ESG COMPLIANCE VERSUS SOCIAL IMPACT ALIGNMENT IN MALAYSIAN SMES: A SCOPING REVIEW OF EVIDENCE, THEORETICAL PERSPECTIVES, AND RESEARCH GAPS

Abstract

Small and medium-sized enterprises (SMEs) in developing ASEAN nations, particularly Malaysia, face a constant dual challenge: sustaining operational survival and profitability while meeting escalating external demands for Environmental, Social, and Governance (ESG) implementation. Despite these growing pressures, existing academic literature predominantly focuses on resource-rich large corporations, leaving the specific ESG practices and social impact creation of SMEs under-researched. To address this gap, this study conducted a systematic scoping review adhering to the PRISMA framework and PCC eligibility criteria, analyzing Scopus-indexed literature published between 2021 and 2026. From an initial pool of 188 records, 18 core studies focused on Malaysian SMEs were retained for narrative integrative analysis. The synthesized findings indicate that Malaysian SMEs encounter distinct obstacles rooted in severe financial, human, and organizational resource scarcity, forcing them to constantly balance ESG compliance against the primary imperative of basic operational survival. To navigate these constraints, the study identified three critical enabling conditions for successful ESG adoption: developing internal ESG knowledge to avoid misapplying large-corporation templates, adopting digital technologies to streamline compliance processes, and leveraging Islamic Social Finance mechanisms to overcome capital bottlenecks. Furthermore, the review highlights that traditional management theories fail to capture the operational logic of SMEs pursuing sustainability. Consequently, Malaysian policymakers should abandon burdensome, one-size-fits-all mandatory ESG disclosure requirements in favor of flexible, modular frameworks that permit selective adoption, supported by targeted capacity-building programs. Finally, future research should prioritize developing context-specific ESG frameworks tailored for unlisted SMEs, evaluating the long-term efficacy of digital ESG tools, and unifying regulatory standards for Islamic Social Finance to foster sustainable SME development.