ESG compliance crucial for MSMEs

On a green mission: (from left) Chow, Abu Bakar, Suksuwan and Masigan at the event.

KUALA LUMPUR: As Malaysia targets to improve the share of micro, small and medium enterprises (MSMEs) in the country’s export market, it would be crucial for these companies to toe the environmental, social and governance (ESG) line.

That is the view of Abu Bakar Yusof, deputy chief executive at the Malaysia External Trade Development Corp (Matrade), who revealed that the government intends to increase the share of SMEs in the export market to 15% next year, and to 30% in 2030.

Abu Bakar reported that MSMEs had contributed approximately 10.5% to last year’s total export amount of RM1.43 trillion, up from the 9.5% of RM1.53 trillion in 2022.

Speaking at the first Asia ESG Positive Impact Consortium conference (A-EPIC) here last Friday, he said Matrade has a natural mandate to work with MSMEs as this group comprises 97.4% of the 1.2 million registered business in Malaysia.

“We believe that the general awareness of ESG practices among MSMEs in Malaysia is still relatively low, and there needs to be a convergence of understanding between this group and mid-tier companies to support each other in this regard,” he said.

Abu Bakar was on the panel of experts discussing the topic Thriving in Trade Together – Navigating the Cross Border ESG Landscape, which also involved Surin Suksuwan of Proforest South-East Asia and Jennica Paula Masigan from the Philippines’ Centre for Conservation Innovations PH Inc.

Elaborating, he said Matrade has established an ESG unit with a framework of initiatives, which are aimed at achieving a strong level of cooperation between MSMEs and larger companies.

This is especially relevant since mid-tier companies have a significant pool of domestic supply chain that comprises MSMEs, he noted.

“Therefore, for these mid-tier companies who are exporting, they need to be able to comply with their global customers’ ESG obligations, and consequently they need to educate and guide their supply chain to also embrace and adopt ESG requirements,” Abu Bakar commented.

While pointing out that Matrade’s 49 global trade offices are useful in furnishing ESG information to ease the adoption of the agenda among Malaysia’s MSME, he nevertheless emphasised that back home, it is essential to improve synergy in the domestic ecosystem.

He said this is why the five-year National Trade Blueprint, a collaboration between the International Trade and Industry Ministry and Matrade, has a component on sustainability and ESG to lay out action plans for all relevant stakeholders in the ESG compliance journey.

Looking at matters regionally, Abu Bakar suggested for Asean enterprises – with cooperation from their respective governments – to search for better uniformity in their ESG frameworks for more effective implementation.

Masigan concurred, commenting that from the biodiversity perspective itself, there are plenty of opportunities for cross-border cooperation and compliance to a uniform ESG framework.

“There are ways to look into identifying biodiversity specific indicators and aligning those with traditional ESG metrics,” she added.

Moreover, she suggested that investors could look beyond compliance, asking if they could prioritise businesses and investments that are able to demonstrate nature-positive commitments.

“We believe that in this space, there are definitely opportunities for Malaysian companies to work with Indonesian and Filipino firms,” she said.

Interestingly, from the commodity supply chain perspective, Proforest’s Suksuwan observed that the implementation of the ESG agenda in South-East Asia can broadly be divided into three phases, the first being countries merely putting in place their respective regulatory frameworks.

“These are mostly to support the sustainable development of each country, such as environmental impact assessments. During the second stage, meanwhile, we saw the rise of certifications such as the Roundtable on Sustainable Palm Oil certification for the palm oil industry,” he said.

However, he said the certification stage is largely demand driven, especially within downstream supply chains, usually from larger companies requiring it from their producers who would then have a choice to comply.

He said it is at the current third phase where matters are “getting serious” and less voluntary, with regulators coming into the picture to put in place requirements in various sectors.

Notably he observed that in South-East Asia, the banking and finance sector is probably the key driver to effective implementation, as lenders could impose ESG conditions to be complied among their potential borrowers.

Expounding further on certifications, Suksuwan conceded that these are indeed the evidence of whether an entity is adhering to certain standards that are to be complied with, remarking that certification is an effective way to check whether standards have been implemented.

'On the other hand, he questioned whether more standards is the way to go if Malaysia were to ensure improved compliance among the MSMEs, noting that to many of these companies, “more standards means higher costs.”

“So instead of coming up with more standards, we believe that the focus should be on improving practices, and the larger companies can lend a hand to the MSMEs beginning from the supply chains themselves,” he said.

Outlining the fact that many MSMEs are struggling and it would be increasingly taxing for them if more standards and certifications are imposed, Suksuwan resonated with Abu Bakar’s view that the bigger players can support the smaller firms.

“So instead of implementing official standards, we believe that the focus should be on improving practices, and the larger companies can lend a hand to the MSMEs beginning from the supply chains themselves,” he said.

The panel discussion, moderated by Chow Sang Hoe, consulting managing partner at Ernst & Young Consulting Sdn Bhd, was among the highlights of the conference, which also saw Prime Minister Datuk Seri Anwar Ibrahim delivering his keynote address.

The A-EPIC is an alliance of media powerhouses in South-East Asia, namely Malaysia’s Star Media Group Bhd, Indonesia’s KG Media and the Inquirer Group of Companies of the Philippines, under the shared mission of fostering influence that promotes sustainability principles as the main driver of green economic growth across the region.

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Matrade , MSME , export , ESG


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