The term ESG (Environmental, Social and Governance) was first coined in 2004 by the United Nations Global Compact, pressing companies to be more responsible for their environmental and social impact. Investors are increasingly seeking out companies that demonstrate a commitment to sustainability, prompting businesses worldwide to integrate ESG considerations into their core strategies.
Malaysia has seen an increasing focus on ESG since 2016, a crucial step in 2022 was taken by Bursa Malaysia, enhanced the ESG reporting requirements with the aim to elevate the sustainability practices and disclosures of listed issuers. Malaysia is still in the early phase to embrace ESG while many developed nations have started the movement for years. This begs the critical question: What can we learn from the global business leaders implementing effective ESG practices?
Table of Contents
How does ESG Affect Malaysian Companies?
1. Attractiveness to Investors
With a growing pool of ESG-focused investors globally, a strong ESG profile can unlock new funding opportunities and improve access to capital. Not only the global investors, many local investors have also started to manage their investment based on their ESG strategies. ESG practices can mitigate risks associated with environmental regulations, social unrest, and poor corporate governance. A commitment to ESG fosters stronger relationships with stakeholders, including customers, employees and communities.
2. Ripple Effect throughout the Malaysian Economy
The positive impact of strong ESG practices extends beyond large PLCs. It has a ripple effect throughout the Malaysian economy, particularly for small and medium-sized enterprises (SMEs) that often form the supply chain of large companies. When PLCs prioritize sustainable sourcing and responsible labour practices, they incentivize their SME partners to do the same. This creates a domino effect to create a more sustainable and responsible business ecosystem across the nation.
Taking Action: Learn from the Leading Companies
Many large companies are already taking concrete steps towards environmental, social and governance sustainability. Let’s draw some inspiration from some of the successful strategies:
Environmental (E)
Nestlé: Nestlé has implemented a water stewardship strategy, aiming to lead the regeneration of local water cycles and create a positive water impact everywhere their bottled-water business operates by 2025. They map their water usage throughout their supply chain, invest in water-saving technologies in their factories, and partner with local communities to improve water management practices.
Click here to read more about Nestlé’s water stewardship strategy.
Take away: Water and energy management have always been the popular topics when it comes to environmental sustainability. Malaysian companies can conduct activities such as water footprint assessments and greenhouse gases measurement to monitor their current situations and set the reduction targets, explore technologies or collaboration to reduce environmental footprints and improve the operational efficiency.
Social (S)
IBM: IBM recognizes that a diverse and inclusive workforce can facilitate innovation and creativity. They have implemented a diversity and inclusion strategy that includes unconscious bias training for employees, retaining workforce diversity and fostering an inclusive workplace culture through business resource groups.
Click here to read more about IBM’s diversity and inclusion strategy.
Take away: Malaysian companies can gain a competitive edge by fostering a diverse and inclusive workforce. Additionally, companies from different industries can utilize their own strengths to create a positive social impact such as providing affordable offer for vulnerable group or providing specific education to reduce the literacy and also mitigate the inequality.
Governance (G)
Siemens: Siemens has implemented a comprehensive compliance system to ensure ethical conduct throughout the organisation. The compliance system is divided in to three levels of action: prevent, detect and respond, including a code of conduct for business partners, implementing whistleblowing and reporting channel, and regular training on ethical behaviour.
Click here to read more about Siemens’ compliance system.
Take away: Most of us might not be familiar with the G sector, G includes corporate governance, risk management, business ethics as well as anti-bribery and corruption. Implementing a multi-layered compliance programme, anti-corruption plan or a risk management plan, can be one of the ways to strengthen companies’ governance practices.
Too Hard to Kick Off for SMEs?
Malaysian companies have a range of resources available to support them in adopting ESG practices. For example:
- Malaysian Investment Development Authority (MIDA): MIDA offers the Domestic Investment Accelerator Fund (DIAF) – ESG Adoption programme. This provides matching grants to SMEs and mid-tier companies to cover partial costs associated with implementing ESG practices such as validation, reporting, and monitoring services.
- Capital Markets Malaysia (CMM): CMM launched the Simplified ESG Disclosure Guide (SEDG) specifically aimed at SMEs within supply chains. This guide provides a streamlined and standardized set of disclosures expected by stakeholders. Additionally, CMM offers the SEDG Adopter Programme, which includes in-person training, tutorials, and workshops to help SMEs understand and implement the SEDG.
The adoption of ESG practices is no longer optional for Malaysian businesses, it’s essential for achieving a long-term success. Both PLCs and SMEs must recognize the importance of integrating ESG principles into their strategy. From the experiences of leading companies, we can gain insights and better understand the feasibilities of our ESG initiatives and strategies.
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Resource
eBook: The 101 ESG Guide and the Future of ESG
In our latest eBook, we compiled the latest ESG trends and provided a practical approach to help you navigate your sustainability journey with ESG. Providing you with insights on how to integrate ESG into your business strategy and the impact of the integration on you.