Driving Malaysia's high income trajectory: ESG-linked investments and green financing

The Star

25-07-2025

Global finance landscape is gearing towards sustainability. From green bonds to ESG-linked loans, investors are aligning with environmental and social goals. Global consulting firm PricewaterhouseCoopers (PwC) reported that institutional investment in ESG-linked assets is expected to soar to US$33.9 trillion by 2026.
Malaysia is also advancing towards sustainable financing. Khazanah Nasional issued RM6bil Sukuk Kelestarian to advance Green goals under the 12th Malaysian Plan. CIMB launched a sustainability linked fund by committing RM3bil through to 2030 for Malaysian SMEs whilst Malayan Banking Bhd announced commitment to mobilise RM20.69bil for sustainable finance.
As Malaysia deepens its participation in the global value chain, ESG compliance has become more critical. Sustainability becomes essential. Players in both supply and demand chains prefer to invest and trade with establishments that subscribe to protecting the environment, are equitable in the welfare of its workforce, and are transparent and consistent with its governance.
While there may be initial investment in setting up the eco-system for an ESG-compliant environment, the long-term benefits outweigh the initial cost. Reduce, reuse and recycle enable better utilisation of resources. Upskilling staff, better work environment including harmonious relationships among workforce upscale productivity. Transparency and consistency in workflows and policies enhance certainty thereby minimising redundancies.
Since its transformation from a commodity-based economy to manufacturing based economy in the 90's, Malaysia has graduated from a lower-middle income to an upper middle-income nation as defined by the World Bank. The country however has since been mired in the middle-income trap. Post pandemic restructuring and upgrading efforts have intensified to accelerate income growth. With political stability and growth-enhancing policies in place, the country's long standing high income nation aspiration will likely be achieved before 2030.
ESG and green finance is a key enabler in moving up sustainable value chains that make up a high-income economic regime. This is vital to sustain a higher income economy.
Financing the future, green bonds and sustainability-linked instruments collectively are a catalyst for Malaysia to graduate to a high income nation and thereafter, sustain the convergence with the developed nations. It is heartening to observe the growing commitment and flow of resources towards ESG. Challenges remain. The general perception of ESG is that it is meant or only relevant for larger corporations. While compliance costs are high, the structural issue of measuring effectiveness of ESG compliance and accessibility of green and sustainability linked funds to small and medium enterprises are some of the challenges.
Small and medium enterprises (SMEs) including micro enterprises account for 97% of companies in Malaysia. Collectively they contributed some 39% of gross domestic products in 2023. Alliance Bank's ESG report 2025 shows remarkable increase in ESG awareness and adoption among Malaysian SMEs. ESG awareness among SMEs grew from 14% to 80% from 2023 to 2025 while ESG adoption more than doubled from 28% to 60% during the same period.
Recognising the importance of SMEs ESG adoption, the government introduced the ESG framework in 2024 to facilitate and guide SMEs with a road map towards sustainable energy adoption and cost-effective practices. The government through the Malaysia Industrial Development Authority (MIDA) also supports SMEs with matching grants through the Domestics Investment Accelerator Fund for ESG adoption.
Success in the evolving ESG landscape requires inclusiveness. Mobilising and harnessing both larger firms and SMEs, converting ESG awareness to ESG adoption, making accessibility and availability of sustainability-linked funds cost effective to both is critical. Another avenue to cascade ESG and green financing is public-private partnerships that leverage on complementarities and alignment of private and public goals, culminating in successful fundraising and sustainability outcomes.
Ng Boon Chan. An entrepreneur committed to life-long learning, he recently graduated with a Master in Public Policy at Sunway University and will embark on an academic pursuit of a PhD in Sustainable Development.