Wednesday, 27 September 2023

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Looking holistically at ESG and realistically at how Malaysia can improve its implementation

by Datuk Tan Seng Kit, Group Managing Director, Strateq Group

Environmental, Social, and Governance (ESG) factors are gaining increasing importance in investment decisions globally. Companies that prioritize ESG considerations are viewed as more sustainable, ethical, and responsible, leading to improved financial performance over the long term. However, the implementation of ESG in Malaysia has been slow, and there is room for improvement.

While many have paid lip service to exploring ESG efforts few have been able to actually successfully walk the talk. With many simply undertaking one-off grandiose gestures to proclaim ESG compliance without taking into account more holistic lifecycles.

So with this in mind, I wanted to take some time to explore what can be done to improve upon ESG implementation in Malaysia.

One of the biggest challenges of implementing ESG in Malaysia is the lack of adequate disclosure requirements. The Securities Commission Malaysia (SC) has introduced guidelines for sustainability reporting, but compliance is voluntary. It is important to make sustainability reporting mandatory for listed companies, as it will help investors make informed decisions and create a level playing field.

The SC should also consider adopting international standards such as the Global Reporting Initiative (GRI) or the Sustainability Accounting Standards Board (SASB) to ensure consistency in reporting. Furthermore, the SC can collaborate with Bursa Malaysia to create an ESG index, similar to the FTSE4Good index, to incentivize companies to improve their ESG performance.

Meanwhile, many investors in Malaysia are still not aware of the benefits of ESG investing or how to integrate ESG considerations into their investment decisions. There is a need for more awareness campaigns and education programs to promote ESG investing among investors and asset managers.

The SC can take the lead in organizing workshops, seminars, and conferences on ESG investing to educate investors, asset managers, and other stakeholders. The SC can also work with universities to include ESG in finance and business curricula to raise awareness among future professionals.

Another challenge of implementing ESG in Malaysia is the lack of support for ESG integration in investment decisions. The Malaysian government can provide tax incentives for companies that demonstrate good ESG performance or for investors who invest in companies with good ESG performance. Tax incentives can encourage companies to improve their ESG performance and promote ESG investing among investors.

The government can also consider creating green bonds or other financial instruments that support ESG initiatives. Green bonds can raise funds for companies that invest in sustainable projects, such as renewable energy, green buildings, and sustainable agriculture.

An ESG rating agency can provide independent assessment and analysis of companies’ ESG performance, which can help investors make informed investment decisions. The agency can also provide benchmarks and comparisons of companies’ ESG performance.

The Malaysian government can consider establishing an ESG rating agency or collaborating with international rating agencies to provide ESG ratings for Malaysian companies. The rating agency can also work with the SC to enforce ESG disclosure requirements and incentivize companies to improve their ESG performance.

The implementation of ESG in Malaysia can be improved through a combination of regulatory, educational, and incentivization measures. By promoting transparency, awareness, and education on ESG, investors can make informed decisions that contribute to a more sustainable and responsible business environment.

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