ESG and Its Implications for SMEs in Malaysia
Understanding ESG
In today’s business environment, Environmental, Social and Governance (ESG) considerations are no longer optional but are becoming essential in shaping business strategies, attracting investment, and ensuring long-term resilience. While ESG has traditionally been associated with large corporations, it is steadily becoming significant for Small and Medium Enterprises (SMEs) in Malaysia as well.
ESG is generally understood through three dimensions. The environmental aspect reflects how a company manages its impact on the natural world, including areas such as carbon emissions, energy consumption, waste management, and resource efficiency. The social dimension covers how businesses treat their employees, customers, suppliers, and the community at large, encompassing matters such as workplace welfare, diversity, health and safety, and broader social contributions. Governance refers to the systems and processes by which companies are directed and controlled, including ethics, transparency, compliance, internal controls, and risk management. Together, these three dimensions form a framework for evaluating not only financial health, but also a company’s long-term sustainability and accountability.
Why ESG Matters for SMEs
For SMEs in Malaysia, ESG adoption is becoming increasingly relevant. Large corporations and investors are placing greater emphasis on ESG-compliant partners, which means SMEs will soon be required to provide data and disclosures if they wish to remain competitive within global supply chains. At the same time, Malaysia is progressively aligning with international sustainability standards. Under the National Sustainability Reporting Framework (NSRF), large listed companies are required to adopt ESG reporting from 2025 onwards, with further obligations expanding by 2027 to include Scope 3 emissions disclosures and greater assurance requirements. While SMEs are not yet directly mandated to publish full ESG reports, they are indirectly affected, as larger companies will expect their suppliers to provide reliable ESG-related information.
When Will ESG Apply to SMEs?
The timeline is therefore clear: ESG is already a voluntary but highly recommended practice through the Simplified ESG Disclosure Guide (SEDG) introduced by Bursa Malaysia, and by 2025 large corporations will be fully subject to ESG reporting standards. As these requirements expand through 2027 and beyond, SMEs will increasingly face pressure to demonstrate ESG compliance in order to maintain business opportunities and remain supply-chain ready. This means that while regulatory obligations may not yet fall directly on SMEs, market realities are already pushing them to act.
How SMEs Can Prepare
In preparation, SMEs should take proactive steps now. The first is to measure their ESG footprint by assessing how operations affect the environment, workforce, and governance practices. The second is to implement practical measures such as improving energy efficiency, reducing waste, enhancing employee welfare, and strengthening corporate governance policies. Third, SMEs should take advantage of government incentives to fund their sustainability efforts, in particular the Green Investment Tax Allowance (GITA), which provides allowances for capital expenditure on qualifying green technology assets, and the Green Income Tax Exemption (GITE), which grants income tax exemption for qualifying income derived from green technology services and projects. Finally, SMEs should begin documenting and tracking ESG data, even in simplified form, as this will make future compliance significantly easier and build credibility with stakeholders.
Our Commitment
At Chee Tiong & Co, we understand the pivotal role ESG will play in shaping the future of Malaysian businesses. We are proactively moving towards the development of services dedicated to ESG advisory, with the aim of supporting SMEs as they navigate this evolving landscape. For the present, our expertise lies in providing tax planning services specifically in relation to the Green Investment Tax Allowance (GITA) and the Green Income Tax Exemption (GITE). Through these incentives, we help SMEs maximise available benefits while making meaningful progress towards sustainable growth.
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