Sustainability reporting is becoming increasingly recognised as a strategic necessity rather than an ethical choice, particularly for small and medium-sized enterprises (SMEs) in Malaysia.
According to ACCA Asia Pacific Public Affairs Manager, Daniel Teoh, sustainability initiatives not only bolster resilience against operational risks but also enhance the reputation and stakeholder relations. By prioritising sustainability, SMEs position themselves for long-term success in a global marketplace that increasingly values environmentally and socially responsible practices.
In Malaysia, the government has taken a proactive approach to addressing climate change, as demonstrated by the 12th Malaysia Plan and incentives like the Green Investment Tax Allowance and Green Income Tax Exemption.
“These initiatives create favourable conditions for SMEs to adopt sustainable practices. By embracing these programs, SMEs can access new opportunities and enhance their competitive advantage,” said Teoh.
The integration of sustainability into business operations tends to significantly enhance stakeholder relations. The 2023 Malaysian Budget underscores this, with Bank Negara Malaysia (BNM) allocating RM2 billion to facilitate SMEs’ adoption of low-carbon practices, which aims to reduce carbon emissions while fostering innovation and competitiveness within the SME sector.
“As global sustainability standards become mandatory, Malaysian SMEs can gain a favourable reputation among stakeholders by prioritising sustainability. This not only improves business relations but also opens up new avenues for growth and collaboration,” Teoh told The Exchange Asia.
According to him, the ACCA recommends that SMEs embark on their sustainability journey by integrating sustainable practices into every aspect of their operations. Key steps include gathering relevant and reliable data to assess current sustainability initiatives and identify risks, learning from other businesses and industries through benchmarking, identifying sustainability issues with a significant impact on the business through materiality assessment, developing and setting goals for sustainability, and embedding the sustainability strategy into business operations through operational integration.
When SMEs embark on sustainability reporting, it’s crucial to be aware of some common pitfalls, especially since integrating environmental, social and governance (ESG) data with financial reporting requires careful attention due to differences in methodologies and timelines.
“It is also crucial to have a comprehensive understanding of the business’s operations and their environmental and social impacts.
“Additionally, it’s important to avoid greenwashing by refraining from making misleading claims about sustainability efforts to maintain credibility, and because stakeholder accountability is key, authenticity in sustainability claims should be ensured through rigorous due diligence,” Teoh explained.
Despite the potential advantages, less than 45% of SMEs benefit from technical support in sustainability reporting. Challenges in this area include difficulties with data collection and standardisation, limited resources, and the lack of common metrics and guidelines.
To mitigate such situations, ACCA provides a range of toolkits and certifications, including the ACCA Certificate in Sustainability for Finance and ACCA Certificate in Integrated Reporting, which are designed to provide finance professionals with the essential skills needed for effective sustainability reporting.
Beyond compliance and reputation, robust sustainability reporting offers long-term benefits, which includes better positioning for government incentives, improved internal processes, and new business opportunities. By demonstrating a commitment to sustainability, SMEs can secure supply chain partnerships, reduce social and environmental risks and gain a competitive edge.
Looking ahead, SMEs should be aware of emerging trends such as the increasing importance of ESG compliance in tenders and the growing advocacy for ESG integration by industry leaders. Early implementation of sustainable practices will help SMEs stay competitive and navigate evolving market demands effectively.
Hence, Teoh concluded by saying that embracing sustainability reporting is a strategic move for SMEs in Malaysia, offering multifaceted benefits that extend beyond compliance. By integrating sustainable practices into their core business strategies, SMEs can enhance stakeholder relations, unlock new opportunities, and position themselves for long-term success in a dynamic global marketplace.
