SMALL and medium-sized enterprises (SMEs) account for about 97% of Malaysia’s total businesses, making them the backbone of the country’s economy.
This also indicates that large-scale environmental, social and governance (ESG) adoption across the country is also dependent on this segment to accelerate the country’s transition towards a high-value green economy, following the nation’s pledge to achieve net zero emissions by 2050 in the Paris Agreement.
To achieve this goal, a whole-of-nation approach is required, from federal and state governments and industries to the general public. However, many SMEs have yet to embark on incorporating ESG in their businesses.
Investors incorporating ESG as part of their decision-making, global multinationals cleaning up their supply chain, a shift in customer behaviour to make eco-conscious choices are some of the apparent risks and missed opportunities if SMEs are not ESG-compliant.
Star Media Group held its first ESG roundtable discussion to further understand the challenges of businesses in Malaysia - both large and small - in incorporating sustainability into their operations, and how their voices could be heard and considered for the upcoming Budget 2024.
Prior to the roundtable, a survey was conducted with businesses of different sizes and structures to hear the hurdles they faced, and how Budget 2024 can be the answer in the ESG space.
Close to 200 submissions of wishlists and challenges were collected, which were further verified and checked against existing ESG-related incentives, grants and policies.
It was observed that there were several asks that were already in existence - loans, government incentives and grants. This underscores the inadequacy of current awareness on existing ESG campaigns, training and courses conducted for businesses.
Nonetheless, climate-action focused support was frequently brought to the fore, and that eventually formed the basis of the ESG Budget 2024 roundtable.
This urgency was reflected on a bigger scale as climate change has been at the forefront of the ESG agenda, seeing as we only have 27 years left to become a net-zero nation.
To ensure a broad representation of the industry’s concerns and aspirations, participants from across industries were selected for the roundtable, from plantation and manufacturing to transportation and logistics, banking, and business associations.
In attendance were Alliance Islamic Bank Bhd chief executive officer Rizal Il-Ehzan Fadil Azim, the Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM) national council member and ESG committee chairman Teoh Kok Lin, DHL Express Malaysia managing director Julian Neo, Federation of Malaysian Manufacturers council member Danny Ng, FGV Holdings Bhd group chief executive officer Datuk Mohd Nazrul Izam Mansor, Kuala Lumpur Malay Chamber of Commerce president Ahmad Hussein, Malaysia Aviation Group chief sustainability officer Philip See, Malaysia Retail Chain Association deputy secretary general Dr Afendi Dahlan, Malaysia Semiconductor Industry Association director Andrew Chan, PKT Logistics Group chief executive officer Datuk Seri Dr Michael Tio and Solar Harvest Holdings Bhd chief strategy officer Leon Liew.
What was gathered from the roundtable was that while SMEs struggle to onboard ESG principles, larger corporations have already been progressing in their strides to decarbonise.
However, their ability to advance further in their ESG efforts is hindered by various hurdles.
The complexity and scope of ESG, resource constraints, regulatory and reporting compliance, data availability and quality, lack of expertise, and stakeholder management are some of the challenges that businesses are currently facing.
Below is a compilation of what was discussed, collected, and submitted to the Finance Ministry for their consideration in Budget 2024.
Empowering sustainability aspirations of businesses through clean energy incentives
> Significant cost to transition: The transition to adopting clean energy sources comes with a substantial cost which can pose significant challenges especially for smaller enterprises, primarily due to the sizable upfront investments and ongoing expenses involved.
Additionally, the lack of incentives to drive adoption of sustainable clean energy solutions and insufficient infrastructure support has further complicated the clean energy transition. These shared concerns across business sectors highlight the need to address these hurdles, promoting eco-conscious business practices and sustainable energy adoption.
> Commercial EV adoption: A major challenge for companies, especially those embracing commercial electric vehicles (EVs), is the acquisition cost. Commercial EVs are priced at about two and a half times more than conventional diesel-powered vehicles.
As a result, businesses such as logistics companies have to think twice about transitioning to clean energy-efficient last-mile operations, thereby hindering their progress towards adopting commercial EVs and achieving clean energy goals.
> Recommendation: Participants recommend regulating commercial clean energy rates and offering incentives to clean energy providers to boost adoption across industries, making clean energy more financially viable for businesses and encouraging providers to facilitate the transition for a greener, more sustainable business environment.
> Recommendation: To address the challenge of high acquisition costs for commercial EVs, the government can implement effective strategies including direct subsidies covering a portion of the purchase price or fixed amounts, reducing upfront costs.
