Why do Malaysian SMEs still lack ESG awareness?

Despite the Malaysian government's effort in educating businesses on the importance of ESG, a survey conducted by the Alliance Bank showed that Malaysian SMEs lacked awareness regarding the importance of ESG principles. Prior to the survey, 86% of surveyed SMEs had never come across the concept ESG. However, more than a half of them have already been adopting ESG principles on their own terms.  

ESG stands for Environmental, Social and Governance, which are key factors that measure the sustainability and ethical responsibility of a business. ESG has become a trend in many industries as businesses become more aware of the importance of sustainability in a business.

The survey titled “ESG Insights from Malaysian SMEs: Building A Better Future Together” surveyed over 600 Malaysian SME, highlighted that 28% of SMEs are ESG adopters.  Despite the awareness, three out of five SMEs believe practicing ESG will bring long-term value, a stronger workforce and more business opportunities.

The top three reasons for them to adopt ESG were to help improve productivity (43%), obtain cost savings from energy (41%) and enhance brand value and reputation (36%). 

Challenges in the space

However the move into this space is still relatively new as 75% of respondents shared that their journey started within the last five years. These companies also admitted that their journey of adopting ESG had not been smooth from the start.

Despite of having the initial motivation to adopt ESG, it is found that resources allocated to ESG were limited, and there is a lack of SME-centric guidelines and technical know-how to adopt ESG measures. Nonetheless, 80% of ESG adopters acknowledges the value of ESG and plan to continue pursuing it.

The remaining 72% of SMEs, known as non-ESG adopters in the survey, have not yet integrated ESG practices into their operations. The lack of adoption is primarily due to confusion about how ESG will affect the company, with 51% of non-adopters expressing this concern. Financial restrictions and a lack of ESG understanding are two additional major deterrents to adoption. As pointed out in the survey, for companies that have yet to adopt ESG, 58% are open to adopt ESG in the next one to two years.

The survey also said COVID-19 may be one of the driving forces of ESG agenda. Despite the negative impacts brought by COVID-19 on businesses across different industries, 63% of SMEs were optimistic about ESG in the next six to twelve months.

However, as SMEs would need to concentrate on income stability first for the business to maintain sustainable, the top three concerns they had were profit growth (36%), cashflow management (35%) and sales planning (32%), while the implementation of ESG initiatives were ranked as the bottom four priorities.

The survey was launched collaboratively by Alliance Bank, the UN Global Compact Network Malaysia & Brunei (UNGCMYB), and SME Corporation Malaysia (SME Corp. Malaysia). This research gives a general overview of ESG practices among SMEs in Malaysia with the goal of educating companies about the value of implementing ESG practices. The results of this study are intended to persuade organisations to seize the chance to use ESG practices as a source of competitive advantage rather than seeing them as a compliance checklist.

Related articles:
Study: Top companies shy away from ESG and CSR amidst global recession
Trapper and Ikano Insight join hands for ESG-centric consultancy service