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THOUSANDS of small and medium-sized enterprises (SMEs) across Malaysia are grappling with intensifying environmental, social, and governance (ESG) requirements, a development that, while advancing sustainability, is creating new inequalities between large corporations and smaller firms with limited resources.
Industry associations report multiple cases in which SMEs have lost contracts or struggled to secure new business because their operations failed to meet increasingly stringent green and sustainability standards.
Some firms have even lost export opportunities to European markets due to inconsistencies in their energy usage data, while others have fallen victim to unscrupulous ESG consultants who offer cheap reporting services that ultimately fail to satisfy buyers’ requirements.
SME Malaysia President Dr Chin Chee Seong said numerous companies have been removed from supply chains despite years of being trusted suppliers.
“Malaysian SMEs that have long been loyal suppliers are suddenly sidelined from global supply chains simply for failing to meet tighter ESG requirements,” he told Berita Harian. “It is not that these SMEs are careless or unwilling to change. Many are victims of a system that does not provide the tools, guidance, or clear standards they need.”
Dr Chin described the current crisis as a combination of cost pressures, limited expertise, and confusion. Short-term financial constraints pose immediate obstacles, while long-term technical uncertainty threatens sustained compliance.
“For an ordinary SME, a professional carbon audit or ISO certification can cost between RM20,000 and RM50,000.
“For small manufacturers operating on narrow margins, this is an expense that cannot be justified without an immediate return,” he explained. “It is not that they do not want to be environmentally friendly, but they cannot afford the ‘entry ticket’ to demonstrate it.”
He added that many SMEs remain uncertain about which ESG standards to adopt, citing Global Reporting Initiative, Task Force on Climate-related Financial Disclosures, International Sustainability Standards Board, and the National Sustainability Reporting Framework.
“They worry that if they invest in one certification, a different client may later require another standard, forcing them to spend more unnecessarily,” he said.
Most SMEs also lack dedicated sustainability teams or executives, with ESG responsibilities often falling under the CEO or human resources manager.
“They lack the technical expertise to calculate carbon emissions, for instance. The vast majority of Malaysian SMEs are simply not ready,” Dr Chin noted.
He said while listed companies are adjusting, SMEs within their supply chains remain the weakest link. Recent research suggests only 12 to 15 per cent of SMEs have fully integrated ESG practices, with the rest at a nascent or ad hoc stage.
He warned that multinational corporations are increasingly demanding carbon data from local suppliers. “If SMEs cannot provide this data, they risk being removed from supply chains,” he said.
Malaysian Small and Medium Enterprise Association (SAMENTA) president Datuk William Ng echoed these concerns, identifying cost, expertise, and confusion as the primary barriers.
Carbon audits and certifications are expensive and require skills that most SMEs do not possess. Additionally, compliance guidelines frequently change and lack alignment between ministries, agencies, and export markets.
“SMEs want to comply, but they are confused about the standards they need to meet and cannot bear the high costs of something that remains a moving target,” he said. “The majority of our SMEs are still far from ready.
“Only a small number, particularly those in multinational supply chains, have begun conducting carbon audits and understanding the requirements. Most others are still struggling with basic issues such as digitalisation, automation, and productivity.”
The situation underscores a widening gap in Malaysia’s business ecosystem, where the push for sustainability and ESG compliance risks leaving smaller enterprises behind, despite their crucial role in supply chains and the broader economy. - December 7, 2025