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Corporate Sustainability,ESG, and CSR Practices in Malaysia

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Dayana Mastura FCCA CA
Dayana Mastura FCCA CA

This document discusses the importance of sustainability, ESG, and CSR practices in Malaysia. It notes that Bursa Malaysia introduced sustainability reporting requirements in 2006, but these initially focused more on social aspects and philanthropy rather than business operations. Globally, leading organizations now integrate sustainability more fully. The document outlines several benefits of sustainability reporting and practices, including reducing risk, staying ahead of regulations, lowering the cost of capital, promoting innovation, and enhancing reputation. It also discusses how organizations can embed sustainability and align with UN SDGs. Malaysian companies' ESG scores have generally improved over time.

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Corporate Sustainability, ESG, and CSR Practices in Malaysia Dayana Mastura baharudin
Corporate Sustainability,ESG, and CSR Practices in Malaysia
Corporate Sustainability,ESG, and CSR Practices in Malaysia
Corporate Sustainability,ESG, and CSR Practices in Malaysia
Corporate Sustainability,ESG, and CSR Practices in Malaysia
Corporate Sustainability,ESG, and CSR Practices in Malaysia
Corporate Sustainability,ESG, and CSR Practices in Malaysia
Bursa Malaysia – Importance of Sustainability In 2006, Bursa Malaysia introduced a requirement for Main and ACE Market listed issuers to disclose their corporate social responsibility (“CSR”) activities or practices in annual reports. This requirement was perceived to focus more on the social aspects of the business – its people and the community – and had limited impact on value creation. Organisations tended to focus on philanthropic activities, and not necessarily address sustainability-related concerns connected to their business operations.
• Globally, many leading organisations have moved beyond CSR. Within a period of 50 years, organisations’ understanding of sustainability has evolved from no knowledge, to the development of new management models which integrate sustainability. • In fact, stakeholders are increasingly interested in understanding the approaches of organisations in managing their economic, environment and social risks and opportunities. • Increasing impacts from sustainability-related risks (e.g. climate change, scarcity of resources, changing social expectations and new legislative requirements in sustainability-related areas) are driving organisations to embed sustainability considerations in response to these risks and their challenges. Bursa Malaysia – Importance of Sustainability
Why integrating sustainability in your business and sustainability reporting are important? • Stakeholders (who may include investors, customers, employees, suppliers, NGOs, local communities, etc.) are now more aware of the impact that businesses have on the economy, environment and society. This impact may be positive or negative. • For example, agricultural activities may create a positive economic or social impact (e.g. providing job opportunities; • improving quality of life of local communities) but may also create a negative impact on the environment in the form of local or regional air pollution (e.g. haze generated from open burning).
Why integrating sustainability in your business and sustainability reporting are important? • This negative impact may become a reputational risk to the organisation which allowed it to occur and may subsequently affect its ability to obtain funding. • Sustainability-related issues, therefore, can significantly affect an organisation’s risk profile, potential liabilities and its value. • Hence, there is a need for the business community to respond appropriately. • Business leaders have also begun to recognise the benefits of integrating sustainability-related considerations into all aspects of their respective businesses.
Sustainability Reporting -reducing exposures to sustainability-related risks • Businesses are increasingly exposed to environmental conditions and social changes, including population growth; extreme weather events such as flooding, high rainfall levels; climate change, ecosystem decline, etc. • Failure to manage sustainability-related risks (e.g. floods arising from extreme weather or strikes arising from unsafe working conditions) may result in an organisation incurring losses or costs (e.g. disruptions to production). • Therefore, if an organisation proactively identifies and manages sustainability-related risks, it can be better placed to avoid and reduce cost impacts resulting from these risks.
Sustainability Reporting - staying ahead of emerging sustainability risks and disclosure regulations • when a new requirement emerges for greenhouse gas (“GHG”) emissions information, an organisation which has already considered GHG emissions as material would have already factored this into its risk considerations and will be ready to respond.
