Budget 2024 measures to aid businesses’ ESG journey

THE recent Star Media Group (SMG) roundtable and survey with industry players highlighted some key ESG drivers for their respective businesses and alignment within the context of Budget 2024.

Several measures presented in Budget 2024 tabled by Prime Minister Datuk Seri Anwar Ibrahim on Oct 13 indicate an encouraging start in the government’s commitment to sustainability and economic resilience – reassuring the business community that they are being heard.

One notable announcement was that financial institutions would provide RM200bil in financing to encourage transition to a low-carbon economy. This reflects the government’s initiative to regulate commercial energy rates for clean energy sources.

Budget 2024 introduced incentives such as tax credits, grants and tax deductions for ESG-related expenditures and carbon projects – demonstrating a commitment to incentivise clean energy practices.

Carbon-free future

The emphasis on the sustainability front with the RM2bil allocation in national energy transition funds on top of the RM200bil to encourage industrial shift towards a low-carbon economy “are key to ensure Malaysia is equipped across the value chain to enable a carbon-free future,” says DHL Express (Malaysia and Brunei) managing director Julian Neo.

“Budget 2024 strikes a balance between public welfare, fiscal responsibility, and growth considerations.

“The measures tabled are rightly inclusive of high-need communities, while maintaining focus on the country’s resilience and longer-term development amidst a backdrop of economic volatility,” says Neo who participated in the SMG roundtable on July 28.

Under Budget 2024, companies looking into carbon capture and storage (CSS) will soon see development in tax incentives.

However, this is pending a study by the Finance Ministry, Inland Revenue Board (LHDN) and Petronas.

EV extensionOn recommendations from the roundtable and survey for government subsidies on commercial electric vehicles (EVs) and tax benefits for EV investments, Budget 2024 provides for an extension of the RM300,000 deduction on EV rental cost until YA2027.

This incentive aligns with the recommendation to offer tax exemption or deduction for businesses investing in commercial EVs – effectively lowering total cost of ownership over the vehicle’s lifespan as well as providing strong financial motivation for companies to transition.

While subsidies were primarily available for individual EV users, the Budget also features tax exemptions for charging infrastructure and vehicles.

SME ESG adoption

Malaysia Retail Chain Association (MRCA) deputy secretary general Dr Afendi Dahlan, a fellow SMG roundtable participant, says: “Budget 2024 shows clear intent and unwavering commitment by the government in addressing some of the issues raised at the roundtable.”

On availability of ESG funding for small and medium-size enterprises (SMEs) and tax incentive for ESG tax-related expenditure, Afendi says SMEs require more than just financial assistance in their ESG journey.

“In addition to various incentives to support our net zero carbon emission goal, we are pleased to hear that RM600mil is allocated to help micro-enterprises and low-income entrepreneurs, small contractors for the adoption of sustainable practices and the food security sector.

“The introduction of tax deduction up to RM50,000 for each year of assessment on ESG-related expenditure will incentivise businesses in adopting ESG policies within their organisations,” he says.

Residential solar energy

The Net Energy Metering (NEM) programme offer period is extended until Dec 31, 2024 to encourage installation of panels in residential premises, which helps spur the residential solar photovoltaic (PV) market.

The SMG roundtable had proposed to the Government to establish a centralised agency for grant management to offer tailored grants for different industries, as well as provide other supportive mechanisms.

While these proposals have not been addressed in Budget 2024, industry players will continue to push for them to aid their ESG journey.

Other recommendations from the roundtable include education and awareness initiatives particularly for SMEs, carbon tax education, establishing an ESG regulatory authority, creating a strategic roadmap, and harmonising policies and frameworks – which require further detailed policy development and coordination to fully integrate ESG principles into Malaysia’s economic landscape.

Empowering MSMEs sustainably

The Government is on track as prior to the Budget 2024 announcement, the National Industry Environmental, Social and Governance framework (i-ESG framework) and the National Energy Transition Roadmap (NETR) were launched.

During the i-ESG framework launch on Oct 2, Investment, Trade and Industry Minister Tengku Datuk Seri Zafrul Abdul Aziz highlighted its importance as it could enable Malaysia tap into the vast US$12tril global ESG-focused opportunities.

Given that almost 98% of business establishments in Malaysia are MSMEs that contribute significantly to the economy, i-ESG is a crucial driver of sustainable economic growth in the country besides being an ESG-focused endeavour.

The framework is divided into two phases – Just Transition (2024-2026) and Accelerate ESG (2027-2030) – and aims to empower and guide companies in developing their sustainability practices.

For MSMEs and even larger companies, the complex nature of ESG policies, regulations, and the additional costs associated with adopting new technology pose challenges in the transition.

The framework is designed to bridge gaps, ensuring that MSMEs can integrate into the global supply chain and meet the expectations of global investors and business partners.

“For entrepreneurs involved in the green economy, technology and halal fields, the RM20bil guarantee fund via Syarikat Jaminan Pembiayaan Perniagaan Berhad (SJPP) is available to accelerate their business expansion,” says Alliance Islamic Bank Berhad chief executive officer Rizal Il-Ehzan Fadil Azim who was also a roundtable participant.

He adds that the allocation addresses businesses’ concerns by providing “peace-of-mind to the entrepreneurs who are still building up their business track record.”