Help corporates improve ESG credentials, focusing on high impact disclosure
Environment, social and governance (ESG) is increasingly relevant to the future performance of public listed companies (PLCs). With good ESG disclosure and ratings, they have the opportunity to conform to new regulatory standards, secure better financing rates from banks, and raise fresh capital from investors.
However, the ESG landscape is still in its formation phase, where ESG disclosure standards are yet to be fully established the way IFRS and GAAP are in the financial accounting sphere. This leads to questions constantly being asked by business owners and their management as they navigate the evolving landscape. For instance, what are the material ESG risks that are most relevant to each industry? Which kind of data standards should they adopt and disclose? What are the processes they can put in place to monitor and improve their ESG ratings?
“Business enterprises, particularly the PLCs, are facing increasing pressure to satisfy a myriad of ESG requirements imposed upon them by key stakeholders in their respective ecosystems, from regulators, industry bodies, customers, lenders, investors and other stakeholders,” said Wong Chiun Chiek, Senior Executive Vice-President, Data, Index & ESG Business of Bursa Malaysia.
“From our observations, many large companies are well-equipped in their journey to transition to a greener future, but there is a need for greater support for small- to mid-sized companies, especially those that are import-export-driven, or those who do not have fast access to expertise — such as those not located in central business districts.”
In general, most business owners and CEOs have already started the ESG journey for their enterprises, albeit at different stages of progress. The challenge is really the race against time. For example, South China Morning Post recently reported that the European Union will require manufacturers in China and elsewhere in Asia to furnish carbon emissions data to EU customers from 2023 onwards, starting with those that operate in the cement, aluminium, fertilisers, steel, and electricity industries. Closer to home, sustainability-related disclosures for PLCs will be made mandatory starting from the annual reporting cycle ending 2023.
However, assembling an in-house ESG team takes time. Demand for good talent is on the rise but supply is still relatively low. This is an urgent issue that needs to be resolved, as PLCs are increasingly being asked by banks for their company’s ESG credentials when raising capital. Institutional investors, both foreign and domestic, are also adding ESG parameters in their investment decision-making, which has a direct impact on PLCs’ fundraising considerations.
Another global development is that large companies operating in sectors with higher ESG scrutiny, such as energy and utilities, are now adding ESG considerations in their supply-chain management. Suppliers of their projects will need to be screened for their green credentials.
“To allow the economy to transition to green in an open, transparent, and cost-efficient manner, data is an enabler,” said Wong. “Robust public disclosures on ESG parameters is a good mechanism to keep companies honest.”
While there are other existing services out there, PLCs can opt for Bursa Malaysia’s ESG Advisory Services for practical, workable and reliable recommendations to enhance their sustainability policies and practices. Referring to the methodology that underpins the FTSE4Good Bursa Malaysia (F4GBM) Index, Bursa Malaysia will use this methodology as a transitional platform to put PLCs on a solid footing by identifying ESG risks to improve their disclosure and standards.
The advisory services, which commenced operating in July this year, was designed with the intention to help small- and medium-sized PLCs improve their ESG disclosures and credentials by leveraging internationally recognised standards and peer-learning of best practices from industry leaders, along with clear value propositions to enhance the PLCs’ investability to institutional investors.
In addition, PLCs would have access to green financing options via the #financing4ESG programme. Bursa Malaysia has partnered with four banks, namely CIMB Bank Bhd, OCBC Bank (Malaysia) Bhd, HSBC Amanah Malaysia Bhd and Alliance Bank Malaysia Bhd, who offer sustainable financing options to PLCs in alignment with the F4GBM rating models.
In terms of awareness and adoption of best-in-class ESG disclosure practices, there is a big divide between established companies well-invested in sustainability practitioners and resources, and those who are just setting out to do so. Hence, there is an urgent need to close the gap between the “haves” and “have-nots” in a cost-efficient way, and to cast the net as wide as possible.
Observed Wong, “Think of it this way, your ESG credentials will be as important as your credit-worthiness. So, start young, nurture and grow over time, as ESG is likely to be used in the same way as assessing one’s credit scores.”
Identify material ESG risks and a high impact value proposition
Bursa Malaysia ESG Advisory Services can help PLCs identify material ESG risks and recommend solutions. The ESG Advisory Services can help kickstart companies to pick the low-hanging fruits, so that they can deliver quick results to show that this is a path worth taking.
The process is simple: first, the ESG Advisory Services team would engage and introduce PLCs to the rating models and assessment of a sustainability index. Then, the process would narrow down into specific high impact areas where detailed ESG indicators are provided for the PLCs to monitor and focus on. In addition, industry best practices that could help improve those indicators would be shared.
“On top of performing in-depth research and analysis specific to the company disclosures, we would consult the PLCs in terms of where they currently are, and where they may aspire to be within their peer group,” commented Wong.
To monitor and measure progress, digital toolkits have been developed to help PLCs simulate impact-sizing as well as potential indicative scoring, which will be aligned to the business plans.