Sustainability Reporting - reducing the cost of capital through a lower risk profile • There is a tendency for investors to favour organisations which demonstrate good Economic, Environment and Social (EES) risk management. • This in turn can enhance corporate value and diminish risk, resulting in a lower cost of capital. • This is because investors add risk premiums to the cost of capital for firms with questionable environmental and social practices.
Sustainability Reporting - Promoting innovation and attracting new customers • As sustainability considerations increase, an organisation that recognises the opportunities and has the capacity to innovate will drive growth through new products, services and customers. • The introduction of sustainability-driven products and services can carve out a niche market for the organisation. • Dell’s circular economy initiative is one of the leading examples of driving business growth through innovative products and services.
Sustainability Reporting - Maintaining a licence to operate • A “licence to operate” (also known as “social licence to operate”) refers to implicit community-approval of an organisation’s business operations. • It does not refer to a legal or regulatory licence to operate. • Put simply, the goal here is to achieve organisational legitimacy in the eyes of society (or, more specifically, across a broad spectrum of key societal stakeholder groups/constituents).
Sustainability Reporting - Responding to responsible investment and securing capital • Traditionally, investors have looked at an organisation’s financial performance to drive their investment decisions. • However, it is fast becoming the norm for investors to evaluate ESG factors alongside financial data when determining their investments. • This change is attributed to several factors including increasing pressure from various stakeholder groups i.e. regulators, NGOs, and the public for more sound investment practices; developments in legislation and international frameworks to account for sustainability issues; the rise of new financial risks such as those related to climate change and a shifting interpretation of fiduciary duty and the SDGs. • Responsible investment (known interchangeably as socially responsible investment (SRI) or sustainable investment) is an approach to investing that aims to incorporate ESG factors into investment decisions, to better manage risk and generate sustainable, long-term returns.
Sustainability Reporting -Improving productivity and cost optimisation • When sustainability efforts, such as employee engagement programs or health and safety programs, go beyond basic compliance with labour standards (for example, incorporating other benefits), an organisation can expect to improve its attractiveness to recruit and retain top talent and enhance employee and supplier productivity. • This can lead to longer-term benefits such as customer attraction, improved reputation, stronger operating margins, and optimised capital expenditure. • If sustainability efforts fails, such as in relation to health and safety, the impacts may include interruption in production, investigations by relevant government agencies, fines and negative publicity.
Sustainability Reporting - Enhancing brand value and reputation • It is widely accepted that brand and reputation can create value by generating demand and securing future earnings for organisations. Issues such as sourcing of raw materials; energy and water usage; and human rights are increasingly impacting organisational brand and reputation. • Therefore, organisations will need to identify associated risks and opportunities and assess their impacts. • Stakeholders respond positively to organisations that conduct themselves in a sustainable and ethical manner. This can lead to increased confidence and trust among stakeholders, enhanced brand value and reputation, as well as improved customer loyalty.
UN SDGs – Why should businesses care? • Costs of inaction: Environmental and social burdens represent a mounting business cost and ultimately are turning the world into a less viable place in which to conduct business. • Regulatory risk: The SDGs reflect future policy direction at the international, national and regional levels. A failure to integrate them strategically represents long-term regulatory risk. • Market disruption: Forward-thinking businesses are forging ahead with disruptive new business models which threaten to radically reshape markets. • Reduced license to operate: Businesses that fail to align their strategy with the SDGs will most likely face a lower level of approval and trust from governments and other stakeholders, creating competitive disadvantage and reducing their license to operate.
Five-step process for organisations to align their strategies, as well as measure and manage their contribution to the realisation of the SDGs
HOW TO EMBED SUSTAINABILITY IN ORGANISATIONS
Board members and the Chief Executive Officer, who need to provide strong stewardship towards incorporating sustainability into an organisation’s business strategies
Corporate Sustainability,ESG, and CSR Practices in Malaysia
Corporate Sustainability,ESG, and CSR Practices in Malaysia
Corporate Sustainability,ESG, and CSR Practices in Malaysia
Corporate Sustainability,ESG, and CSR Practices in Malaysia
ESG scores for Malaysian Companies – FTSE4Good Bursa Malaysia Index • Since the FTSE4Good Bursa Malaysia index was launched in 2014, Malaysian companies eligible for inclusion in the FTSE4Good Bursa Malaysia have increased year on year. • This indicates that the ESG scores of Malaysian companies has shown consistent improvement over time. • In the area of corporate governance, Malaysian companies demonstrate some of the highest levels of performance in relation to other companies operating in Emerging Markets and in term of overall ESG ratings, ranked 5th out of 16 Emerging Market countries in FTSE Emerging company scores.
