This article first appeared in The Edge Malaysia Weekly on December 25, 2023 - January 7, 2024

Small and medium enterprises (SMEs) that are part of global supply chains already feel the pressure to transition and make their business “greener”, while SMEs that supply to corporates listed on the local stock exchange may also notice increased interest in their ESG performance and request for ESG data.

Regulations and compliance will be pushed to SMEs through these supply chains. Additional pressure is coming from financial institutions because they have to categorise companies, including SMEs, according to Bank Negara Malaysia’s Climate Change and Principle-based Taxonomy (CCPT). SMEs that are consumer facing (B2C), however, may not find sustainability relevant at this point in time because of lack of pressure.

The question then becomes whether ESG reporting should be made mandatory for SMEs, as it is for public-listed companies.

While ESG reporting is important for SMEs to identify and manage sustainability risks, it is also reasonable to request an ESG report from SMEs that supply to corporations, says Shanta Helena Dwarkasing, director of programmes and SME Centre of Excellence at the UN Global Compact Network Malaysia and Brunei (UNGCMYB).

Shanta says, however, that there should be easy-entry options for SMEs to communicate their sustainability performance, especially for B2C SMEs that may not think it is worth carrying out ESG reporting for now.

“This process [of SME ESG reporting] will help make SMEs more resilient and competitive. Still, we must be cognisant of the fact that reporting may be too resource-intensive for SMEs in terms of time and capacity,” she says.

“In the long run, ESG reporting can help SMEs decarbonise. To report on emissions, SMEs need to measure and collect data. Only with data collection can companies analyse their emissions and define their emission reduction targets that are science-based, which is required to meet the targets according to the Paris Climate Agreement.”

UNGCMYB has introduced resources to empower and guide SMEs on their sustainability journey.

“The SME ESG Hub and the SME Sustainability Action Guide, which are available in English, Bahasa Malaysia and Chinese (Mandarin), serve as digital gateways to the awareness of ESG. These resources act as valuable tools, providing SMEs with knowledge and insights into the incorporation of sustainable practices into their business models, at no cost,” says Shanta.

Practical tools such as an ESG assessment and climate maturity assessment were specially designed for SMEs, and are aligned with global frameworks with local standards.

The framework can be applied by SMEs that want to use their ESG or climate maturity reports as a method to report their performance to corporate buyers or enter global supply chains and international markets as an SME supplier, says Shanta.

Many tools and resources used by corporations in crafting their sustainability strategies do not cater for SMEs. UNGCMYB aims to address that through its resources. For instance, the SME ESG Hub’s materiality assessments are available in PDF templates that can be downloaded. These tools are designed to facilitate the implementation of sustainability practices within SMEs.

“The underlying philosophy is rooted in the recognition that many sustainability resources are laden with jargon. Through various interventions, we have observed that SMEs generally prefer concise content over extensive documents. Consequently, the SME toolkit provides multimedia content, such as videos, for a more engaging experience,” says Shanta.

In addition, the SME Sustainability Action Guide, launched more than a year ago, is one of the earlier localised resources tailored specifically for SMEs. At that time, there were few resources available for SMEs in the sustainability engagement landscape.

“Our guide complements existing materials, recognising that certain resources, such as the Simplified ESG Disclosure Guide, require a higher level of ESG adoption within SMEs to be relevant. The sustainability action guide takes a step back, focusing on implementation and adopting a descriptive approach,” says Shanta.

“The content is less concerned with disclosures and reporting, acknowledging these as final steps in the sustainability journey. Instead, our guide provides support throughout the entire process, offering guidance on how to assess materiality and references to existing tools in the market.”

She cites the example of addressing waste generated. The guide references resources by local entities such as the Zero Waste Handbook by Zero Waste Malaysia. The hope is for SMEs to use the SME Sustainability Action Guide as a starting point in their sustainability journey.

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