Challenges Faced by Malaysian MSMEs to Adopt ESG Standards

Abstract

This research dissected the eleven challenges faced by Malaysian micro, small and medium enterprises (MSMEs) to adopt environmental, social and governance (ESG) standards. Highlighting the economic prominence of Malaysian MSMEs that constituted 39.1% of the gross domestic product of Malaysia in 2023, the research pursued the gap on the absence of a cost effective and time efficient ESG pathway. Enabling MSMEs to continue advancing global competitiveness of large corporations while boosting Malaysia’s low carbon transition is the research objective. The research deployed a qualitative online structured interview approach supplemented with document review and triangulation to unveil the three dominant challenges of regulations and policies, finance, and supply chain. Totally, the research selected 29 ESG knowledgeable interviewees. In the order of relative importance, the challenges exploited encompassed regulations and policies, green finance, green supply chain, access to ESG information and technology, availability of ESG facilitators, government aids and grants, resources within MSMEs, education and awareness, ethical products market demand, mindset of MSMEs, and public-private partnership. Using institutional theory to elucidate how coercive, mimetic, and normative pressures influenced ESG standards adoption, the research discovered the Regulations, Finance and Supply Chains (RFSC) novelty pathway. Pivoting on the National Sustainability Reporting Framework and leveraging on Greening Value Chain and Low Carbon Transition Facility, the research proposed the navigation of the RFSC novelty pathway to overcome the dominant ESG challenges faced by Malaysian MSMEs, emphasizing the bridging roles of non-governmental organizations and decarbonization potential of Bursa Carbon Exchange, along the way.