Looming Scope 3 reporting deadline puts pressure on Malaysian small and medium enterprises to disclose sustainability information
The Malaysian economy is a diverse tapestry, with five key sectors - agriculture, construction and real estate, energy, manufacturing, and transport and logistics - playing significant roles. To help small and medium-sized enterprises (SMEs) navigate the complex world of sustainability reporting and Environmental, Social, and Governance (ESG) disclosures, the Sector Guides, an extension of the SEDG, have been released [1].
The SEDG offers a "clear pathway" for SMEs, providing a simplified approach to sustainability reporting and ESG disclosures, going beyond mere data disclosure to demonstrate a company's commitment to creating long-term value for all stakeholders [2]. Recognising the challenges faced by SMEs, especially those within large company supply chains, in measuring Scope 3 emissions, the Sector Guides aim to simplify ESG reporting and build an ecosystem between SMEs and their larger corporate partners [3].
Major corporations such as Petronas, Telekom Malaysia, Nestlé Malaysia, and Malaysian conglomerate Sunway Group have adopted the SEDG to elevate sustainability within their supply chains, benefiting thousands of Malaysian SMEs [1]. However, despite growing awareness of the value of ESG integration, many SMEs remain slow to adopt these practices [2].
In 2023, the Simplified ESG Disclosure Guide (SEDG) for SMEs in Supply Chains was launched to help SMEs with the sustainability reporting process and align them with global frameworks and international reporting standards [4]. The SEDG outlines additional considerations required by specific sectors, including environmental aspects such as biodiversity and climate, and social aspects like child and forced labor [3].
The SEDG provides a standard set of disclosures tailored for SMEs to track and report ESG progress [2]. It also includes a GHG Emissions Calculator, recently expanded by Capital Markets Malaysia (CMM) to aid SMEs in measuring and reporting their Scope 1 and Scope 2 greenhouse gas emissions [4]. This user-friendly tool applies the GHG Protocol Corporate Accounting and Reporting Standard methodology, helping SMEs identify key emission sources and take meaningful climate action [4].
While not directly mandatory for SMEs, companies in large supply chains need to align and support these disclosures as part of the larger companies’ Scope 3 reporting requirements [1][3]. The National Sustainability Reporting Framework (NSRF) requires Malaysia’s largest publicly listed companies to disclose their entire value chain’s GHG emissions by 2027 [1].
Ignoring Scope 3 emissions would theoretically mean leaving out 70 to 90% of a company’s total carbon footprint [3]. Malaysian SMEs are encouraged to prepare for such reporting to meet their customers’ increasing disclosure demands [1][3]. Incremental Scope 3 Reporting, where large non-listed companies (with revenues above RM2 billion) may delay full Scope 3 disclosures until 2030, puts pressure on public-listed companies to start including Scope 3 emissions soon, impacting SMEs as upstream suppliers [1][3].
Policy and legislative support are also on the rise. Amendments to legislation and the expansion of standard setters like the Malaysian Accounting Standards Board (MASB) are underway to support sustainability reporting consistency and public availability of disclosures, which will further formalize SME reporting expectations in relation to large companies [3].
In summary, Malaysian SMEs looking to align with global sustainability reporting and Scope 3 requirements should leverage the Simplified ESG Disclosure Guide and its GHG emissions calculator, prepare for engagement with the NSRF requirements affecting their buyer companies, and adopt internationally recognized frameworks like IFRS S1 and S2 and the GHG Protocol. The national and capital market regulators are actively supporting SMEs with tools and guidance to meet these emerging demands from supply chain partners and regulators [1][2][4].
The SEDG serves as both a reporting guide and a tool for informed decision-making. However, challenges remain, such as obtaining Scope 3 emissions data from suppliers, as reporting is still voluntary, as demonstrated by Malaysia-based commercial printing company Thumbprints Utd Sdn Bhd [5]. The journey towards sustainable business practices continues, but with the right tools and support, Malaysian SMEs can play a significant role in creating a more sustainable future for the nation.
[1] Capital Markets Malaysia. (2023). Simplified ESG Disclosure Guide for SMEs in Supply Chains. Retrieved from https://www.capitalmarkets.com.my/sedg-for-smes-in-supply-chains/
[2] Capital Markets Malaysia. (2023). Sector Guides. Retrieved from https://www.capitalmarkets.com.my/sector-guides/
[3] Securities Commission Malaysia. (2023). National Sustainability Reporting Framework. Retrieved from https://www.sc.com.my/resources/national-sustainability-reporting-framework/
[4] The Edge Markets. (2023). SEDG for SMEs in Supply Chains: A guide to help SMEs track and report ESG progress. Retrieved from https://www.theedgemarkets.com/article/sedg-smes-supply-chains-guide-help-smes-track-and-report-esg-progress
[5] The Star. (2023). SMEs struggle to obtain Scope 3 emissions data from suppliers. Retrieved from https://www.thestar.com.my/business/business-news/2023/03/01/smes-struggle-to-obtain-scope-3-emissions-data-from-suppliers
- Recognizing the importance of section 3 emissions in the fight against deforestation and carbon footprint reduction, Malaysian SMEs need to be proactive in obtaining Scope 3 emissions data from their suppliers to align with global sustainability goals.
- As more focus is placed on ESG integration, it becomes crucial for SMEs to enhance their corporate responsibility towards biodiversity conservation, sustainability, and net zero initiatives through the adoption of internationally recognized frameworks like IFRS S1 and S2 and the GHG Protocol.
- In an effort to promote education-and-self-development within SMEs, capital market regulators in Malaysia are actively supporting them with tools and guidance such as the Simplified ESG Disclosure Guide and its GHG emissions calculator, aiming to help SMEs navigate the complex world of sustainability reporting and ESG disclosures.
- To drive change and foster a culture of sustainability within the Malaysian economy, large corporations and their corporate partners can collaborate with SMEs, working together towards common targets such as improving supply chain transparency, reducing deforestation, and conserving biodiversity.
