ESG Frameworks: CMM's New Five Sector-Specific Guidelines
Are you confused about the importance of using ESG frameworks and your obligations when creating your annual reports? We are here to help.
In June 2024, Capital Markets Malaysia (CMM), an affiliate of the Securities Commission Malaysia (SC), unveiled extended environmental, social and governance (ESG) disclosure guidelines tailored for small and medium enterprises (SMEs) in five sectors: energy, transport and logistics, construction and real estate, agriculture, and manufacturing.
Building on the Simplified ESG Disclosure Guide (SEDG) released in October 2023, CMM meticulously crafted these sector-specific guides through extensive consultations with various stakeholders, including multinational companies, SMEs, regulatory bodies, and policymakers.
The new guidance—separated into three categories: basic, intermediate, and advanced levels—aims to accommodate varying degrees of sustainability maturity among SMEs, offering enhanced environmental considerations and mandated disclosures on biodiversity, climate change, and nature-related risks.
Speaking at the launch of the extended guidelines, Datuk Seri Dr Awang Adek Hussin, SC executive chairman and CMM chairman, stated, "These sectors are crucial to Malaysia's GDP. Implementing these guidelines will help ensure that our SMEs remain competitive and sustainable in the global market."
CMM general manager Navina Balasingam added, "The positive response to the SEDG encouraged us to develop these sector-specific guides. We anticipate that they will significantly impact the sustainability practices of SMEs across these key industries."
CMM's ESG framework aligns with international and local standards and significantly benefits Malaysian SMEs. These guidelines can enhance SMEs' reputations, open up new funding opportunities, and strengthen their risk management capabilities for companies involved in these critical sectors.
Importance of ESG Frameworks for SMEs
Environmental, social, and governance (ESG) reporting frameworks are crucial for SMEs. They help businesses identify and manage risks related to sustainability. By adopting ESG criteria, SMEs can enhance operational efficiency, reduce costs, and meet regulatory requirements.
ESG reporting frameworks are pivotal in enhancing transparency, a critical factor in attracting investors and customers who prioritise sustainable goods and services.
Aligning with ESG standards fosters better community relations and strengthens SMEs' brand reputation. This positive perception of the company aids in securing funding and positions SMEs competitively in the market.
As global and local sustainability expectations rise, these report frameworks are indispensable for SMEs aiming to thrive. They can help them achieve long-term success and reduce environmental impact.
Overview of Sector-Specific Guides
The new sector-specific guides, which cater to the energy, transport and logistics, construction and real estate, agriculture, and manufacturing sectors, use the SEDG as a baseline. They have been further refined through extensive consultations with various stakeholders, ensuring they address each sector's unique challenges and opportunities.
The guidance starts at a basic level, accommodating the starting point of many SMEs and pushing them to work towards the advanced level. These guides provide detailed instructions on environmental considerations such as biodiversity, climate change, and other nature-related risks.
Additionally, they include guidelines on human rights and labour rights, particularly relevant for sectors like agriculture, manufacturing, and construction. By following these guides, SMEs can effectively enhance their ESG reporting standards and align with both international and local sustainability good practices.
Development and Consultation Process for Simplified ESG Disclosure Guidelines
CMM's Simplified ESG Disclosure Guide (SEDG) aims to help SMEs elevate their sustainability reporting standards. It serves as a foundational ESG framework, offering straightforward and practical guidelines for SMEs to disclose their ESG practices.
The SEDG aims to simplify often complex ESG reporting frameworks, making it easier for SMEs to comply with both local and international standards. This initial guide laid the groundwork for the more detailed, sector-specific guides that further enhanced Malaysian SMEs' ESG information disclosure capabilities.
Stakeholder Involvement and Feedback
By involving a wide array of stakeholders in the initial SEDG document, CMM ensured that the resultant guidance was relevant and practical for SMEs. Consultations included input from multinational companies, public-listed firms, SMEs, regulatory bodies, and policymakers.
The extended ESG reporting guidelines for the five sectors also included a comprehensive and inclusive process. Each stakeholder group provided valuable perspectives that shaped the final ESG framework. CMM organised feedback sessions to gather insights on specific sector challenges and opportunities.
This collaborative effort ensured that the guidelines aligned with global and local environmental standards but were tailored to each sector's needs. It helped refine the guidelines, making them more accessible and actionable for SMEs at different stages of their sustainability journey. This participatory process underscores CMM's commitment to creating robust environmental, social and governance frameworks that support the sustainable growth of Malaysian SMEs.
Breakdown of New Sector-Specific ESG Frameworks
Levels of Sustainability Maturity
Capital Markets Malaysia's ESG guidelines have basic, intermediate, and advanced levels to accommodate SMEs' varying levels of sustainability maturity.
The basic level is for SMEs beginning their journey. It provides fundamental ESG criteria and straightforward reporting requirements. The intermediate level targets SMEs with some experience in ESG practices. It offers more detailed guidance on environmental, social, and governance issues.
The advanced level fits SMEs already well-versed in sustainability, incorporating comprehensive ESG reporting frameworks and more rigorous disclosure requirements. This tiered approach ensures that all SMEs can find guidance that meets their needs regardless of their current practices.
By following these structured levels, SMEs can progressively enhance their ESG systems, improve performance, and align more closely with global and local ESG standards.
Enhanced Environmental Considerations
CMM’s guidelines place a strong emphasis on enhanced environmental considerations. They mandate disclosures on critical ecological issues, considering biodiversity, climate change, and other environmental-related risks. SMEs must assess their impact on local ecosystems and implement measures to mitigate adverse effects.
The SDEG also encourages businesses to adopt practices contributing to climate resilience, such as reducing greenhouse gas emissions and improving energy efficiency. Additionally, companies must disclose their strategies for managing natural resources sustainably.