Number of Malaysian companies in the FTSE4Good Bursa Malaysia Index
ESG Ratings for Malaysian Companies
Corporate Sustainability,ESG, and CSR Practices in Malaysia

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Corporate Sustainability,ESG, and CSR Practices in Malaysia

  • 1. Corporate Sustainability, ESG, and CSR Practices in Malaysia Dayana Mastura baharudin
  • 8. Bursa Malaysia – Importance of Sustainability In 2006, Bursa Malaysia introduced a requirement for Main and ACE Market listed issuers to disclose their corporate social responsibility (“CSR”) activities or practices in annual reports. This requirement was perceived to focus more on the social aspects of the business – its people and the community – and had limited impact on value creation. Organisations tended to focus on philanthropic activities, and not necessarily address sustainability-related concerns connected to their business operations.
  • 9. • Globally, many leading organisations have moved beyond CSR. Within a period of 50 years, organisations’ understanding of sustainability has evolved from no knowledge, to the development of new management models which integrate sustainability. • In fact, stakeholders are increasingly interested in understanding the approaches of organisations in managing their economic, environment and social risks and opportunities. • Increasing impacts from sustainability-related risks (e.g. climate change, scarcity of resources, changing social expectations and new legislative requirements in sustainability-related areas) are driving organisations to embed sustainability considerations in response to these risks and their challenges. Bursa Malaysia – Importance of Sustainability
  • 10. Why integrating sustainability in your business and sustainability reporting are important? • Stakeholders (who may include investors, customers, employees, suppliers, NGOs, local communities, etc.) are now more aware of the impact that businesses have on the economy, environment and society. This impact may be positive or negative. • For example, agricultural activities may create a positive economic or social impact (e.g. providing job opportunities; • improving quality of life of local communities) but may also create a negative impact on the environment in the form of local or regional air pollution (e.g. haze generated from open burning).
  • 11. Why integrating sustainability in your business and sustainability reporting are important? • This negative impact may become a reputational risk to the organisation which allowed it to occur and may subsequently affect its ability to obtain funding. • Sustainability-related issues, therefore, can significantly affect an organisation’s risk profile, potential liabilities and its value. • Hence, there is a need for the business community to respond appropriately. • Business leaders have also begun to recognise the benefits of integrating sustainability-related considerations into all aspects of their respective businesses.
  • 12. Sustainability Reporting -reducing exposures to sustainability-related risks • Businesses are increasingly exposed to environmental conditions and social changes, including population growth; extreme weather events such as flooding, high rainfall levels; climate change, ecosystem decline, etc. • Failure to manage sustainability-related risks (e.g. floods arising from extreme weather or strikes arising from unsafe working conditions) may result in an organisation incurring losses or costs (e.g. disruptions to production). • Therefore, if an organisation proactively identifies and manages sustainability-related risks, it can be better placed to avoid and reduce cost impacts resulting from these risks.
  • 13. Sustainability Reporting - staying ahead of emerging sustainability risks and disclosure regulations • when a new requirement emerges for greenhouse gas (“GHG”) emissions information, an organisation which has already considered GHG emissions as material would have already factored this into its risk considerations and will be ready to respond.
  • 14. Sustainability Reporting - reducing the cost of capital through a lower risk profile • There is a tendency for investors to favour organisations which demonstrate good Economic, Environment and Social (EES) risk management. • This in turn can enhance corporate value and diminish risk, resulting in a lower cost of capital. • This is because investors add risk premiums to the cost of capital for firms with questionable environmental and social practices.
  • 15. Sustainability Reporting - Promoting innovation and attracting new customers • As sustainability considerations increase, an organisation that recognises the opportunities and has the capacity to innovate will drive growth through new products, services and customers. • The introduction of sustainability-driven products and services can carve out a niche market for the organisation. • Dell’s circular economy initiative is one of the leading examples of driving business growth through innovative products and services.
