ESG encapsulates a powerful trinity of principles that have evolved from being a mere corporate buzzword into a business framework which is implemented by various businesses all over the world.
“E” for Environmental
The “E” in ESG champions for environmental protection. From combatting climate change to the reduction of pollution, greenhouse emissions, wastes and carbon footprint – the environmental pillar of ESG encapsulates a spectrum of environmental factors. Reference is also to be made to the Ten Principles of the UN Global Compact -Principle 7,8 and 9, which also sheds light to the environmental limb in ESG.
The environmental limb has gained traction over the years, compelling companies and/or businesses to contribute to environmental stewardship above the traditional profit-centric models. Additionally, the Malaysian government amongst the other ASEAN countries was quick to hop on this bandwagon and has committed to reaching the largest emission reduction target of 45% by 2030, which is also in line with the 12th Malaysia Plan which aims to build a green economy.
In Malaysia, there are also statutory provisions ensuring businesses/companies comply with environmental laws. Companies are required to comply with the Environmental Quality Act 1974 (with subsequent amendments in 2007 and 2012) (EQA 1974) as well as the necessary regulations, including but not limited to the Environmental Quality (Scheduled Waste) Regulation 2005, Environmental Quality (Clean Air) Regulations 2014. EQA 1974 also stipulates a licensing system to regulate premises which may produce hazardous emissions, including pollution to the atmosphere including open burning, noise pollution, soil pollution, pollution to inland waters, discharge of oil and scheduled wastes into Malaysian waters and/or land.
Examples of efforts taken by public listed companies in Malaysia to become stewards of the environment are as follows:
a) Hup Seng Industries Berhad, in its Sustainability Report 2022, showed that they have adopted energy-saving technologies which led to the reduction of 2.75% of their group’s total energy consumption. Additionally, their trucks are also equipped with environmentally friendly Euro 2 and 3 engines that run on Euro 5 diesel.
b) Genting Malaysia Berhad have also taken initiative to minimise carbon footprint and reduce unnecessary waste including but not limited to, Genting Gardens Hotpot whose interior is made up of locally sourced building, recycled furniture and the ingredients in restaurant is sourced from the adjoining hydroponic farm. They also reduce plastic, oil and chemical waste through the usage of porcelain cups.
“S” for Social
The “S” of ESG governs the company’s relationships between internal and external stakeholders. This would include matters involving labour practices, workplace conditions, employees’ health and safety, gender equality and fair wages, and engagements with the community. This limb is also encapsulated under the Principles of the UN Global Compact particularly Principles 1,2,3,4,6 and 6.
Malaysia already has in place several legislations to regulate this aspect of ESG before ESG had even gained traction as the buzzword in present times. For instance, the Employment Act 1955, Occupational Safety and Health Act 1994 and Anti-Sexual Harassment Act 2022 were enacted to protect employees’ welfare and basic rights. Consumer Protection Act 1999 were also imposed to protect consumers from unfair, unreasonable and/or improper trade practices, as well as deceptive, unfair and/or fraudulent conduct.
Examples of efforts taken by PLCs in Malaysia to uphold the “social” responsibility in ESG are as follows:
a) Banks, such as Malayan Banking Berhad (Maybank) and CIMB Group Holdings Berhad (CIMB) have initiated various CSR activities, including foundations (Maybank Foundation and CIMB Foundation respectively);
b) Carlsberg Brewery Malaysia Berhad (Carlsberg), as disclosed in their Annual Report 2022, had alongside Carlsberg foundations, raised EUR10 million worth of donations to support the humanitarian efforts in Ukraine.
“G” for Corporate Governance
In the ESG framework, the "G" pertains to governance aspects that influence decision-making processes, encompassing policymaking at the sovereign level to the allocation of rights and responsibilities among various stakeholders in corporations. For instance, upholding board independence to prevent conflicts of interest and to promote objective decision-making, the implementation of transparent and fair executive compensation structures, the development of anti-corruption policies and ethical codes of conduct as well as the promotion of diversity in the board composition and company leadership. Under the Ten Principles of the UN Global Compact, Principle 10 is the only principle addressing the Governance limb.
The corporate governance framework in Malaysia encompasses laws passed by Parliament, along with directives and recommendations issued by authorities. The Companies Act 2016 is pivotal in regulating corporate governance in Malaysia including but not limited to the rights of shareholders, duties and accountabilities of Directors and management. Other legislations have also been enforced to further strengthen the implementation of corporate governance in Malaysia, including but not limited to Malaysian Anti-Corruption Commission Act 2009, Capital Markets and Services Act 2007, Finances Services Act 2013 and Islamic Financial Services Act 2013.
Conclusion
In conclusion, ESG principles have emerged as a transformative force, reshaping the landscape of business and investment. The recognition that ESG factors are integral to long-term success is a fundamental shift in how we define value and responsibility. This paradigm shift has even resonated globally, including in Malaysia. Initiatives like the FTSE4Good Bursa Malaysia Shariah Index, MAPs and many others as mentioned above are indicative of an escalating appetite for investment avenues that harmonise sustainability with ethical imperatives.
13 June 2024
Comments