SMEs Embrace ESG: Awareness Soars Sixfold, Alliance Bank Reports

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Alliance Bank Malaysia Berhad launched the second edition of its annual Environmental, Social, & Governance (ESG) survey report titled “The Path to Sustainable Impact-Sectoral Insights of Malaysian SMEs” (ESG 2.0 Report) on 21 January 2025.

The report was officially launched by the Minister of Natural Resources and Environmental Sustainability, Nik Nazmi Nik Ahmad, at the SME ESG START Symposium 2025 held at Monash University Malaysia.

The ESG 2.0 Report is the follow-up to the bank’s inaugural report in 2023. The report was commissioned in collaboration with Monash University and Zurich Malaysia as knowledge partners with UN Global Compact Network Malaysia & Brunei (UNGCMYB), SME Corporation Malaysia (SME Corp) as well as INCEIF University as supporting partners.

ESG 2.0 Report delves into the progress of Malaysian SMEs in their sustainability journey and provides crucial insights into the current landscape on how prepared they are to meet evolving regulatory, market, and financial demand while unlocking new market opportunities.

The study followed a three-step approach of in-depth discussions and interviews, a survey of close to 400 SME participants as well as insights from secondary research.

Nik Nazmi said the report provides actionable insights and strategic guidance to help SMEs manage ESG risk effectively, differentiate themselves in competitive markers, and thrive on both local and global stages.

Kellee Kam, Group Chief Executive Officer of Alliance Bank, added that the report also provides deeper insights into emerging trends and sector-specific challenges while identifying areas for growth and improvement. This includes providing clear and accessible ESG guidelines to support SMEs in the ever-evolving ESG landscape.

Some of the findings reveal that SMEs adopting ESG practices cite cost savings,  market demand, and innovation as primary motivators for integrating sustainable practices into their operations. To date, around 60% SMEs are now on board with ESG initiatives.

Here are some of the key findings in ESG Report 2.0

1. Increased ESG Adoption: 60% of SMEs now adopt ESG practices, a significant increase from 28% in ESG 1.0, with the manufacturing (69%) and construction (60%) sectors leading the way. In an interesting shift from the previous survey, 37% of ESG adopters said there is too much information on ESG now, resulting in confusion on the sustainability standards and frameworks to follow (ESG 1.0: 13%).

2. Primary Motivators: 53% and 51% of ESG adopters cite cost savings and market demand as key drivers respectively, with “innovation” now cited as Top 3 reasons as a pathway to profitability.

3. Benefits from ESG adoption: 38% of SMEs that incorporate ESG achieved more than 51% of increased revenue while 24% of SMEs that incorporate ESG achieved more than 51% cost savings.

4. Future Opportunities: Currently, 1 in 2 SMEs (48%) are self-funding their ESG initiatives, and amongst the non-adopters, 52% plan to implement ESG practices within 2 years, out of which 13% intend to adopt in less than a year; presenting an opportunity for various industry stakeholders to support their transition.

The full ESG 2.0 Report can be downloaded from Alliance Bank’s official website here.

How to include ESG in your company’s operations?

During the “SME ESG State of Play and Moving Forward Faster” panel discussion, Azfar Asa’ad, a Senior Advisor Business, Investment, and International Advisor at CPA Australia, said the awareness about ESG is low but getting better.

He shared that most SMEs weren’t aware they were already doing ESG such as taking care of staff welfare and more. This was discovered after they removed the word “ESG” from company surveys.

In short, ESG is not only about the environment, going green, or a green transition. Most companies forget the Social and Governance component in the acronym ESG.

The panel members also mentioned how it’s not enough to only send company accountants to help implement ESG practices in the company. They encourage company founders and/or leaders to learn about ESG and how it can help their company grow better. After all, leadership starts from the top.

Kausalya Gopal, the Director of Economics and Policy Division at SME Corp, made an interesting point that companies who have plans to implement ESG practices should not blindly follow the model from other countries, but implement it in a way that aligns with the company and its current circumstances.

Just like improving our lifestyle, change happens gradually and companies don’t have to implement everything related to ESG. They are free to tailor it and decide what works for the company and start from there.

For those who are interested in learning more about ESG and how to incorporate it in their company, SME Corp has previously organised a one-day programme to help businesses get started and introduced an ESG Quick Guide last year. There are also government agencies and banks offering financial support for companies to adopt ESG practices.

During the Q&A session, the matter of green hushing was briefly mentioned. Green hushing refers to companies purposely hiding or keeping quiet about their sustainability goals, whether well-intentioned or not for fear of being labelled greenwashers.

The panellists agreed that it’s important for companies to share the progress of their ESG initiatives, whether good or bad because it offers a true reflection of what’s happening on the ground. The openness of the challenges and setbacks companies face can help companies take appropriate steps to remedy the situation and improve.

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