These environmental considerations aim to help SMEs comply with regulatory requirements, improve their corporate sustainability reporting, and contribute positively to environmental issues. By integrating these practices into their operations, SMEs can improve their environmental performance, reduce risks, and enhance their reputation among stakeholders and consumers who prioritise more eco-friendly goods and services.
Human Rights and Labour Rights Focus
A significant aspect of the ESG framework is the focus on human and labour rights. These guidelines address critical issues such as forced labour, child labour, and fair working conditions, particularly relevant to agriculture, manufacturing, and construction sectors.
SMEs must implement policies that protect workers' rights and uphold ethical labour practices, including adhering to local and international labour laws, providing safe working environments, and ensuring fair wages. The guidelines also encourage businesses to conduct regular audits and assessments to identify, prevent, and rectify any human rights violations within their operations or supply chains.
By prioritising human and labour rights, SMEs can foster a more ethical workplace, attract socially conscious investors, and enhance their corporate reputation. These practices mitigate risks and contribute to the overall well-being of employees and the broader community.
Alignment with Global and Local ESG Reporting Standards
Capital Markets Malaysia's ESG guidelines align with a range of international standards, ensuring that SMEs meet both international and local requirements. These include the International Sustainability Standards Board (ISSB), The Greenhouse Gas Protocol, and the Global Reporting Initiative (GRI).
By adhering to these well-recognised standards, SMEs can enhance their credibility and appeal to international investors. The guidelines also align with the Malaysian Code on Corporate Governance and Bursa Malaysia Listing Requirements, ensuring local compliance. This dual alignment helps SMEs navigate the complex landscape of ESG reporting, providing a clear framework.
Compliance with these standards improves SMEs' transparency and accountability and positions them favourably in the global market. As a result, businesses can tap into more funding opportunities, build more robust stakeholder trust, and effectively manage risks associated with environmental, social, and governance issues.
Benefits for Malaysian SMEs
Adopting CMM's ESG guidelines offers numerous benefits for Malaysian SMEs, such as:
- Compliance with recognised ESG standards significantly enhances their reputation and brand image. This increased credibility can attract more investors and customers who prioritise environmentally friendly and ethical goods and services.
- Adhering to these guidelines improves access to funding and investment opportunities, as many financial institutions and investors favour businesses with robust ESG practices.
- Implementing these guidelines helps SMEs manage risks more effectively, reducing the likelihood of environmental or social crises. Proactive risk management also helps reduce operational costs and increase efficiency.
- ESG compliance ensures SMEs meet regulatory requirements, avoiding potential legal issues and penalties.
These benefits contribute to Malaysian SMEs' long-term competitiveness, helping them thrive in local and international markets.
MyGreenlight: Ensuring Compliance with CMM's Guidelines
HiveDome's MyGreenlight software on the StepOnline platform is an innovative tool designed to simplify ESG reporting for small and medium enterprises (SMEs) in Malaysia. It offers a range of features and capabilities that streamline the compliance process with CMM's new sector-specific ESG guidelines.
With its intuitive interface, SMEs can easily input data and generate reports that comply with CMM's ESG requirements. Our platform provides user-friendly templates tailored for different sectors, ensuring SMEs can easily meet their industry's reporting requirements. MyGreenlight streamlines the ESG reporting process for SMEs by automating many of the tasks involved.
It integrates data collection from various sources, accurately and efficiently capturing all relevant ESG information related to climate change, human rights and governance metrics. It also includes automated reporting functions, reducing the manual effort involved in ESG disclosure. Additionally, it offers real-time analytics and dashboards, enabling businesses to track their sustainable development goals and identify areas for improvement.
The software has features that facilitate compliance with both local and international ESG standards, including any updates, making it a comprehensive solution for SMEs. Using MyGreenlight, SMEs can enhance their ESG reporting standards, improve transparency, and build stronger stakeholder trust, ultimately supporting their environmental, ethical and governance goals.
By reducing the complexity and administrative burden of ESG reporting, MyGreenlight enables SMEs to focus more on implementing sustainable practices rather than just documenting them. This streamlined approach helps SMEs improve their ESG systems and ensures timely and accurate reporting.
CMM and MyGreenlight: Helping SMEs Adopt Sustainable Practices
Capital Markets Malaysia's ESG guidelines aim to help small and medium enterprises (SMEs) in Malaysia meet national and global standards. These guidelines enhance ESG reporting within key sectors, including energy, transport and logistics, construction and real estate, agriculture, and manufacturing. They offer a tiered approach—basic, intermediate, and advanced—to accommodate SMEs at various stages of their journey.
Focusing on critical areas such as environmental considerations, human rights, and labour rights ensures comprehensive ESG compliance. The guidelines also aim to improve SMEs' transparency, risk management, and access to funding opportunities. Ultimately, these ESG guidelines should foster sustainable business practices, bolstering Malaysian SMEs' reputation and long-term success.
However, these guidelines are not merely about regulatory compliance; they offer a pathway for SMEs to integrate ethical, environmental and good governance practices into their core operations. By following these guidelines, SMEs can improve their environmental, social, and governance (ESG) performance, leading to increased efficiency, reduced operational risks, and enhanced reputation.
MyGreenlight simplifies this journey by offering tools that streamline ESG reporting and compliance. SMEs are encouraged to adopt these sustainable practices, which can attract socially responsible investors and customers, thus opening up new business opportunities.
Embracing sustainability and ethical work practices is no longer optional but essential for long-term success. By leveraging the guidelines and tools provided, Malaysian SMEs can position themselves as leaders in corporate responsibility, ensuring their growth and competitiveness in an increasingly eco-conscious market.
Contact us today to find out more and book a demo of MyGreenlight's ESG reporting software so that you can stay ahead of the competition.
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