(This is a sponsored post with MRANTI.)
ESG (Environmental, Social and Governance) has become a corporate buzzword widely discussed in boardrooms around the world.
However, a Alliance Bank 2023 Report noted that Malaysian SMEs may not be aware of the importance of adopting ESG principles, despite the government’s efforts.
This could indicate that SMEs may not have the best understanding of what practicing ESG actually means.
Naturally, small business owners may then wonder whether it is worth putting the effort into this exercise.
Thus, in collaboration with Malaysian Research Accelerator for Technology and Innovation (MRANTI), we reached out to three Malaysian startup CEOs who are practicing ESG in their companies to debunk some misconceptions on the subject.
They also shed light on how SMEs can achieve this without restructuring their businesses.
- Joshua Lim, co-founder and CEO of Bee baga startup that reduces plastic pollution by gamifying the use of reusable shopping bags;
- Dr. Raihan Musa, CEO of Exploriaa startup that educates children about the importance of environmental protection through STEM-based online learning, DIY kits, and field trips;
- Pennie Lim, founder and CEO of Homaa startup that recycles construction waste into sustainable and affordable building materials.
Misconception #1: ESG focuses only on environmental factors
Many may mistakenly think that ESG only focuses on the environmental factors of a company’s practices.
For this reason, SMEs may find the ESG approach intimidating, for fear of greenwashing.
In short, greenwashing occurs when a company intentionally or unintentionally misleads investors and consumers into believing that its product is more environmentally friendly than it actually is.
“ESG is not limited to environmental sustainability, but also involves treating consumers and employees well, promoting social impact and maintaining strong governance practices,” Dr. Raihan told Vulcan Post.
Each aspect of ESG is assessed on a spectrum to show an organization’s commitment to mitigate external damage.
For example, environmental criteria explore a company’s commitment to preserving the environment through corporate policies targeting climate change.
Social criteria assess consideration of humans, evaluate policies that promote diversity, fair and decent wages and provide protection against sexual misconduct.
Finally, governance considers issues such as corporate transparency.
“At its core, I think what ESG is trying to achieve is to tell companies to focus not only on profits, but also to focus on creating a positive impact for the stakeholders they affect directly or indirectly,” Joshua explained.
Pennie views ESG as a comprehensive framework that guides his company’s practices and culture.
Misconception #2: My ESG efforts only count if I track all the metrics
“Adopting ESG practices doesn’t have to be an all-or-nothing effort,” Joshua said. “It is possible to start developing good ESG habits in incremental steps. »
All three interviewees said SMEs can start by focusing on specific areas that align with their values and businesses.
For example, Homa guarantees fair and equitable compensation to employees, while promoting a positive work environment.
“The key is to take a pragmatic and incremental approach, gradually integrating sustainable practices into company operations and culture,” Pennie said.
“Over time, as the benefits become evident, SMEs can strategically allocate resources to further improve their ESG practices. »
Misconception #3: ESG only applies to larger companies because they have a larger footprint
For SMEs, ESG may seem like a concern reserved for larger companies, as multinational companies have a greater impact on the environment and the people around them.
But based on the experiences of our interviewees, putting ESG into practice is something that can be implemented by all companies, regardless of size.
“Consumers increasingly prefer companies that align with their values and demonstrate a commitment to sustainability,” Joshua said.
“By adopting ESG practices, SMEs can attract environmentally and socially conscious customers, improve their brand reputation and gain a competitive advantage. »
It’s not just about the consumers, but also the talent, Dr Raihan added.
“Employees, especially younger generations, are looking for meaningful work and aligning their values with those of the organizations they join,” she explained. “By prioritizing ESG practices, SMEs can create a purpose-driven work environment that attracts and retains motivated employees. »
Pennie highlighted that adopting ESG practices can also give companies an edge when it comes to fundraising.
Dr Raihan explained: “Investors and financial institutions are increasingly integrating ESG criteria into their decision-making processes. SMEs that adopt ESG practices may have an advantage in accessing capital, obtaining loans or attracting investments.
This advice comes from a place of experience.
In 2022, Exploria and Beebag were chosen by MRANTI and UNICEF to receive an award of RM150,000 each to MRANTI Impact Challenge Accelerator.
The accelerator supports and promotes startups that address social and environmental challenges.
Misconception #4: Adopting ESG is expensive and there are too many changes to make
It is understandable that SMEs with less established resources and financing may struggle to adopt ESG practices.
This may be because entrepreneurs believe that many changes need to be made systematically and operationally for a company to put ESG into practice.
However, this is not necessarily the case. Joshua said many ESG practices can leverage existing resources and infrastructure.
“For example, SMEs can start by implementing energy saving measures, promoting waste reduction and recycling or creating fair employment,” he said.
Joshua added that work-from-home arrangements can help businesses contribute to reducing carbon emissions, while the use of digital platforms minimizes paper consumption.
By creatively using existing resources, SMEs can adopt ESG without making significant financial investments and could even see a reduction in operational costs.
Entrepreneurs highlighted that SMEs can also ease their financial burden by taking advantage of the support available.
“Various government and non-government organizations offer resources, guidance and funding opportunities to help businesses adopt ESG practices,” Joshua added.
Misconception #5: ESG reporting is too confusing with so many existing frameworks
ESG reporting is intended for companies to detail their ESG practices to stakeholders, thereby demonstrating the organization’s transparency, accountability and commitment to sustainability.
Currently there are various methodologies and standards for ESG reporting, which can be difficult for SMEs to determine which ones to follow.
Compassionate with uncertainty, MRANTI is developing its own ESG framework that Malaysian businesses can easily refer to.
“There is no one size fits all when it comes to sustainability frameworks,” emphasized Khalid Yashaiya, Director of Strategy at MRANTI.
“Given the general understanding of the concept of sustainability, the notion must be defined, developed, implemented and monitored according to individual business needs and/or social mission to avoid greenwashing. »
A dedicated framework can also help investors, consumers and other businesses make informed business investment decisions.
Called MRANTI Sustainability Framework, MRANTI’s goal is to support the country’s sustainability efforts, develop an inclusive workforce, and continually help the startup ecosystem become ESG responsible.
The MRANTI sustainability framework is being mapped following the United Nations Sustainable Development Goals (SDG).
Once the framework is published, we hope it will enable all businesses, including SMEs, to do the same, much more clearly.
Ultimately, adopting ESG practices is a journey, and it’s okay to start small. Every step a company takes towards sustainability and social responsibility remains positive.
As Dr. Raihan summarized: “It is essential to recognize that change, particularly in long-established practices, can be challenging. That said, adopting ESG principles can ultimately yield benefits in terms of resilience, reputation and long-term success.
Featured Image Credit: Dr Raihan Musa, CEO of Exploria / Joshua Lim, Co-Founder and CEO of Beebag / Pennie Lim, Founder and CEO of Homa