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Micro, Small, and Medium Enterprises (MSMEs) are the backbone of Malaysia’s economy, contributing significantly to employment and national growth. However, their role in achieving Sustainable Development Goal (SDG) 12: Responsible Consumption and Production remains underexplored. As Malaysia transitions towards a greener economy, it is vital to understand the challenges and motivations behind MSMEs' adoption of environmental sustainability (ES) practices.

This study delves into the sustainability practices of Malaysian MSMEs, particularly their engagement in green initiatives and the barriers preventing wider adoption. Through in-depth interviews with 22 MSME owners in Klang Valley, the findings reveal that most businesses implement basic environmental sustainability measures, such as energy conservation, water-saving techniques, waste management, and recycling. However, their primary motivation for adopting these practices is cost reduction rather than environmental consciousness. Business owners see sustainability as a means to cut operational expenses rather than a long-term commitment to environmental responsibility.

Key Factors Driving MSMEs’ Sustainability Efforts
The study identifies three primary pressures influencing MSMEs’ adoption of ES practices:

1. Coercive Pressures (Regulatory Compliance): Some MSMEs adopt sustainability measures due to government regulations, industry standards, or requirements from landlords in commercial properties. Compliance-driven actions are mandatory rather than voluntary, with businesses often implementing only the minimum requirements necessary to meet legal obligations.
2. Mimetic Pressures (Competitive Advantage): Many MSMEs engage in sustainability efforts by imitating industry leaders or competitors who have successfully implemented green practices. These businesses perceive sustainability as a market-driven necessity that can enhance their reputation, attract eco-conscious consumers, and improve their competitive standing.
3. Normative Pressures (Personal and Social Responsibility): Some MSME owners, particularly younger entrepreneurs under 30, voluntarily integrate sustainability practices into their operations due to personal values and societal expectations. This generational shift suggests growing awareness and willingness among younger business owners to contribute to environmental preservation.
    

Barriers to Environmental Sustainability Among MSMEs
Despite these positive steps, significant challenges hinder widespread sustainability adoption among MSMEs. Financial constraints remain the biggest hurdle, as many small businesses operate with limited budgets and cannot afford investments in green technologies or sustainable supply chains. Unlike large corporations that have dedicated sustainability teams and long-term ESG (Environmental, Social, and Governance) strategies, MSMEs often prioritise immediate survival over environmental impact.

Additionally, a lack of awareness and weak regulatory enforcement contribute to slow progress. Without strong incentives or enforcement mechanisms, many MSMEs feel no urgency to prioritise sustainability unless it directly benefits their bottom line. The study also highlights that many business owners perceive sustainability efforts as costly, complex, or unnecessary, particularly those who are not directly exposed to customer demands for eco-friendly practices.

Recommendations for Strengthening MSMEs’ Sustainability Engagement
To encourage MSMEs to integrate sustainability into their operations, the study suggests the following:

• Tax Incentives and Subsidies: Providing financial support for adopting green technologies—such as solar energy, water-saving systems, or waste management innovations—can ease the burden on MSMEs. Governments can introduce carbon tax rebates or energy efficiency grants to incentivise environmentally friendly practices.
• Stronger Awareness Campaigns and Training: Public initiatives and business training programs on sustainability can equip MSME owners with practical knowledge about low-cost green solutions, regulatory requirements, and long-term benefits of sustainability adoption.
• Collaboration with Larger Corporations: Encouraging green supply chain partnerships between MSMEs and larger, sustainability-focused companies can create opportunities for knowledge transfer and access to eco-friendly resources. Big businesses can act as mentors or sponsors, providing financial support and technical guidance to smaller enterprises in their network.
• Stronger Regulatory Frameworks: While voluntary initiatives are beneficial, firmer policies and industry-driven sustainability standards can ensure that MSMEs across all sectors participate in responsible environmental practices. Mandatory ESG reporting for certain industries could encourage more structured sustainability engagement.

The Role of MSMEs in Malaysia’s Green Economy
By embedding sustainability into their business strategies, MSMEs can enhance long-term resilience, improve brand reputation, and contribute meaningfully to Malaysia’s green economy goals. While financial and regulatory challenges persist, a shift in mindset, coupled with well-designed incentives and support systems, can accelerate MSMEs’ transition to more sustainable business models.

This research reinforces the importance of aligning business growth with environmental responsibility, ensuring that Malaysia’s economic progress does not come at the cost of ecological degradation. With the right policies, financial support, and industry collaboration, MSMEs can become key drivers of SDG 12, leading Malaysia toward a future where responsible production and consumption are the norm, not the exception.

Dr Punitha Sinnappan
ºìÐÓÊÓƵ Business School
Email: @email