partners to contribute to their ESG goals—not just comply.

There is also growing investor interest in ESG-aligned businesses. Major institutional investors in Malaysia, such as the Employees Provident Fund (EPF) and Retirement Fund Inc. (KWAP), are setting ambitious ESG targets. EPF aims for a fully ESG-compliant portfolio by 2030 and net-zero carbon emissions by 2050. KWAP, meanwhile, plans to invest RM20 billion in transition assets, including clean technologies and sustainable infrastructure. The government, too, has allocated RM2 billion for energy transition projects, demonstrating its commitment to decarbonising the economy.

As Malaysia targets net-zero GHG emissions by 2050, all sectors must contribute meaningfully. While regulatory mandates are tightening, the real motivator is market competitiveness. Businesses that delay ESG adoption risk being left behind as sustainability becomes central to procurement, investment and public trust. Service providers—especially those in supply chains of listed companies—should not wait. ESG readiness is no longer just about compliance; it is a catalyst for innovation, growth, and resilience.

For more information on the Domestic Investment Accelerator Fund for ESG Adoption (DIAF-ESG), please contact the Sustainability Division, MIDA at https://www.mida.gov.my/staffdirectory/sustainability-division/.

¹https://www.weforum.org/stories/2025/01/6-ways-data-centres-can-cut-emissions/