As the global focus on environmental, social and governance (ESG) and sustainability investments intensifies, by leveraging on the Simplified ESG Disclosure Guide (SEDG), Small Medium Enterprises (SMEs) in Malaysia would be able adapt to these evolving market demands. Rather than merely addressing existing gaps, the SEDG serves to assist SMEs to align their operations with international standards and expectations. This alignment with international best practices can provide local SMEs with a competitive edge as sustainability becomes a central focus for investors, regulators and customers.
SEDG Sector Guides
In May 2024, Capital Markets Malaysia (CMM) launched an additional ESG guidance on disclosure expectations for SMEs in five sectors. The SEDG Sector Guides offer enhanced ESG disclosure guidelines specifically for SMEs in the following key sectors:
1. Energy
2. Transport and Logistics
3. Construction and Real Estate
4. Agriculture
5. Manufacturing
These guides emphasise sector-specific environmental disclosures to help SMEs better understand and report their impact on the surrounding ecosystem. This includes critical issues such as biodiversity, nature-related risks, and climate disclosures, which are especially important for high-emission industries within these supply chains.
Moreover, the sector guides address social considerations by helping SMEs align with international human rights and labour standards, focusing on tackling global issues like forced labour. These social guidelines are particularly relevant for labour-intensive sectors such as agriculture, manufacturing, and construction and real estate, where supply chains often involve significant labour concerns.
Pillars Of SEDG
As SMEs embark on their ESG journey through the SEDG, they are guided by its three foundational pillars. These pillars provide a comprehensive framework for businesses to measure and improve their sustainability efforts. The tiered approach allows for scalable progress, enabling SMEs to advance from basic reporting to more comprehensive disclosures.
The Environmental Pillar
• Emissions:
SMEs are required to report both direct and indirect greenhouse gas (GHG) emissions. Basic-level reporting includes total emissions, with higher levels focusing on reduction initiatives and indirect GHG emissions.
• Energy:
Focuses on shifting to renewable energy. SMEs need to report consumption of both renewable and non-renewable energy and demonstrate reduction efforts as they advance.
• Water:
SMEs are required to report water usage, emphasising the importance of improving water quality and addressing scarcity.
• Waste:
SMEs are required to report on waste generation which are categorised into hazardous and non-hazardous. Advanced stages require SMEs to adopt recycling and reuse initiatives.
• Materials:
SMEs are required to report the total weight of materials used in their products and packaging, with an emphasis on increasing the percentage of recycled materials to reduce dependency on non-renewable resources.
The Social Pillar
• Human Rights & Labor:
SMEs must disclose incidents of child or forced labour and risks within their operations and supply chains.
• Employee Management:
Reporting includes training hours and turnover rates, reflecting the company's investment in employee welfare and development.
• Diversity, Equity & Inclusion:
Companies are required to report the gender and age demographics of employees and directors, fostering inclusive practices and diverse leadership.
• Occupational Health & Safety:
Reporting on work-related fatalities and injuries, and ensuring safety training is crucial for compliance with health regulations.
• Community Engagement:
SMEs are required to disclose community investments and any negative impacts on local communities, highlighting their corporate social responsibility.
The Governance Pillar
• Governance Structure:
Reporting includes board composition and structure, promoting transparency and accountability in management.
• Policy Commitments:
Requires reporting of the company’s policies including but not limited to the Code of Conduct, Anti-Corruption Policy, Whistleblowing Policy, and Health and Safety Policy.
• Risk Management:
Requires reporting on financial audits, risk assessments, and compliance with regulations. Advanced level requires reporting on sustainability risks, including climate-related physical and transition risks.
• Anti-Corruption:
In line with anti-corruption laws, SMEs must report incidents of corruption and detail employee training on ethical practices.
• Customer Privacy:
SMEs need to disclose any breaches of customer data, underscoring the importance of safeguarding consumer privacy.
Conclusion - A Simplified ESG Disclosure Guide
Malaysia has become the first country to introduce a standardised framework for SMEs within global supply chains to manage ESG disclosures. The SEDG is designed to make various global and local ESG frameworks more accessible. The SEDG offers 35 key disclosures which are categorised into three levels, namely (a) basic, (b) intermediate and (c) advanced which accommodate SMEs with varying degrees of sustainability experience.
Applicable across all industries, the guide encourages SMEs to assess the relevance and importance of each disclosure to their operations.
18 November 2024