2010 > 2019: Decade of Disruption - A time when corporates had to think beyond profits

This article first appeared in The Edge Malaysia Weekly, on December 30, 2019 - January 05, 2020.
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IN the 2010s, corporates and nations were forced to seriously rethink not just the economic impact of their actions but also the environmental, social and governance (ESG) effects as public awareness of these issues grew.

The most pronounced example was oil giant BP PLC and its handling of the Gulf of Mexico oil spill. The disaster, which occurred in 2010, was a result of the explosion of the Deepwater Horizon oil rig owned and operated by offshore oil drilling company Transocean and leased by BP.

The spill resulted in the death of 11 rig workers, and affected fishing and tourism activities in the gulf. Marine and wildlife species were also hit hard by exposure to the millions of gallons of spilt oil.

Till today, billions of dollars worth of lawsuits linked to the spill have been filed against BP. The oil giant has also forked out a reported US$62 billion for cleanup costs, and in damages and penalties.

BP’s early response to the crisis sparked a furore. Then chief executive Tony Hayward’s perceived insensitive comments were widely cited in reports as an example of failure of leadership accountability in a crisis.

Climate change, which is a change in global or regional climate patterns attributed largely to increased levels of atmospheric carbon dioxide produced by the use of fossil fuels, was another hot topic in the past decade.

In 2016, the Paris Agreement, an international treaty designed to curb the release of greenhouse gases, and which aims to strengthen the global response to the threat of climate change, was signed by 197 countries, including Malaysia.

Malaysia made headlines for sustainability issues in the past decade, in particular over crude palm oil — one of its main exports.

In 2016, plantation giant IOI Corp Bhd’s Roundtable on Sustainable Palm Oil (RSPO) certification was suspended following complaints by non-governmental organisations (NGOs) against its Indonesian subsidiaries. Among the allegations was deforestation in IOI concessions in Ketapang, Indonesia.

Following the suspension, major multinational brands such as Unilever, Kellogg’s, Colgate-Palmolive, Johnson & Johnson, Procter & Gamble, SC Johnson, Yum! Brands and Nestle announced that they would stop sourcing palm oil from the company.

In a move that took many by surprise, IOI Corp sued RSPO for the suspension. The suit, filed in Zurich, was unusual because IOI Corp is a founding member of RSPO. However, four months later, the suspension was lifted as IOI had met the conditions set by the organisation.

But palm oil’s problems did not stop there.

Earlier this year, the European Union announced it was set to phase out the use of palm oil as transport fuel by 2030, starting in 2023. This irked not only the Malaysian government, but the Indonesian government as well.

The industry once again drew negative attention in September 2019, when four palm oil companies with Malaysian links were named by Indonesia as being responsible for the forest fires in the country that led to a haze crisis in the region.

The Malaysian government has been pushing for the sustainability agenda in the plantation industry, and one of its efforts is to make it mandatory for oil palm planters and smallholders in the country to obtain the Malaysian Sustainable Palm Oil certification by Jan 1, 2020. The government has also urged the EU to recognise the certification.

The banking and finance industry has also taken heed of the sustainability agenda. In 2018, CIMB Group Holdings Bhd announced it had become a member of the United Nations Environment Programme — Finance Initiative Principles for Responsible Banking (UNEP-FI).

The core UNEP-FI group, made up of 27 member banks, will help redefine the global banking industry’s role and responsibilities in shaping a more sustainable future by requiring signatory banks to set goals for and report on their contribution to national and international social, environmental and economic targets to ensure accountability and transparency on their impact.

CIMB has also developed a group sustainability policy, which it has embedded in its five-year strategic plan that runs until 2023. The policy will, among others, see it become more careful about the type of companies or projects it extends loans to.

The Ministry of Energy, Science, Technology, Environment and Climate Change decided to tackle environmental problems related to plastic waste with its Roadmap Towards Zero Single-Use Plastics 2018-2030. This came after Malaysia was ranked the eighth worst country in the world when it comes to the mismanagement of plastic waste.

