Sustainability in Corporate Malaysia: Wise up before it’s too late

KUALA LUMPUR, 16 November 2020 – The COVID-19 pandemic has brought into focus the impact our businesses and lifestyles have on the environment and biodiversity. It has also highlighted systemic inequalities, such as access to healthcare and green spaces, internet connectivity, as well as work and education opportunities. These issues, if not properly addressed, have significant implications on the sustainability of resources in our communities and wider society, which businesses rely on for their demand and supply of goods and services. 

A new publication by PwC Malaysia, ‘Rethinking ESG in a post COVID-19 world’, explores what this call for sustainability means for businesses’ Environmental, Social and Governance (ESG)¹ considerations. 

Dato’ Mohammad Faiz Azmi, Executive Chairman, PwC Malaysia said:

“The pandemic has been a wake-up call to address the need for more sustainable practices. Businesses are reflecting on their purpose and how they measure their impact - should this be based on profit alone or are there social and environmental metrics that should matter? This is an opportunity for corporates to build trust with their stakeholders, by showing their commitment to addressing ESG issues before it’s too late. 

A combined effort from businesses, the government, and the public is needed to drive improvements in environmental and social practices. We’re pleased to see that the Malaysian government's commitment to accelerating the sustainability agenda is reflected in the recent Budget 2021.”

However, in the face of competing priorities in the nation’s COVID-19 recovery journey, including safeguarding livelihoods and ensuring business continuity, are businesses ready for a commitment to sustainability? 

PwC’s SDG Challenge 2020 found that although 73% of Malaysian companies mentioned the Sustainable Development Goals² (SDGs) in their reporting; only 20% had included the SDGs in their published business strategy. As the SDGs outline the areas of impact for ESG considerations, it’s clear that ESG has yet to become a core focus for companies.

The ‘Rethinking ESG in a post COVID-19 world’ publication identifies several factors driving the call for sustainability and how businesses can get ready to meet the sustainability challenges ahead.

The 5 key catalysts driving the growth of ESG:

1. Investor expectations - Environmental and social factors are having a greater influence over a company's future performance and valuation. Returns on socially responsible investment indices are outperforming their conventional index counterparts. 
   

2. Sustainability reporting - Global investors are calling for mandatory inclusion of climate risk disclosures in financial accounts for use by companies, banks, and investors in providing information to stakeholders. Bank Negara Malaysia (BNM) and Securities Commission Malaysia are also pushing for the adoption of reporting standards as recommended by the Task Force on Climate-related Financial Disclosures (TCFD) among local financial institutions. 

3. Regulations - There has been an increasing need to address scrutiny and adverse public reaction over environmental and social concerns in several sectors, especially when they are subject to more stringent foreign regulations. 

4. Fiscal policies - Incentives to promote responsible behaviour can propel companies to be sustainable. Budget 2021 introduced Malaysia’s first sustainable bond, as well as the extension of the successful Green Technology Financing Scheme (GTFS) to encourage the private sector to participate in green technology.  

5. Customer behaviour - PwC’s Global Consumer Insights Survey 2020 research revealed a clear embrace of sustainability and a sense of civic duty. 52% of our respondents in Southeast Asia say they expect businesses to be accountable for their environmental impact. 52% of them also say they would avoid the use of plastic whenever possible. 

Andrew Chan, Sustainability & Climate Change Leader, PwC Malaysia said: 

“Corporates are missing an opportunity to craft their own sustainability narrative if they are not proactive in communicating how they are doing business responsibly as a competitive advantage. Studies have shown that investors turn to public information and third party research when they assess companies’ ESG practices, instead of only communications or filings from the companies themselves. Much of this third-party information may be unverified. 

So, companies need to ensure that material ESG risks, opportunities, and strategic decisions are consistently and transparently disclosed to all stakeholders through their reporting exercises. And beyond reporting, companies need to create a dialogue with their stakeholders on their impacts and plans, so that informal channels reinforce their formal disclosures.”

Dato’ Faiz continued:

“The pandemic may have prompted industries and companies to prioritise survivability over sustainability. However, as companies plan for what’s next after COVID-19, sustainability will need to be at the front and centre of their corporate strategy, operations and reporting. These are important metrics that will determine whether your stakeholders, particularly your bankers and investors, will continue to support you. The time is now for you to seize the opportunity to build trust with investors and the communities you operate in, and future proof your business via sustainability.”

                                                                         ENDS

¹_{Environmental, Social and Governance (ESG) principles are a measurement of the sustainability and societal impact of an investment in a company or business. They are non-financial factors that investors are increasingly applying to assess a company or business’s material risks and growth opportunities.(https://www.cfainstitute.org/en/research/esg-investing)}

²_{The Sustainable Development Goals are a collection of 17 interlinked goals designed to be a blueprint to promote prosperity while protecting the planet. The SDGs were set in 2015 by the United Nations General Assembly and are intended to be achieved by the year 2030. (https://www.un.org/sustainabledevelopment/development-agenda/)}