To further strengthen in-house ESG knowledge and awareness, technical workshops may be organised for participating PLCs. Other benefits of working with Bursa Malaysia’s ESG Advisory Services would include profiling opportunities through Bursa Malaysia’s or its partners’ platforms once meaningful results or innovative collaborations are achieved.
An experienced player in the field
With eight years of experience in managing the rating models of a sustainability index, as well as consulting with more than 200 PLCs on ESG-related assessments, Bursa Malaysia can help PLCs in their ESG transformation journey.
Wong concluded, “The ESG Advisory Services has been designed to achieve specific purposes, which is to focus on improving disclosures in a quantifiable way using credible standards.”
The launch of the ESG Advisory Services has been well received by PLCs, since its launch in July this year, spanning various sectors. It has provided PLCs with greater knowledge and appreciation pertaining to sustainability matters, while providing new perspectives and ideas on how they could further improve their business operations while making a positive impact on the world.
Companies interested to find out more about Bursa Malaysia’s ESG Advisory Services can contact our Index & Sustainable Business team at [email protected].
Corporates discovering value through ESG practices
In recent years, the corporate adoption of ESG practices in Malaysia has been encouraging. The move towards ESG has been heartening as corporates begin to deep dive and understand value.
Bursa Malaysia’s ESG Advisory Services aims to support PLCs seeking to improve their ESG disclosures and ratings as ESG credentials will become intertwined with a company’s value. Although the modern ESG movement is still emerging, especially in the local context, many corporates have seen the increasing benefits of adopting ESG practices.
As ESG continues to move into the mainstream in financing, corporates will continue to raise the bar in ESG practices to ensure that they are not left behind and will continue to meet competitive global standards.
Mr M K Goh, CEO
We believe that a holistic approach to sustainability can no longer be considered a moral initiative but, instead, a priority that is imperative to delivering consistent long-term value to stakeholders. At Karex, this often means weighing the short-term benefits of a project or decision against our long-term objectives, so that we may ultimately build something that will stand the test of time for generations to come.
Constant communication with stakeholders is a topic that resides at the very core of sustainability. Many companies actually do put a lot of effort into improving the various aspects of value creation within their respective organisations but these often get overlooked or under-reported. Mapping these initiatives to various international standards and guidelines has helped us organise and highlight key milestones that address the respective concerns of specific groups of stakeholders, making it an ultimately more rewarding experience for all parties.
“Our inclusion in the FTSE4Good and consistent improvement in our sustainability scores over the years have validated the time and effort that our teams have committed to all aspects of sustainability.”
While this has been encouraging, the general consensus within Karex is that we are still at the beginning of our sustainability journey and look forward to many more future initiatives that will ultimately deliver long-term value to all our stakeholders.
Malaysia Steel Works (KL) Bhd
Datuk Seri Tai Hean Leng, Managing Director & CEO
ESG best practices have given our organisation a new direction and impetus for how we conduct ourselves as a corporation. Through the understanding of ESG principles, we have fundamentally become a more progressive and responsible corporation in many new aspects, and we are not only driven by making profits. Despite the apparent non-convergence of ESG best practices with profit generation for a corporation, our ESG journey has shown that adopting the three ESG pillars has helped to improve our company’s profitability and resilience. Thus, our continuous engagement with Bursa Malaysia and other consultants on ESG training demonstrates that we are placing utmost priority and commitment on our ESG journey.
“We strongly believe the full implementation of ESG will bring our corporation to greater heights in the near future.”
By improving our ESG disclosures, we have reduced our corporation’s greenhouse gas emissions in Scope 1, 2 and 3. With our commitment to reducing carbon emissions levels based on our targeted timelines, we are able to begin our ambition of achieving net carbon zero by 2050. Thanks to our substantive implementation of ESG, documented through a comprehensive Sustainability Report, our company has increased our positive visibility vis-à-vis our investors, financiers and the authorities. This has placed us in a strong position to reap the benefits of carbon credit trading. We have also improved our staff welfare, working conditions and the quality of our corporate social responsibility (CSR) to ensure the good values that underscore human dignity are fostered among our company personnel and the broader community in which our businesses operate. The ethical administration of our company has been promulgated by our Board to all members of our company and beyond, ensuring that we do not break any laws and regulations that would result in penalties or business interruptions.
The inclusion of our organisation in the FTSE4Good Index will be the finest testament to our company’s accomplishments in our ESG journey. It will also inform our stakeholders present and future of the attainment of our company with regard to ESG and sustainability.
Ms Leong Kit May, CEO & Executive Director
The adoption of ESG measures and the corresponding disclosures have become increasingly important for our organisation.
“It has allowed us to contribute to safeguarding the environment, manage climate change risks, manage our relationships with our stakeholders effectively and strengthen our corporate governance practices.”
Our ESG strategies and disclosures support our bottom line by helping us be transparent in considering and planning for short-term and long-term risks in all aspects of the business. In short, it has helped to futureproof our business.