MSMEs must ‘seriously address’ ESG aspects in their biz models


MICRO, small and medium enterprises (MSMEs) are urged to “seriously address” the environmental, social and governance (ESG) aspects in their business models to meet sustainability goals, as well as to remain relevant in the global value and supply chains moving forward.

Ministry of Entrepreneur and Cooperatives Development secretary general Datuk Suriani Ahmad (picture) said in order to empower and enable our MSMEs towards ESG, the government has initiated several initiatives under the 12th Malaysia Plan (12MP), in which MSMEs are encouraged to embrace circular economy and integrate ESG into their business processes and decision-making.

She added that hence, MSMEs need to seek the opportunity to learn and emulate relevant strategies, initiatives or good practices undertaken by establishments that have been successful in inculcating sustainability principles in their own business practices.

“Malaysia aspires to achieve ESG and net-zero carbon goals by 2050. Increasingly, large corporations are putting emphasis on ESG aspects to create more business value and ensure sustainability.  

“As a new driver of economic growth, MSMEs are one of the key building blocks to achieving those ESG aspirations for the nation,” she said during the FMM Entrepreneurship Conference (FEC) 2022 in Kuala Lumpur today.

According to Suriani, one initiative undertaken to promote ESG, is the development of a sustainable digital platform called the Action Centre for Sustainable Development of SMEs (ACCESS).  

She said this is a collaboration between SME Corp Malaysia with the United Nations Global Compact Network Malaysia and Brunei (UNGCMYB), that encourages MSMEs towards sustainability and to be integrated in local and global supply chains.   

Through this digital platform, MSMEs can assess the level of their business operations towards ESG, learn ESG application methods and the use of ESG principles, as well as benchmark the firm’s ESG score with other firms.

Meanwhile, Suriani said due to the increasing importance of ESG in investment decisions, banks and financial institutions are also playing an active role in facilitating the transition of MSMEs to low carbon and sustainable practices.  

She noted that to support the financing aspect of ESGs, the government, through Bank Negara Malaysia (BNM), established a Low Carbon Transition Facility to support MSMEs in adopting sustainable and low carbon practices.

Apart from that, she also said the RM1 billion facility was established under Budget 2022, on a matching basis with participating financial institutions to help MSMEs embrace sustainable and low carbon practices in their business operations.   

She added that eligible MSMEs will be able to obtain financing up to RM10 million per company with a financing tenure of up to 10 years.  

According to Suriani, 26 companies have applied for the facility with a total financing of RM11.71 million, as of July 6 this year.

Commenting on the digitalisation and IR4.0, Suriani pointed out that post-pandemic era, MSMEs need to face the fact that technology and digitalisation are no longer differentiators, but rather necessities, in order to remain relevant and competitive.  

She noted that technology and digital adoption will help accelerate MSME development in embracing new norms in business activities, thus helping them to reduce costs, become more efficient and increase productivity.

“The Covid-19 pandemic has highlighted the importance of embracing technology and innovation for MSMEs.  

“In the past, technology uptake among Malaysian MSMEs was minimal and most were satisfied operating their businesses using traditional tools and methods, being more worried about surviving and sustaining the day-to-day costs of running their business operations.  

“In Malaysia, comparative studies show that the level of innovation of our enterprises are at par or higher compared to middle-income countries, but far below the level of high-income countries,” she said.

On that note, Suriani said the government will continue its efforts in promoting IR4.0 to MSMEs, particularly to the manufacturing sector with the aims of transforming Malaysia into a high-income nation through the use of technology and digitalisation.  

“IR4.0 is a journey. You have to start with a first step and to embrace the challenges to see the results in the long run,” she said.

On increasing market access and international trade opportunities, Suriani emphasised that access to greater domestic and international markets provides MSMEs with new business opportunities and creates the potential for growth.  

She said the industry must acknowledge that in a globalised world, trade and commerce can go well beyond the physical geography that a business is located in.

As such, she said the government, through various government-to-government (G-to-G) cooperation and active representation in Asean and Asia-Pacific Economic Cooperation (APEC) fora, will continue to intensify efforts to improve market access and international market opportunities for MSMEs.

“With Malaysia having signed 16 free trade agreements, of which 15 have been implemented including the Regional Comprehensive Economic Partnership (RCEP) agreement, MSMEs must take advantage of existing bilateral and regional agreements and cooperation that can facilitate cross-border trade.  

“RCEP provides Malaysian MSMEs with greater market access into 15 countries with a combined population of more than 2.2 billion people.  

“This provides MSMEs with the opportunity to diversify import sources, export destinations and explore non-traditional markets in order to expand their business further,” she noted.

In 2021, exports of MSMEs were valued at RM124.3 billion, driven by manufacturing and agriculture sectors, according to Suriani.

The manufacturing sector dominated overall MSMEs exports with a contribution of 76.6 % in 2021, with major export destinations for the manufacturing sector being Singapore, China and the US.

Commenting further, Suriani said Malaysia’s transition to a high-income economy will highly depend on MSMEs, in line with the key theme of the 12MP “Resetting the Economy”, where Malaysia will move to high value added and high-skilled economic activities, towards becoming a high-income nation driven by advanced technology.  

She noted that MSMEs are expected to contribute 45% to the GDP and 25% to total exports by 2025.

Therefore, Suriani said a concerted effort will need to be undertaken to rejuvenate all economic sectors and boost productivity growth, expand export markets and improve governance and policies.  

She added that this includes strengthening MSMEs’ participation in the local economy and global value chain.

“As we are aware, 97.4% of business establishments in Malaysia are MSMEs. These businesses are responsible for nearly 37.4% of the country’s GDP, 47.8% of the country’s employment and nearly 12% of Malaysia’s exports.  

“MSMEs employ 7.3 million people, of which, the majority is in the services sector.  

“Our MSMEs are indeed the backbone of our economy, being a source of foundation to propel growth and support economic development of our nation,” she said.