A conceptual framework for Environmental, Social and Governance (ESG) disclosures among SMEs in Malaysia

Abstract

Small and medium enterprises (SMEs) play a vital role in the Malaysian economy, accounting for 97.4% of total business establishments and contributing 38.4% to the GDP in 2022. However, SMEs in Malaysia generally lag behind larger firms in adopting sustainability practices and making related disclosures on environmental, social, and governance (ESG) issues. Improving ESG disclosures can help SMEs enhance transparency, attract investors, access new markets, and strengthen their risk management. This study reviews the current status of ESG disclosure practices among Malaysian SMEs. They find that ESG disclosure is still at an early stage, with low awareness and adoption levels compared to larger companies. Key barriers include a lack of resources, expertise, and incentives for SMEs to prioritize sustainability reporting. To address this gap, this study proposes a conceptual framework to drive greater ESG disclosure by SMEs in Malaysia. The conceptual model provides a foundation for studying the factors that influence SMEs' willingness and capacity to enhance ESG disclosure. Empirical testing of this framework can yield valuable insights to help policymakers, regulators, and SME stakeholders develop targeted initiatives to accelerate sustainability reporting in this critical business sector.