Additionally, tax benefits and incentives can lower total ownership costs, encouraging businesses, especially logistics companies, to transition to clean energy-efficient last-mile operations. Such measures have proven successful in various countries to promote EV adoption and accelerate the shift to clean transportation.
Balancing green energy goals with grant accessibility
> A question of affordability: Malaysia’s renewable energy (RE) targets have advanced from the initial goal of 45% to an ambitious 70% by 2050, further reiterating the government’s commitment in its journey towards net zero. Zooming in on solar energy, presently it constitutes 25% of our energy mix, with a 2025 target of 31%.
Although achieving this goal seems manageable, the issue of affordability might slow down business clean energy transition.
Integrating intermittent solar power into the grid requires grid infrastructure upgrades and battery storage integration are necessary developments but would inevitably incur additional costs on top of the energy generation or production expenses.
The affordability of the clean energy transition hinges on incentives, subsidies, and economic capacity which in turn might impact businesses willingness to shift from the dependance on conventional energy sources to green alternatives.
The slowing down of businesses embarking on clean energy transition due to rising costs concerns poses risks to derail Malaysia from realising its 100% clean energy ambition.
> Streamlining grant disbursements: The challenges linked to grant programmes are multifaceted. They encompass complexities in the application process, potential misuse, limited accessibility, and unclear eligibility criteria.
Despite their intent to offer financial relief, grants might not adequately align with specific industry requirements, resulting in less-than-optimal outcomes.
Furthermore, uncertainties surrounding grant disbursement and utilisation can impede businesses’ ability to strategise and execute sustainable initiatives effectively.
> Recommendation: To implement targeted grants to make renewable energy adoption more affordable and drive businesses to exceed the 25% renewable energy threshold. Grants fund clean energy projects, creating a comprehensive support system for entities committed to greater renewable energy adoption.
> Recommendation: To effectively address challenges in grant programmes, it was proposed to establish a centralised agency to manage sustainability grants, streamlining processes with clear guidelines. A monitoring and evaluation system enhances transparency and resource allocation.
Additionally, an online platform for guidance and updates simplifies the process for businesses. This multifaceted strategy aims to improve the efficiency and effectiveness of grant management, ensuring funds are utilised optimally and aligned with specific industry requirements.
The importance of centralisation to guide businesses in ESG
> Lacking in knowledge and direction: Businesses, especially SMEs, face several challenges in advancing their ESG practices and sustainability initiatives. These challenges include a lack of motivation due to inadequate understanding of ESG risks and opportunities, difficulties in establishing clear strategic focus, and confusion in policies arising from the many roadmaps and plans.
> Lack of a central governing agency: The absence of a central ESG governing body hinders progress and KPI measurement, leaving businesses grappling with evolving ESG standards. Additionally, limited ESG data poses challenges, particularly for SMEs, further impairing their decision-making and decarbonisation efforts.
> Recommendation: To implement education and awareness initiatives, with a focus on SMEs, in a bid to enhance their understanding of ESG risks and opportunities.
Promote the positive impact of ESG compliance on business growth and sustainability at the same time establishing more accessible online resources, workshops, and training programmes to guide businesses in ESG compliance and decarbonisation.
> Recommendation: To advance ESG practices, establishing a dedicated regulatory body is crucial. This central authority would guide, enforce, and monitor ESG standards across industries.
Additionally, a centralised platform should aid businesses especially SMEs in crafting customised ESG roadmaps. Moreover, promoting partnerships with research institutions and industry associations can yield a robust ESG database for informed decision-making.
Anticipating an impactful Budget 2024
The recommendations put forth encompass various strategies to facilitate the transition to a greener and more sustainable business environment. This includes regulating clean energy rates, subsidising commercial EVs, centralising grant programmes, and ESG education to promote sustainability and decarbonisation while boosting economic advantages for businesses.
With the recent introduction of the government’s aspirations such as the National Energy Transition Roadmap (NETR) and New Industrial Master Plan 2030, we look forward to hearing more of its commitment in furthering the ESG agenda in Malaysia through the upcoming Budget 2024. It will no doubt bring us one step closer to achieving clean energy whilst fostering economic resilience in the years ahead.
Moderator of the roundtable, ACCCIM treasurer Datuk Koong Lin Loong, too, hopes that Budget 2024 would also prioritise the integration of ESG that contributes to industrial growth.
“Ultimately, this will result in infrastructure and economic development that can boost Malaysia’s competitiveness on a global scale in the long term.”