SMEs and ESG: Driving Malaysia’s Green Economy with Budget 2025 Support

By Nurul Nadiah Ahmad

Small and Medium Enterprises (SMEs) are at a pivotal moment in Malaysia’s economic landscape, where balancing business growth with sustainability is becoming increasingly important. As global markets shift toward environmental consciousness, the adoption of Environmental, Social, and Governance (ESG) principles is emerging as a powerful strategy for SMEs to address both challenges and opportunities. ESG frameworks not only help businesses reduce their environmental impact but also position them to meet the evolving expectations of consumers, investors, and regulators. Furthermore, ESG aligns closely with the broader global push toward net-zero carbon emissions and supports the Sustainable Development Goals (SDGs), such as climate action (SDG 13), decent work and economic growth (SDG 8), and reduced inequalities (SDG 10).

In Malaysia, ESG is recognized as a key contributor to the country’s efforts to achieve net-zero carbon emissions by 2050. Though ESG principles have traditionally been associated with larger corporations, SMEs are now beginning to realize that integrating sustainability into their business models offers significant competitive advantages. Malaysia ranks second in the ASEAN region, after Singapore, in terms of ESG adoption, but many local SMEs are still in the early stages of implementing these principles. The momentum is there, and with the right support, SMEs can unlock the benefits of ESG and contribute to a more sustainable economy.

Malaysia’s Budget 2025: Advancing Sustainability for SMEs
Malaysia’s Budget 2025 builds on the foundation of previous budgets, emphasizing sustainability as a core driver of economic growth, particularly for SMEs. Recognizing that SMEs play a pivotal role in the nation’s green economy, Budget 2025 introduces further incentives and financial support to encourage the adoption of Environmental, Social, and Governance (ESG) practices. This year, the government has expanded the “SemarakNiaga” program, increasing its funding to RM2.5 billion to help SMEs invest in renewable energy sources, energy-efficient technology, and other sustainable innovations. The enhanced budget allocation reflects the government’s commitment to equipping SMEs with the tools they need to reduce their environmental impact and align with Malaysia’s net-zero carbon goals by 2050.

In addition to direct financing, Budget 2025 offers robust tax incentives for SMEs that prioritize sustainability initiatives. These incentives include expanded tax deductions for the installation of green technology, such as solar panels, and for the purchase of energy-efficient machinery. Moreover, the budget introduces grants specifically for SMEs involved in exporting green products and services, reinforcing Malaysia’s position as a sustainability leader in the ASEAN region. By focusing on ESG-aligned growth, Budget 2025 not only supports SMEs in adapting to a more sustainable model but also strengthens their resilience against evolving global market demands for green products and sustainable practices.

Global Comparison: The Role of Carbon Tax in Driving Sustainability
Carbon taxes are a key tool in driving sustainability. While Malaysia is gradually implementing a carbon tax, starting with pilot programs in 2024, countries like Singapore and Japan have already established carbon pricing frameworks. Singapore’s carbon tax is set at S$25 per ton, increasing to S$45 by 2026, while Japan’s carbon tax, at ¥289 per ton, supports their energy transition goals. In contrast, the European Union (EU) has one of the highest carbon pricing systems, with the cost exceeding €80 per ton under its Emissions Trading System (ETS). These carbon taxes incentivize companies, including SMEs, to reduce emissions and invest in green technologies.

In Malaysia, the introduction of a carbon tax in stages is part of the country’s broader strategy to align with global climate goals. SMEs adopting ESG early may find themselves better positioned to manage future regulatory requirements and benefit from financial incentives.

For SMEs looking to integrate ESG into their operations, several practical strategies can be considered:

1. Proactive Environmental Management: SMEs can reduce environmental impact by adopting renewable energy, improving energy efficiency, and utilizing green technologies, such as IoT and energy management software.

2. Stakeholder Support (Social): SMEs can enhance their social responsibility by offering an inclusive workplace, CSR programs, and support for local communities, which strengthens their market position and customer loyalty.

3. Strengthening Corporate Governance: SMEs should ensure transparent governance, ethical business practices, and regular ESG reporting to build investor confidence and trust. Digital tools can help in monitoring compliance and boosting operational efficiency.

Integrating ESG into SME operations offers long-term benefits, including reduced risks, improved financing opportunities, and enhanced competitiveness. Malaysia’s Budget 2025 provides much-needed support through financing and tax incentives, enabling SMEs to embrace sustainability. As the carbon tax landscape evolves globally, SMEs in Malaysia that adopt ESG early will not only improve their market positioning but also contribute to the nation’s sustainable future.

Author Information: Nurul Nadiah Ahmad
Senior Lecturer, Uniten Business School,
Universiti Tenaga Nasional, Sultan Haji Ahmad Shah Campus, Pahang.

-AsiaNewsToday