THE world has accepted that climate change and sustainability, including planetary health concerns, can no longer be ignored. Firm action has commenced with regulators and policymakers addressing these concerns through various mechanisms.
Given that micro, small and medium enterprises (MSME) account for over 95% of businesses globally, this sector is being increasingly pressured to measure and manage their impact on the environment.
A recent survey by the Malaysian Association of Public Advocacy for Nature (Mapan) involving 169 respondents from the region revealed that the SME sector stakeholders support that environmental, social and governance (ESG) issues are important. There is acceptance that MSME need support in terms of regulations, resources and capacity-building to embed ESG for their survival and continued growth.
While government initiatives through regulation, adoption of global standards, provision of training and related grant allocation are pertinent, it is advisable that the policymakers provide sufficient time for MSME to transition into the ESG journey.
The MSME sector represents an integral part of the supply chain which is facing a growing demand for sustainability-related practice adoption from customers and suppliers. MSME seeking to secure contracts with governments or multinationals and other larger listed companies experience this phenomenon. Therefore, MSME need to ensure they have access to the resources they need to be able to secure customers and be suppliers to larger conglomerates so as to remain competitive globally.
The business case for MSME to adopt sustainability-related practices is evidenced in recent studies. Sustainability-related practices, such as reducing an SME’s carbon footprint, facilitate an improved financial performance.
Evidently, MSME have the potential to reap significant benefits by embedding ESG initiatives in their business operations. It is also found that the initial investment costs for such ESG initiatives as core business strategies, and reporting on it, can be more than offset by cost savings, reduced risk, positive brand association, and the ability to meet consumer, investor, and supplier demand for green products and services. In other words, the initial cost has to be viewed as an investment.
While there are cases of MSME that have successfully embarked on this ESG journey, these numbers are limited. What is required is a conducive ecosystem to nurture MSME to transition to an ESG mindset.
Hence, there is an opportunity for small and medium-sized firms of accounting practitioners (SMP) to embark on the ESG journey with their MSME clients. The International Federation of Accountants (IFAC) has called for SMP to encourage their clients to embark on the sustainability journey. The practitioners can offer sustainability advisory services. The profession can play a proactive role to nurture and capacity-build its members, namely, professional accountants in business (SME accountants) and those in practice (SMP).
Opportunities are twofold.
Firstly, SME accountants can help their employers at each step of the way, from creating awareness on the costs/benefits of behavioural changes towards waste within the organisation, encourage investment in new equipment, explore alternate sources of energy, and develop a comprehensive environmental management system for the organisation.
However, many SME accountants, while they support sustainability initiatives, may lack the capability to do this without external support. Hence, the SME owners may seek the help of their trusted external auditor. The SMP are the external auditors of SME generally.
Hence, the second opportunity arises where the SME auditor becomes the business adviser. It is time to switch roles. Taking on the sustainability advisory role is a timely move to leverage on the calls for SME to embed sustainability-related practices. SMP can harness a new revenue stream. SMP sustainability-related advisory includes advice on initiatives to be embedded in the business processes, adoption of environmental management systems and sustainability reporting mechanisms.
The SMP can assist MSME to embark on some form of sustainability reporting. The non-SMP accounting firms can provide assurance on the reported ESG data.
Hence, this is a call to action for the profession to engage with relevant stakeholders and ESG experts with an objective to develop a comprehensive pro-gramme to develop the capabilities and competencies of the accountants in business and practice.
There are two aspects the profession can focus on to achieve this objective. Firstly, provide a platform to enable accountants to build partner-ships to establish linkages with local as well as regional environmental sustainability experts in order to become knowledgeable on ESG-related issues.
Secondly, encourage SMP to gain experience by embarking on the ESG journey in their own business. They will then be able to utilise the valuable experience gained to begin their conver-sations with their clients. This will enhance the buy-in from their clients and establish their credibility.
The journey to achieve sustainability-related targets requires the concerted efforts of all in line with the whole of government and whole of society approach.
This article is contributed by a member of The Malaysian Institute of Certified Public Accountants (MICPA), Prof Dr Susela Devi K Suppiah, director, Centre for Accountability & Governance Research, Sunway Business School, Sunway University.
