Tuesday 28 May 2024
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Strategic partnership will expand the pool of potential ESG driven exporters beyond our current registry, thus opening up wider opportunities for Malaysian exporters to go global. Complying with sustainability requirements would enable exporters to enhance their competitiveness in the international market via more innovative and higher-value added products and services”
– Datuk Mohd Mustafa Abdul Aziz, CEO of MATRADE

The Malaysia External Trade Development Corporation (MATRADE) has been at the forefront of strengthening Malaysia’s international trade since it was established as the national trade promotion agency in 1993. The fact that Malaysia’s trade for 2022 reached RM2.8 trillion, exceeding the RM2 trillion mark for the second successive year while its exports in 2022 has already exceeded the country’s export projection of the 12th Malaysia Plan (RMK-12) for 2025, three years ahead of the target, clearly indicates that its efforts have been bearing fruit.

However, these historic highs can easily turn into fleeting moments if MATRADE doesn’t continue to address key trends that Malaysian exporters face in the international arena. Among these major trends are the challenges and opportunities emerging from the global adoption of United Nations’ Sustainability Development Goals (SDGs). This has resulted in a growing demand for green products and services as well as for suppliers who have adopted Environmental, Social, and Governance (ESG) standards.

Realising this, MATRADE began a two-pronged strategy which entailed not only reinforcing sustainability practices among Malaysian exporters but also leveraging on the opportunities that has started to flow globally from the emerging green economy.

The strategy was given life when MATRADE embarked on an initiative termed Sustainability Action Values for Exporters (S.A.V.E) in 2019. The initiative was designed to increase awareness and adoption of sustainable practices among local companies, especially those involved in the global supply chain.

As such, MATRADE was one of the earliest Government organisations to implement a programme of this nature as it had realised early on that sustainability is not a passing fad but a trend that Malaysian exporters need to embrace to remain relevant.

Since then, MATRADE had initiated several programmes under the S.A.V.E initiative. For instance, MATRADE’s National Export Day 2019 carried the themed Sustainability and Inclusiveness. The same year, MATRADE also held the Sustainability-Ready Exporters (Su-RE) Conference, aimed at helping small and medium enterprises (SMEs) and mid-tier companies (MTCs) adopt sustainability values in their processes.

MATRADE also set about on close collaborations with other government agencies, multilateral organisations and private sector partners in its sustainability drive. A case in point are the Memorandum of Cooperation (MoC) agreements that it signed with CIMB Islamic Bank (CIMB Islamic) and the Malaysian Green Technology and Climate Change Centre (MGTC) in 2021. Under these MoCs, each signatory organisation contributed a specific expertise to helping Malaysian exporters become more future driven and hence sustainable. CIMB Islamic for example, supported MATRADE’s endeavour through capacity building and business matching programmes.

MATRADE and Sustainability

In 2022, MATRADE focused on developing several structured programmes intended to support the aspirations of the National Trade Blueprint (NTBp), a document designed to provide direction to Malaysia’s external trade direction until 2025. One of the areas that NTBp provided due focus on was on sustainability. For example, Thrust 8 of the NTBp focuses on sustainability and innovations.

This continued push for targeted intervention to support different stakeholders resulted in more collaborations as MATRADE continued to look for meaningful partnerships and targeted outcomes. Not surprisingly, it is currently in the midst of rolling out the Greening Export Supply Chain Initiative (GxSCI), which is an engagement programme with industry associations and large exporters to green the industry supply chain. For this project, it will be collaborating with among others, the Ministry of International Trade and Industry (MITI), as well as Bank Negara Malaysia.

GxSCI will be rolled out with close partnership with industry associations as well as foreign chambers of commerce in Malaysia. Sectors that will be given due focus in the first wave of engagement will be those which has significant exposure to the export markets such as petrochemical, electrical & electronics, and furniture.

One of the unique features of GxSCI is that a component called fund-matching whereby MATRADE will be linking Malaysian companies, especially exporters to all the financial incentives that the Malaysian Government currently offers through various Ministries and agencies that can promote various different aspects of ESG compliance. This will include the likes of Low Carbon Transition Facility, which BNM offers to SMEs intending to embrace ESG practices.

