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Approaching Scope 3 reporting deadline, Malaysian small-to-medium enterprises face stress to disclose sustainability information

Malaysia's fresh sustainability reporting requirement boosts corporate responsibility, compelling businesses to match international emissions norms and transform their supply chains towards a low-carbon existence.

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5 min read
Pressure mounts on Malaysian Small and Medium Enterprises (SMEs) as they approach the deadline for...
Pressure mounts on Malaysian Small and Medium Enterprises (SMEs) as they approach the deadline for disclosing sustainability information, under the scope 3 reporting regulations.

Approaching Scope 3 reporting deadline, Malaysian small-to-medium enterprises face stress to disclose sustainability information

Malaysia has taken a significant step towards promoting sustainability within its business community, particularly among Small and Medium-sized Enterprises (SMEs). In 2023, Capital Markets Malaysia (CMM) launched the Simplified ESG Disclosure Guide (SEDG) for SMEs in Supply Chains, a practical framework designed to support these businesses in sustainability reporting [1][3].

The SEDG simplifies the ESG reporting process by providing clear, prioritized disclosure requirements that align with international standards [3]. It outlines 38 ESG disclosures across Basic, Intermediate, and Advanced tiers, allowing businesses to adopt and report progressively according to their capability and maturity. This tiered approach helps SMEs manage reporting complexity and ensures they meet expectations from multinational customers and regulators.

The guide is particularly significant because Malaysia is the first country to provide such an SME-tailored ESG disclosure guide, aligned with various global and local frameworks. This move encourages broader ESG adoption among the large SME sector, which accounts for 97% of Malaysian businesses and 38% of GDP [1].

To further facilitate the ESG reporting process, CMM has launched tools like the SEDG Greenhouse Gas (GHG) emissions calculator. This tool, based on globally accepted standards like the GHG Protocol and IPCC guidelines, helps SMEs measure and report their Scope 1 and Scope 2 emissions. It identifies main emission sources and supports credible, consistent sustainability disclosures [5].

The SEDG aims to simplify ESG reporting for businesses with limited experience in sustainability practices and to build an ecosystem between SMEs and their larger corporate partners. It also helps SMEs leverage ESG adoption for market access, cost savings, talent attraction, resilience, and long-term growth [1][3][5].

Meanwhile, the National Sustainability Reporting Framework (NSRF) includes a mandatory Scope 3 reporting requirement, which encompasses all indirect emissions from a company's upstream and downstream activities, excluding direct emissions (Scope 1) and those from energy use (Scope 2). However, many SMEs struggle to obtain Scope 3 emissions data from their suppliers due to the current voluntary nature of reporting [2].

To address this issue, companies are encouraged to take the initiative and inform their suppliers about available guidance such as the SEDG. Across Asia Pacific, 63% of companies conduct regular supplier assessments, and 66% have integrated environmental and social requirements into supplier onboarding processes [4].

The SEDG serves as both a reporting guide and a tool for informed decision-making, assisting SMEs in determining what to measure, how to report, and how to effectively communicate their sustainability journey. As sustainability reporting is not just about disclosing data, it's about demonstrating a company's commitment to creating long-term value for all stakeholders.

With the NSRF's mandatory Scope 3 reporting requirement set to take effect in 2027, it's crucial for SMEs to start preparing now. Major corporations such as Petronas, Telekom Malaysia, Nestlé Malaysia, and Malaysian conglomerate Sunway Group have already adopted the SEDG, benefiting thousands of Malaysian SMEs.

References:

[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] The Star. (2023). Struggles to obtain Scope 3 emissions data. Retrieved from https://www.thestar.com.my/business/business-news/2023/02/15/struggles-to-obtain-scope-3-emissions-data

[3] The Edge Markets. (2023). Simplified ESG Disclosure Guide for SMEs in Supply Chains launched. Retrieved from https://www.theedgemarkets.com/article/simplified-esg-disclosure-guide-smes-supply-chains-launched

[4] PwC. (2022). Asia Pacific Supply Chain Sustainability Survey 2022. Retrieved from https://www.pwc.com/sg/en/services/assurance/sustainability-assurance/asiasupplychainsustainabilitysurvey2022.html

