Greening the SME landscape in Malaysia

IN the vibrant landscape of Malaysia’s economy, small and medium enterprises (SMEs) play a pivotal role, contributing 97.2% to the business ecosystem as reported by The Star (Sept 29, 2023).

The SME sector generates significant employment opportunities, economic growth and opens new markets. It also contributes substantial revenue for the nation’s gross domestic product (GDP), totalling RM 512.8bil.

With digital implementation making it easier for small businesses to set up shop without the need for brick and mortar location, the government has increased the budget for SME aid and financing programmes are aplenty to get people’s dreams off the ground and stimulate the economy.

The government’s increased budget for SME aid and financing programs coupled with the ease of digital implementation, helps SMEs thrive. However, the path to sustainability in SMEs is not without its challenges.

The Malaysian Investment Development Authority (Mida) refers to embracing sustainability as a way for SMEs future-proof their business. MIDA reports that SMEs contributed 38.2% to the national GDP in 2022, this comes from a staggering 1.15 million SMEs across the country.

The Star also reported last April that four factors: a lack of awareness, regulatory barriers, limited expertise, and cost as barriers that SMEs encounter when trying to become environmental, social and governance (ESG) compliant.

Sustainability can seem daunting for businesses with smaller means and margins.

Simply put, sustainability, for SMEs, means to operate and earn a profit without compromising access to resources in the future.

Despite the challenges, SMEs stand to gain numerous benefits by embracing sustainability practices and becoming ESG compliant.

Why ESG compliance matters

ESG compliance can enhance brand image and public perception, boost a business’ brand and appeal to environmentally conscious consumers, providing a competitive advantage in the market.

Attaining green status from compliance opens doors to more funding and investing opportunities. Tax incentives like the Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) can further support SMEs in their sustainable endeavours.

Additionally, implementing sustainable practices leads to reduced energy consumption and operational costs over time, resulting in long-term savings.

Access to green finance

Seek out and leverage green financing options to support sustainability initiatives.

Financial institutions (FI) have a crucial role to play in the transition to a low-carbon world.

FIs can support and enable the transition to sustainability by measuring and mitigating exposures to climate-related risks in their loan and investment books.

They can also provide advisory support to their customers, particularly small businesses, in their transition efforts.

Establishing a sustainability culture

Building a sustainability culture within the organisation involves instilling a sense of environmental and social responsibility among employees. This cultural shift can contribute to the long-term success of ESG initiatives.

This can include encouraging employees to actively participate in sustainability initiatives. Create forums for idea-sharing and involve staff in decision-making processes related to green practices.

Being transparent in internal communications on ESG achievements can build trust and foster a sense of shared responsibility.

Acknowledge employees who contribute to the success of sustainability programmes and provide reward incentives for innovative green ideas and notable contributions.

Less direct ways to be ESG compliant can also start at the hiring stage as human resources is the largest commodity available to SMEs. Incorporating diversity, equity and inclusion (DEI) into the hiring process can ensure long-term sustainability for a business by diversifying their talent pool.

Sustainability in supply chains

Integrating eco-friendly practices into the supply chain can reduce environmental impact.

Implementing eco-friendly technologies is a critical step to reduce environmental impact and operate sustainably.

Consider investing in energy-efficient equipment, adopting green technologies, and incorporating digital solutions that optimise resource usage. A popular method of getting started greening your business now is through renewable energy, particularly by installing solar panels.

Switch to energy-efficient machinery and appliances to reduce electricity consumption. Keep a lookout for government incentives or grants, such as GITA, that support the adoption of green technology.

Alternatively, SMEs can tap into digital solutions for efficient operations, reducing the need for physical resources. Implementing cloud-based systems, digital communication platforms and smart technologies to streamline processes.

It is also important to note that employers should also impart training and education to accompany digital changes to ensure successful integration of green technologies among employees.

Engage in community partnerships

SMEs can enhance their impact by extending their sustainability efforts beyond the business realm and into their surrounding community.

Engaging in partnerships with local organisations, non-governmental organisations (NGOs), or community initiatives can amplify positive outcomes. This could include supporting local charities, working with local councils and municipalities, sponsoring educational programs, or even contributing to social causes that align with the values of your SME.

As the social aspect of ESG, small businesses can take on other simple acts by initiating or participating in local community projects that promote environmental sustainability, such as tree-planting initiatives, waste clean-up drives, or educational workshops on sustainable living.

Furthermore, partnering with other businesses to amplify the impact of your sustainability initiatives can lead to more significant positive changes in the community through collective effort.

Adopting these steps can aid Malaysian SMEs to not only overcome barriers to ESG compliance but also contribute to a more sustainable and resilient business landscape.

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