  • 16. Sustainability Reporting - Maintaining a licence to operate • A “licence to operate” (also known as “social licence to operate”) refers to implicit community-approval of an organisation’s business operations. • It does not refer to a legal or regulatory licence to operate. • Put simply, the goal here is to achieve organisational legitimacy in the eyes of society (or, more specifically, across a broad spectrum of key societal stakeholder groups/constituents).
  • 17. Sustainability Reporting - Responding to responsible investment and securing capital • Traditionally, investors have looked at an organisation’s financial performance to drive their investment decisions. • However, it is fast becoming the norm for investors to evaluate ESG factors alongside financial data when determining their investments. • This change is attributed to several factors including increasing pressure from various stakeholder groups i.e. regulators, NGOs, and the public for more sound investment practices; developments in legislation and international frameworks to account for sustainability issues; the rise of new financial risks such as those related to climate change and a shifting interpretation of fiduciary duty and the SDGs. • Responsible investment (known interchangeably as socially responsible investment (SRI) or sustainable investment) is an approach to investing that aims to incorporate ESG factors into investment decisions, to better manage risk and generate sustainable, long-term returns.
  • 18. Sustainability Reporting -Improving productivity and cost optimisation • When sustainability efforts, such as employee engagement programs or health and safety programs, go beyond basic compliance with labour standards (for example, incorporating other benefits), an organisation can expect to improve its attractiveness to recruit and retain top talent and enhance employee and supplier productivity. • This can lead to longer-term benefits such as customer attraction, improved reputation, stronger operating margins, and optimised capital expenditure. • If sustainability efforts fails, such as in relation to health and safety, the impacts may include interruption in production, investigations by relevant government agencies, fines and negative publicity.
  • 19. Sustainability Reporting - Enhancing brand value and reputation • It is widely accepted that brand and reputation can create value by generating demand and securing future earnings for organisations. Issues such as sourcing of raw materials; energy and water usage; and human rights are increasingly impacting organisational brand and reputation. • Therefore, organisations will need to identify associated risks and opportunities and assess their impacts. • Stakeholders respond positively to organisations that conduct themselves in a sustainable and ethical manner. This can lead to increased confidence and trust among stakeholders, enhanced brand value and reputation, as well as improved customer loyalty.
  • 20. UN SDGs – Why should businesses care? • Costs of inaction: Environmental and social burdens represent a mounting business cost and ultimately are turning the world into a less viable place in which to conduct business. • Regulatory risk: The SDGs reflect future policy direction at the international, national and regional levels. A failure to integrate them strategically represents long-term regulatory risk. • Market disruption: Forward-thinking businesses are forging ahead with disruptive new business models which threaten to radically reshape markets. • Reduced license to operate: Businesses that fail to align their strategy with the SDGs will most likely face a lower level of approval and trust from governments and other stakeholders, creating competitive disadvantage and reducing their license to operate.
  • 21. Five-step process for organisations to align their strategies, as well as measure and manage their contribution to the realisation of the SDGs
  • 22. HOW TO EMBED SUSTAINABILITY IN ORGANISATIONS
  • 23. Board members and the Chief Executive Officer, who need to provide strong stewardship towards incorporating sustainability into an organisation’s business strategies
  • 28. ESG scores for Malaysian Companies – FTSE4Good Bursa Malaysia Index • Since the FTSE4Good Bursa Malaysia index was launched in 2014, Malaysian companies eligible for inclusion in the FTSE4Good Bursa Malaysia have increased year on year. • This indicates that the ESG scores of Malaysian companies has shown consistent improvement over time. • In the area of corporate governance, Malaysian companies demonstrate some of the highest levels of performance in relation to other companies operating in Emerging Markets and in term of overall ESG ratings, ranked 5th out of 16 Emerging Market countries in FTSE Emerging company scores.
  • 29. Number of Malaysian companies in the FTSE4Good Bursa Malaysia Index
  • 30. ESG Ratings for Malaysian Companies