Sustainability initiatives and disclosures are not limited to large corporations. Small and medium enterprises (SMEs) are increasingly being drawn to the ESG conversations, with pressure coming from across the wider ecosystem.
Although SMEs are not yet directly regulated, these requirements will increasingly cascade through value chains as large companies seek ESG data from suppliers to meet their own disclosure obligations, UN Global Compact Network Malaysia and Brunei executive director Faroze Nadar said.
“This effectively makes ESG readiness a commercial requirement, not just a regulatory one. From my perspective, SMEs should see 2026 as a critical moment to strengthen resilience and competitiveness through practical ESG action.”
Faroze noted that SMEs that align with sustainability expectations are more likely to retain contracts and access new markets. In this environment, ESG readiness is increasingly a baseline requirement rather than a differentiator, he said.
Among the most accessible entry points into ESG for SMEs is energy efficiency, Faroze observed. Simple measures can reduce operating costs, improve margins, and strengthen resilience against energy price volatility.
“At the same time, banks and development finance institutions are increasingly integrating ESG considerations into lending decisions,” he added. “SMEs with credible sustainability practices may benefit from improved access to financing, incentives and technical support.”
Conversely, SMEs that fail to meet ESG expectations risk exclusion from supply chains, particularly where larger customers are subject to mandatory disclosure or international trade requirements, he said. While SMEs face fewer direct regulations today, Faroze noted that carbon pricing and disclosure requirements may indirectly affect them through cost pass-throughs from suppliers and customers.
In summary, ESG for SMEs does not require perfection, he stressed. “The greatest value lies in early, practical and incremental action—particularly around energy efficiency, basic data readiness and responsible business practices. Sustainability should be reframed from a compliance burden into a value-creation journey that strengthens resilience, relevance and long-term growth.”
Building on this perspective, KPMG’s sustainability services director Liu Chai Hong observed that most SMEs are not opposed to ESG. Instead, the real constraints are capacity and the perception that ESG is a compliance exercise.
“When ESG is positioned as a reporting exercise, it feels burdensome,” she said. “So, sustainability has to make commercial sense. When it is positioned as better risk management and stronger business fundamentals, SMEs engage much more readily.”
She shared several examples of how SMEs are adopting sustainable practices in commercially sensible ways:
> A manufacturing SME invests in more energy-efficient machinery not only to lower electricity costs and improve margins, but also to reduce greenhouse gas emissions.
> A logistics SME optimises route planning or upgrades part of its fleet to cut fuel costs while becoming more resilient to fuel price volatility.
> Food and beverage SMEs manage water use, waste and supplier traceability are better positioned to meet customer requirements and avoid disruptions.
“More importantly, sustainability management should be seen as strategic management and business resilience. This includes assessing flood exposure, heat stress on workers, energy reliability, and continuity and vulnerabilities of supply chain.
“Also, the key is proportionality. If ESG expectations are practical, phased and aligned with how SMEs actually operate, adoption will continue to grow. In that context, sustainability stops being a compliance burden and becomes a way for SMEs to protect margins, secure financing and stay competitive in a changing market,” she said.
