Image credit: The Star

THE SME Association Malaysia has warned small businesses that they may lose out in the international markets soon if they refuse to adopt the environmental, social and governance (ESG) framework, Sin Chew Daily reported.

Its president Ding Hong Sing said he was worried that many small and medium-sized enterprises (SMEs) in Malaysia did not understand the importance of ESG.

“Once the European Union’s Carbon Border Adjustment Mechanism (CBAM) comes into force in 2026, local businesses could find it hard to export to the region,” he said.

It was reported that beginning January 2026, exporters whose production was vulnerable to carbon leakage such as iron, steel, cement, aluminium, fertilisers, hydrogen and electricity, would be required to submit a CBAM declaration and purchase a CBAM certificate.

Carbon leakage is the hypothetical situation whereby European producers competing in international markets would shift their production and pollution to countries with less stringent or no climate policies.

Ding said he was worried that SMEs might not be able to get the certificates in time by 2026.

“Not everyone will be able to gather all the necessary documents and apply for it in just two years,” he said.