Meanwhile, the global fashion industry came under scrutiny for its labour practices following the collapse of Rana Plaza in Bangladesh, which housed factories for many fashion brands, in 2013. The tragedy, in which 1,100 people were killed, served as a wake-up call for global retailers and led to the creation of standards for improving the working conditions of factory workers. Given the amount of wastage created by fast fashion, the industry’s environmental impact also became a point of contention. This has resulted in what many call ethical fashion.

On the investment front, Bursa Malaysia took the lead in the ESG agenda by introducing in 2014, the FTSE4Good Bursa Malaysia index. It is designed to highlight companies that demonstrate a leading approach in addressing ESG risks. As at Sept 30, 2019, the index had 71 constituents with a total market capitalisation of RM510.4 billion.

In October 2015, Bursa Malaysia issued amendments to the Main Market Listing Requirements and ACE Market Listing Requirements relating to sustainability statements in annual reports.

Under the Sustainability Amendments, listed issuers are required to disclose a sustainability statement, which is a narrative statement of the management of material economic, environmental and social risks and opportunities in their annual reports. This replaces the existing statement on the corporate social responsibility activities or practices required to be disclosed by listed issuers.

In November this year, the Securities Commission Malaysia (SC) released the Sustainable and Responsible Investment Roadmap for the Malaysian Capital Market (SRI Roadmap), which aims to create a facilitative SRI ecosystem and chart the role of the capital market in driving Malaysia’s sustainable development.

The SRI Roadmap builds on the SC’s initiatives to strengthen Malaysia’s position as a regional leader in sustainable investment, which includes the SRI Sukuk Framework, introduced in 2014 to facilitate the financing of initiatives that benefit the environment and society.

According to SC data, the cumulative issuance of Asean green bonds and Asean sustainability bonds amounted to US$1.3 billion (RM5.4 billion) as at September 2019, out of which almost 20% (by issuance amount) were from Malaysia. (A green bond is a bond earmarked for use for climate and environmental projects.)

Global investment firm Schroders in a December 2019 note says that companies worldwide are being pressured into disclosing more on climate-related risks and opportunities. This, it says, can be seen in the growth of the number of organisations supporting the Task Force for Climate-related Financial Disclosures, which stood at 867 in September 2019.

“Japan has the most number of companies that have agreed to disclose against the framework. As we get more disclosure, we expect investors to realise that the second-order effects are far greater than they first envisioned.

“As our carbon value at risk work shows, total global equity earnings could be hit by up to 15% from transition risk alone. Transition risk is the financial risk that could result from significant policy, legal, technology and market changes as we transition to a lower-carbon global economy and climate-resilient future. The sectors that are hit extend far beyond the extracting industries such as oil and gas and miners, and into airlines, building materials and industrial stocks.

“The spread between the winners and losers could be significant,” the firm says.

Amid sustainability efforts, there have also been accusations of “greenwashing hypocrisy”. Greenwashing is the practice of providing misleading information on how a company has more environmentally sound practices than it actually does. One example is global fund management firm BlackRock.

Financial Times reported that BlackRock CEO Larry Fink had written to the chiefs of its investee firms, telling them to do more than merely make money. He stressed that they should make a positive contribution to society and understand how climate change affected their potential for growth. Yet, FT reported that BlackRock supported only 10% of 2018 climate-related shareholder proposals, and had failed to join the Climate Action 100+, an initiative led by more than 300 investors with a collective US$33 trillion in assets that pressed companies to strengthen climate action.

Undoubtedly, the past decade has been one where corporates and nations came to realise they can no longer ignore the impact of good ESG practices.

And this has empowered the young. Perhaps this development is best evidenced by 16-year-old activist Greta Thurnberg’s berating of world leaders, in one of the most widely circulated videos on social media this year, for their failure to act on climate change. Her admonishment: “How dare you?”

 

 

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