[5] CMM. (2023). SEDG Greenhouse Gas (GHG) Emissions Calculator. Retrieved from https://www.capitalmarkets.com.my/sedg-ghg-emissions-calculator/

  1. The Simplified ESG Disclosure Guide (SEDG) for SMEs in Supply Chains, launched by Capital Markets Malaysia (CMM), aims to support businesses in their sustainability reporting.
  2. The SEDG outlines 38 ESG disclosures across Basic, Intermediate, and Advanced tiers, allowing businesses to adopt sustainability reporting progressively.
  3. This framework simplifies ESG reporting for businesses with limited experience in sustainability practices.
  4. The SEDG aims to build an ecosystem between SMEs and their larger corporate partners.
  5. The guide intends to help SMEs leverage ESG adoption for market access, cost savings, talent attraction, resilience, and long-term growth.
  6. The SEDG includes a Scope 3 reporting requirement, which encompasses all indirect emissions from a company's upstream and downstream activities.
  7. Many SMEs struggle to obtain Scope 3 emissions data from their suppliers due to the current voluntary nature of reporting.
  8. To address this issue, companies are encouraged to inform their suppliers about the SEDG.
  9. Across Asia Pacific, a majority of companies conduct regular supplier assessments and have integrated environmental and social requirements into supplier onboarding processes.
  10. As sustainability reporting is not just about disclosing data, it's about demonstrating a company's commitment to creating long-term value for all stakeholders.
  11. The SEDG Greenhouse Gas (GHG) emissions calculator, launched by CMM, helps SMEs measure and report their Scope 1 and Scope 2 emissions.
  12. The NSRF's mandatory Scope 3 reporting requirement is set to take effect in 2027, making it crucial for SMEs to start preparing now.
  13. Major corporations such as Petronas, Telekom Malaysia, Nestlé Malaysia, and Malaysian conglomerate Sunway Group have already adopted the SEDG, benefiting thousands of Malaysian SMEs.
  14. The SEDG Greenhouse Gas (GHG) emissions calculator uses globally accepted standards like the GHG Protocol and IPCC guidelines to identify main emission sources.
  15. Meeting ESG disclosure expectations from multinational customers and regulators is important for SMEs as it can impact their relationships, deals, and discounts.
  16. Sustainability within businesses is essential to combat climate-change, promote corporate responsibility, and contribute to the Sustainable Development Goals (SDG).
  17. The SEDG's tiered approach helps SMEs manage reporting complexity and ensures they meet expectations from multinational customers and regulators.
  18. The SEDG helps SMEs in determining what to measure, how to report, and how to effectively communicate their sustainability journey.
  19. Sustainable-living involves making eco-friendly choices in cooking, dining, food-and-drink, lifestyle, outdoor-living, interior-design, and fashion-and-beauty.
  20. Sustainable cooking practices can include using locally sourced ingredients and minimal packaging, while healthy-cooking emphasizes using fresh and nutritious foods.
  21. Sustainable dining experiences can support eco-friendly restaurants, reducing food waste, and promoting responsible sourcing of ingredients.
  22. The SEDG can help SMEs in the food-and-drink industry minimize their carbon footprint, conserve biodiversity, and combat deforestation.
  23. Sustainable shopping involves making informed decisions about product choices, shopping locally, and supporting brands with sustainable practices.
  24. Shopping for eco-friendly products, such as local handicrafts, artisanal goods, and sustainable fashion, promotes the local economy and supports environmental conservation.
  25. SMEs can contribute to sustainable home-and-garden practices by using energy-efficient appliances, wooden furniture made from sustainable sources, and eco-friendly gardening tools.
  26. The SEDG encourages SMEs to prioritize sustainable home improvement practices, such as using low-VOC paints, energy-efficient windows, and water-saving fixtures.
  27. The SEDG's guidelines can be applied to various sectors, including the manufacturing industry, finance, personal-finance, and technological advancements like gadgets, smartphones, and electric vehicles.
  28. Embracing the principles of sustainability, businesses can adopt practices that promote a healthier environment, reduce their carbon footprint, and contribute to the long-term health and well-being of the planet and its inhabitants.

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