KUALA LUMPUR (Oct 2): The government is confident that the newly launched National Industry Environmental, Social and Governance (ESG) framework (i-ESG framework) can accelerate the country's goal of achieving sustainable development goals as it aims to facilitate the transition towards sustainable practices among manufacturing companies, according to Investment, Trade and Industry (Miti) Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz.

The i-ESG framework is a key enabler for the push for net zero mission which is against the backdrop of Malaysia's commitment to reducing greenhouse gases by 45% in 2030 and becoming carbon neutral (net zero emission) by 2050. 

“I am confident that with the i-ESG framework’s phased approach, we can achieve our goals within seven years or less. We will begin with the 'Just Transition' phase (Phase 1.0) from 2024 to 2026, followed by the 'Accelerate ESG Practices' (Phase 2.0) from 2027 to 2030,” said Tengku Zafrul at the launching ceremony for the I-ESG framework on Monday (Oct 2).

The i-ESG framework aims to prepare the manufacturing sector, especially micro, small, and medium enterprises (MSMEs), to embrace ESG principles. 

“MSMEs in the manufacturing sector must not be left to fend for themselves in adopting and embracing sustainable practices. The reason is MSMEs may not have the capacity or technical knowledge on ESG, and they must be supported because almost 98% of total business establishments in Malaysia are MSMEs, employing 7.3 million of our workforce Malaysian MSMEs also contribute 37.4% of the country’s GDP,” Tengku Zafrul said. 

Noting that MSMEs in the manufacturing sector contribute 8% to gross domestic product (GDP) and 9% to exports, Tengku Zafrul acknowledged that MSMEs have a lot of potential to grow in the manufacturing and export sectors.

He then cited a study titled Better Business, Better World, which has estimated that sustainability as a new source of growth could generate at least US$12 trillion (RM56.18 trillion) worth of market opportunities and 380 million jobs by 2030, almost 90% of which will be in developing countries.

“In Southeast Asia alone, green businesses present an estimated US$200 billion opportunity by 2030. We can help our MSMEs tap into these opportunities by greening their operations and/or by capitalising on the green/circular economy as a new growth sector,” Tengku Zafrul said.

On top of that, Tengku Zafrul said ESG principles have already gained increasing prominence, with Malaysia’s multinational corporation (MNC) investors and trading partners increasingly incorporating these components into their operations, procurement and sourcing requirements.

Therefore, he stressed that it is crucial to ensure that MSMEs will not be shut out of ESG-sensitive supply chains — such as through bigger companies’ vendor ecosystem — and ESG-sensitive markets like the European Union market.

“Hence, for MSMEs, identifying gaps and introducing appropriate operational policies and support systems are extremely important to ensure their continued participation in ESG-compliant PLCs) [public limited companies] and MNCs’ vendor ecosystems, as well as continued access to ESG-sensitive export markets,” he said.

He added that the i-ESG framework has three key missions: to support manufacturing firms to learn, be agile and adopt ESG practices; to transform challenges into opportunities; and to foster symbiotic public-private partnerships for value creation.

"While the New Industrial Master Plan 2030 sets out the 'what' on ESG, this i-ESG framework presents the 'how', serving as a roadmap for businesses to integrate ESG considerations into their operations, and a tool for regulators to ensure compliance and accountability. The i-ESG framework Phase 1.0 (2024- 2026) prepares the groundwork and fosters the development of a robust ecosystem to help companies embark on their ESG journey,” said Tengku Zafrul.

The framework consists of four pillars, namely standards, financing, capacity building and market mechanism. These components are supported by six key enablers, namely stakeholder engagement, human capital and capabilities, digitalisation, technology, financing and incentives as well as policies and regulations.

During Phase 1.0, manufacturing companies, including MSMEs, will be supported on starting their sustainability/ESG journey through the self-readiness assessment, outreach, training/mentoring programmes, and financing options.

Comprising i-ESGReady (a Readiness Assessment Programme), and iESGStart (a practical guide with step-by-step instructions, illustrative examples and templates), Phase 1.0 is meant to be a valuable reference for manufacturing businesses to begin their sustainability journey.

In Phase 1.0, Miti will also conduct clinic sessions to empower and guide a total of 50 companies in producing their first sustainability report. The first clinic will be held in end-October 2023 and interested companies may contact their respective business associations and chambers.

With the i-ESGReady and i-ESGStart, companies that have no sustainability reports at all should be able to produce their report within a year. This will eventually ensure their readiness to meet the more rigorous demands of Phase 2.0, Accelerate ESG (2027 - 2030).

Miti has also begun its "KenalESG" outreach programme in Kuala Lumpur (200 companies), Penang (190 companies), and Johor (130 companies) to raise ESG awareness and introduce the i-ESG framework to industries. The programme will also be conducted in Sarawak, Kelantan, Terengganu, and Pahang by end-2023, while other states will be covered by the first quarter of 2024.