Green Transition A Quantum Leap For Smes

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MNCs expect their suppliers, most of which are SMEs, to meet environmental, social and corporate governance standards by 2025, but most of them are not prepared for it. (Bernama pic)PETALING JAYA: It will be difficult for small and medium enterprises (SMEs) to make the transition into green business practices under current conditions, according to two groups representing them.
Both the SME Association of Malaysia and the Small and Medium Enterprises Association Malaysia (Samenta) have cited the lack of preparedness and high costs as stumbling blocks.
SME Association vice-president Chin Chee Seong said up to 90% of SMEs were still unprepared to make the move given that they are still under pressure to recover losses incurred during the periodic lockdowns to curb the spread of Covid-19 in 2020 and 2021.
“To put more pressure on them to set aside some funding for adopting initiatives related to environmental, social, and corporate governance (ESG) needs and sustainable development goals (SDGs) will make it tough for them,” he told FMT Business.
He said that for SMEs, the readiness to embrace green business practices also depended on their profitability.
Large SMEs, he said, had the funds needed to carry out the green transition. However, micro SMEs (MSMEs) are not able to do so.
Samenta president William Ng echoed similar sentiments. He pointed out that the level of preparedness among SMEs to make that leap into green business practices varied.
“Some SMEs have clients from among multinational corporations (MNCs) that help them make the transition by providing guidelines and consulting services, and at times, co-financing some of the investments required to upgrade older types of machinery and plants,” he told FMT Business.
“However, the majority of SMEs are left to their own devices.”
Ng pointed out that the transition to a low carbon operation was not just a matter of finding substitutes for raw materials and tweaking some processes. “Very often, it involves substantial capital expenditure to replace entire lines,” he said.
Chin and Ng were responding to a report that Malaysia would lose out significantly if SMEs did not undertake a net-zero carbon transition alongside their MNC partners.
The Aug 24 FMT Business report cited Sustainable Finance Institute Asia Ltd CEO Eugene Wong’s statement that 80% of MNCs had already made plans to remove suppliers that failed to meet their carbon transition target by 2025, and as a result Malaysia stood to lose up to US$65 billion (RM291.6 billion) in revenue.
While there is no doubt that such a transition is essential, little help has come from the state.
Recently, the international trade and industry ministry introduced the National ESG Framework for manufacturing companies that, among others, outlined several factors that would ease the transition for SMEs in four areas.
These areas are ESG standards, financial support and incentives, capacity building and market mechanisms that include carbon trading and carbon pricing.
However, economist Shankaran Nambiar of the Malaysian Institute of Economic Research said it was unlikely for SMEs to expect fiscal incentives for green transition in the upcoming budget due to the government’s limited fiscal space.
“(However) I am sure the government will want to find ways to encourage the acquisition of the necessary technology in the medium term,” he told FMT Business.
Despite the challenges, a successful transition remains on the horizon.
As Renard Siew, a climate change expert at the Centre for Governance and Political Studies, noted, many SMEs were already at the “nascent stage” of trying to establish their own carbon footprint.
To give them the push, Chin said, the government could introduce funds or tax incentives to help SMEs take the leap. At the same time, he said, applying for such assistance should be made easier.
For SMEs, it is a journey that has to be taken. As Chin pointed out, failure to do so would mean losing out to competitors that have embraced the change. - FMT

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