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Crucial for SMEs to be ESG-compliant

Crucial for SMEs to be ESG-compliant

14 Apr 2023

A lack of awareness, regulatory barriers, limited expertise, and cost are the main challenges that small and medium enterprises (SMEs) face in becoming environmental, social and governance (ESG)-compliant.

Malaysian Investment Development Authority senior executive director of investment policy advocacy, Sikh Shamsul Ibrahim Sikh Abdul Majid said in the past, companies focused primarily on maximising profits and reporting them to their shareholders.

However, in recent years there has been a shift towards a stakeholder-value approach.

“As such, ESG becomes the key in Malaysia’s investment policies. The role of local companies, especially SMEs, is important for foreign companies to invest in Malaysia. If local companies do not embrace ESG, what Malaysia can offer to foreign investors will not be as competitive as other countries,” he said in a panel discussion yesterday.Organised by Hong Leong Bank with the Small and Medium Enterprises Association, the session carried the theme, Sustainability Meets Strategy: Building Competitiveness with Green Supply Chain.

Malaysia External Trade Development Corp sustainability lead and director of oil and gas, chemical and energy section S. Jai Shankar said that SMEs are struggling to understand what needs to be done with regards to being ESG-compliant, as there are different takes on what sustainability means.

“Malaysia is a trading nation. Hence, it is crucial for SMEs to be ESG-compliant as they are part of the global supply chain.”

He added that ESG is relatable to SMEs because stakeholders are currently pressured to adapt to certain elements of ESG.

“One of the key areas in ESG compliance for any large companies is that they need to be responsible for their supply chains.

“The whole world is transitioning from a carbon-heavy economy to a green economy. This means that businesses need to start developing green products and services that can address the needs of the green economy. This is where the excitement should be, that is where the money is,” he said.

Board director of BCSD Malaysia and chief executive officer of Malaysian Recycling Alliance Roberto Benetello said it is also important for SMEs to understand the evolving regulatory landscape and what needs to be done in order for them to remain competitive and relevant five or 10 years from now.

“For some SMEs, this will mean a big opportunity for them to transform and reinvent their business, while others may have to change jobs and do something else.

“The big companies at the top of the supply chain have a responsibility to train the people in the supply chain. There is also the need to measure the effectiveness of sustainability initiatives and for the results to be communicated to the supply chain,” he said.

Ministry of Investment, Trade and Industry senior director Dr Meenachi Muniandy said the new ESG framework that the government will come up with later this year will be a guideline for SMEs in being ESG-compliant.

“What we are doing is mapping out ESG compliance according to international requirements and the requirements from multinational corporations, financial institutions, as well as at the national level.

“The framework has four components; the standard, capacity building, financing and market mechanism. An assessment will first be carried out so that companies will know where they are and what level they are in terms of their ESG practices.

“This will serve as a guideline for them to do sustainability reporting,” she said.

Source: The Star