It is often said that small and medium enterprises (SMEs) lack awareness and resources to adopt environmental, social and governance (ESG) initiatives, which is a challenge that must be addressed for the low-carbon transition to be inclusive. However, Alliance Bank Malaysia Bhd (Alliance Bank)’s latest annual ESG survey report, The Path to Sustainable Impact — Sectoral Insights of Malaysian SMEs (ESG 2.0 report) revealed a more positive picture of growth and improvement.

Released in January 2025, the report showed a sixfold increase in ESG awareness among Malaysian SMEs, surging from 14% to 80% over the last two years. This reflects rapidly growing recognition among SMEs of the importance of sustainability in today’s competitive business landscape.

The general ESG adoption level also increased from 28% in Alliance Bank’s first ESG report in 2023 to 60%. These trends were particularly driven by a focus on sustainable business practices and efforts by the government, corporates and non-governmental organisations in Malaysia.

This is a key focus area for the government as well, to ensure that SMEs are not left behind. In fact, the launch of the report was attended by Minister of Natural Resources and Environmental Sustainability Nik Nazmi Nik Ahmad, at the SME ESG Start Symposium held at Monash University Malaysia earlier this year.

The report was commissioned by the bank in collaboration with Monash University Malaysia and Zurich Malaysia as knowledge partners, while UN Global Compact Network Malaysia & Brunei (UNGCMYB), Malaysian Green Technology and Climate Change Corp (MGTC) SME Corp Malaysia and INCEIF University acted as supporting partners.

The report provides insights based on a survey conducted on close to 400 SMEs as well as secondary research. It delves into the progress of Malaysian SMEs in their sustainability journey, and provides crucial insights into how SMEs are preparing to meet evolving regulatory, market and financial demands, while unlocking new business opportunities.

According to the report, among the ESG adopters, cost savings and meeting market demand were cited as the main motivators for ESG adoption, followed by the need to promote innovation. By fostering innovation, companies can explore new ways to achieve profitability and sustainability, offering alternative avenues for growth while aligning with ESG goals.

Meanwhile, the top three cited challenges when adopting ESG were: the overwhelming amount of information and guidelines regarding ESG in the market, the high costs of implementation, and resource constraints. This is a shift from the first ESG report two years ago, when resource constraints were cited as the first challenge, followed by lack of information and guidance.

What is needed to address these problems? Tax incentives were the most popular demand (67%), followed by the availability of official ESG guidelines relevant to a company’s business, and government grants.

Another important finding in Alliance Bank’s ESG 2.0 report is that 38% of the SMEs it surveyed that incorporated ESG practices achieved more than 51% increase in revenues. This demonstrates that, when viewed the right way, sustainable business practices actually lead to higher profitability.

Non-ESG adopters are starting to take notice of these benefits, with 52% of them expressing interest in adopting ESG within the next two years. This is an increase from the 33% of SMEs that had similar ambitions in the previous report two years ago.

Clearly, in addition to industry-specific resources and training programmes, financial support from financial institutions and other key stakeholders is required to help these SMEs get on board.

Using insights from the survey, Alliance Bank has curated the Sustainability Impact Programme to provide a comprehensive suite of personalised and “beyond banking” solutions to help SMEs on their ESG journey. This includes customised financing options, access to green funding schemes through Bank Negara Malaysia’s Low Carbon Transition Facility, and High Tech and Green Facility, as well as competitive rates for initiatives like solar panel installations and green mortgages.

Beyond financing, the bank collaborates with like-minded industry leaders, such as Bursa Malaysia and UNGCMYB to deliver practical ESG assessments, capacity-building programmes and road maps for SMEs, equipping them with the requisite tools and knowledge to integrate sustainable practices into their operations.

The bank also works with a range of green solutions providers to offer pragmatic ESG solutions, such as increased energy efficiency, improved water management and more sustainable waste management solutions.

The push for ESG adoption is driven not only by consumers and market forces, but also by the growing urgency of climate change. For SMEs, this means it is crucial to understand the risk ahead and take proactive steps — whether by safeguarding their operations against expected disruptions or adapting their products and services to meet evolving market demands.

Alliance Bank and its partners will launch a series of sectoral playbooks in the next two years to provide actionable guidance and best practices for SMEs across key sectors, such as services, manufacturing, construction and agriculture. These playbooks are designed to empower businesses with the tools and insights needed to navigate their sustainability goals effectively within their respective sectors.

Read the full ESG 2.0 report here.