Malaysia has pledged by committing to becoming carbon -neutral by year 2050. What need to be done ?

Malaysia has pledged by committing to becoming carbon -neutral by year 2050. What need to be done on “ESG “to improve your company image.

What  is “ESG” ? ESG stands for : E = Environmental, S = Social, G = Governance, ESG ,i.e. use environmental, social and governance factors work hand in hand as a benchmark towards the standing  position and viability of a company. It is becoming increasingly important as these benchmarks will be  considered for any future potential investors to consider looking into investing. Also there is litigation risks if these benchmarks are not complied with. 

In a simple term, the Environmental criteria considers how a company safeguards the environment, e.g. making business decisions which are mindful of the company’s carbon footprint. Social criteria examine how company manages relationships with employees, suppliers, customers, and the communities where it operates. Governance, focuses on company’s leadership, which includes due diligence, due care, the decisions made for and by shareholders, and whether they comply with laws and regulations. 

The importance of ESG

As mentioned above, ESG is becoming increasingly important in a potential investor’s mind when determining its investment.

Apart from that, ESG practice creates a chain effect throughout the system. Failure to comply with ESG practices may cause a company to litigation risks, there is increasing number of litigation around the world involving climate change. 

Governance

 The directors and management officers of a company ought to make conscious decisions that encompass both Social and Environmental considerations to comply with ESG standards. Making business decisions that are sustainable to the environment.

In Malaysia, directors duties are embodied under Section 213 of the Companies Act 2016 whereby it is the duty of the director to act for a proper purpose, in good faith and in the best interest of the company together with the duty to exercise reasonable care, skill and diligence ,the directors of a company have the duty to comply with guidelines and make conscious decisions that comply with ESG standards. 

Social

The social includes good business practices that are more inclusive, including equity, diversity, human rights, and social justice. This has become more and more important, whereby unfair social practices are shunned .

 Environmental

 The climate change and the recent mega floods occurring around the world, these increasingly frequent catastrophic climate events are linked to human actions. 

Sustainable development has become crucial in recent times. A company’s ability to use the natural resources without harming the environment or upsetting the delicate balance of the ecosystem is now a factor to be considered in business decision making.

It has become so crucial that more than 130 countries around the globe have set or are seriously considering targets for reducing carbon emissions to net zero by the year 2050. 

Malaysia has pledged the same by committing to becoming carbon-neutral by the year 2050. Furthermore, in the year 2009, Malaysia has introduced a National Policy on Climate Change which aims to address climate change with the introduction of policies and strengthening the framework. It also aims to consolidate the E, S and G of ESG. In addition to that, the Twelfth Malaysia Plan 2021-2025 looks to adopt an economic model that balances socio-economic development with environmental sustainability. All the while encouraging public and private sectors to adopt and integrate ESG into their decision making. 

In addition, the regulators have also taken steps to promote sustainable development, for example on 28 April 2021, the Securities Commission Malaysia updated the Malaysian Code on Corporate Governance (“the Code”) whereby the focus was on the role of the board and senior management in addressing sustainability risks and opportunities of the company. It also addresses the urgent need for companies to manage ESG risks and opportunities by introducing new best  practices that transition towards a net zero economy.  

The Code was introduced in the year 2000 and has been reviewed periodically. Corporate governance practices that are globally accepted are set out in the Code. These practices go above and beyond the minimum standards required by statute, regulation or even as prescribed by Bursa Malaysia. 

Bursa Malaysia has also released its new Main Market Listing Guidelines (“the Guidelines”) which details the business case for embedding sustainability as well as providing guidance on how it can be carried out in respective organisations. The Guidelines also provide specific guidance on the information that should be disclosed in accordance with the Listing Requirements in the preparation of the Sustainability Statement in the annual report.

Changes in practices are imminent and so are the changes in consumer’s practices who tend to make conscious decisions to purchase goods from companies that are conscious of protecting the environment. There are even campaigns to buy local produce, which do not need to be air flown from a foreign land, thus reducing the carbon footprint. 

Many companies in Malaysia are starting to have ESG practices being implemented in their businesses. On the part of sustainability, there has been a significant reduction in the use of single use containers and plastic bags as more and more retail outlets shy away from single use plastic bags and “forcing” consumers to bring their own reusable bags and/or containers.

Conclusion

ESG is imminent. Companies, be it large, medium or small in size ought to begin considering putting ESG practices . Employees’ rights and the environment ought to be taken care of and having a set of ESG practices can hopefully address this urgent need of having a safe environment for everyone.