Another initiative that MATRADE is carrying out in 2023 is the Government Sustainability Engagement Programme (GSEP). Basically, it is a series of customised mini-conferences that provides other Government Ministries and agencies an opportunity to appreciate the issue of sustainability from the context of trade and investment. For example, the role of the business community as a generator of products and services or innovations to support the SDG agenda is critical and as such needs the support from all Ministries and agencies.

Government Green Procurement (GGP) is another area that MATRADE is looking at to support the local business community so that they are able to generate immediate value from any investment into green products and services. These companies would then have the track record to export their products overseas as they not only have established a track record for their green product and services but also now potentially have economy of scale needed to become competitive globally.

Why Sustainability in Trade?

But why is sustainability so important in international trade? According to the Hinrich Foundation – a think-tank dedicated to promoting sustainable trade – sustainability is vital to ensuring long-term resilience of trade. According to Sustainable Trade Index (STI), developed by the Hinrich Foundation and the International Institute for Management Development (IMD), the STI is used to measure a nations’ levels of commitment to trade sustainability. Malaysia was ranked 14th in the STI for 2022.

Meeting Regulatory Challenges

Of late, governments around the world have made sustainability a key issue in their trade policies. For instance, recently, Germany passed the German Supply Chain Act (GSCA) or Lieferkettensorgfaltspflichtengesetz in German.

Under this law, effective 1 January 2023, German companies have to ensure that their supply chains are not involved in violations of environmental, human rights, or labour rights standards, otherwise they (the German companies) would be fined 2 percent of the company’s annual revenue.

This law would be applicable to companies with 3,000 or more employees during the first year of enactment, after which it would be extended to companies with 1,000 or more employees by 2024. Malaysian exporters cannot afford to ignore such laws, given that Germany is Malaysia’s 14th largest export destination with RM29.98 billion worth of exports in 2022.

At the same time, the EU, which is one of Malaysia’s largest trading partners with exports valued at RM126.31 billion in 2022, has also introduced the Carbon Border Adjustment Mechanism (CBAM) which imposes a carbon tax on goods imported from outside the EU.

While this is meant to plug a gap that allowed EU companies to bypass the bloc’s regulations which, prior to this, only placed a carbon tax on goods manufactured in the EU, it presents Malaysian exporters with a new challenge. The onus now is for them to revamp their value and supply chains to meet EU’s environmental standards or risk being locked out of that market.

Sustainability is not limited to environmental concerns alone. In recent years, there have been reports of Malaysian exporters being banned from exporting to the United States over allegations of forced labour.

Securing Financing

Another key pressure point would be the financing sector, which is reflected in the UN Environment Programme Finance Initiative (UNEPFI) Principles for Responsible Banking. To date, 284 banks around the world, including two Malaysian banks – CIMB and Bank Pembangunan Malaysia – have signed the Principles where they commit to ensuring that their financing policies are in line with ESG principles.

In essence, these banks will not provide trade financing to any company that fails to meet ESG principles. This in turn will greatly increase the cost of doing trade, so much so that even if they are able to find willing buyers, it would be extremely difficult for them to obtain the necessary financing.

The Right Thing to Do

Sustainability in trade is a national mission as Malaysia is a signatory to the United Nations’ Sustainable Development Goals. Under this, international trade has been recognised as a driver of inclusive economic growth. Other national commitments include achieving net zero greenhouse gas emissions by 2050, in line with RMK-12 2021 – 2025, as well as commitments made during the UN Climate Change Conference 2021 (COP26).

Ultimately, the push for greater sustainability among Malaysian exporters is vital because it is the right thing to do. Also, as more people around the world become aware of the importance of environmental stewardship, good corporate governance, and being socially responsible, so too do their purchasing habits.

As stated in Simon-Kucher & Partners’ Global Sustainability Study 2021, more than a third of global respondents said that they are willing to pay a premium for sustainable products and services. History has demonstrated that the market will show the way for businesses, and it is showing that sustainability is no longer an option, it is a must for organisations that want to gain the competitive edge.

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