SMEs in Malaysia may be unconsciously adopting ESG practices

Despite only 14% of those surveyed being familiar with the term, more than half have already implemented or are exploring ESG practices on their own terms.

Prior to being surveyed, 86% of small-medium enterprises (SMEs) in Malaysia have not come across or even heard of the term ESG (environmental, social, and governance).

However, despite only 14% being familiar with the term, 59% of the SMEs surveyed by Alliance Bank have already implemented or are exploring ESG practices on their own terms. As the study suggests, while SMEs in Malaysia show a lack of awareness regarding the importance of ESG principles and disclosures for sustainability performance, more than half are unconsciously adopting ESG.

Going further, the study, titled “ESG Insights from Malaysian SMEs: Building A Better Future Together”, classified 28% of SMEs as ESG adopters. This would refer to SMEs that have adopted elements of ESG, or have included ESG practices into their strategy. Of these ESG adopters, three out of four started their journey within the last five years, with 80% recognising the value and planning to continue pursuing it. The main motivations identified in adopting such practices were to improve productivity, obtain cost savings, and enhance brand reputation.

The key challenges for ESG adopters were:

• Resource constraints,
• Lack of visionary directives or framework/ guidance on ESG, and
• Lack of technical and operational know-how.

Despite any challenges, 80% of ESG adopters recognise the value of ESG adoption, and plan to continue pursuing sustainable business practices moving forward. The top five benefits gained by adopters include:

• Gained more awareness among consumers/customers (41%), 
• Cost savings (39%),
• Improved profits (39%),
• Better risk management (34%), and
• Increased revenue (33%).

Meanwhile, the remaining 72% of SMEs have yet to implement ESG practices into their business (which the survey refers to as non-ESG adopters). 

The lack of adoption mainly stems from uncertainty over ESG's impact, with 51% of non-adopters being unsure about how it will impact the company. Other key reasons for not adopting include limited knowledge of ESG, and financial constraints.

Still, 58% are open to adopting ESG in the near future. In fact, close to half were likely to do so within the next one to two years.

Regardless, three out of five SMEs believe practising ESG will ultimately create long-term value, a strong workforce, and increased business opportunities.

Apart from the above, the survey also highlighted that ESG is evolving in response to global changes, highlighting its growing importance for innovation, business resilience, and sustainable growth. Particularly, the COVID-19 pandemic has accelerated the ESG agenda. Even in the face of the adverse impacts of COVID-19 on businesses across all industries, SMEs carried an optimistic business outlook, with 63% indicating optimism for the next six to 12 months.

This survey was launched as part of Alliance Bank’s ‘BeESG’ initiative to encourage more sustainable practices among businesses. Instead of viewing ESG as a compliance checklist, it is hoped that this study’s findings will encourage businesses to take the opportunity to turn ESG practices into a source of competitive advantage.

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Lead image /  ESG Insights from Malaysian SMEs: Building A Better Future Together