In the world of ESG, corporate sustainability is gaining momentum. Corporate sustainability is an approach aiming to create long-term stakeholder value through the implementation of a business strategy that focuses on the ethical, social, environmental, cultural, and economic dimensions of doing business.
Smart Investor spoke to Professor Avvari V. Mohan, Deputy Head of the School of Business, Monash University Malaysia, to find out more about corporate sustainability trends in Malaysia. He is well versed in speaking on the realisation of sustainable development in Malaysia, the ecosystem required to do so, and the roles of different actors, with a focus on the private sector and education.
Corporate Sustainability Trends In Malaysia
Smart Investor: What is the state of Malaysia in terms of ESG?
Avvari V. Mohan: The state of sustainability / ESG practices should be looked at from different perspectives – at the country level what is the institutional push from policy & regulatory support, adoption by a business organisation and how the consumers/society are practicing it?
At the country level, the National Sustainable Development Goals (SDG) Council, chaired by the Malaysian Prime Minister, sets the national agenda and milestones; and prepares reports for the United Nations (UN). Since 2009, Malaysia has put in place a progression of policies, frameworks and implementation mechanisms to move the country towards a low-carbon future like the National Green Technology Policy, The Renewable Energy Act, the Low Carbon City Framework and Assessment System (2011), the National Policy on Biological Diversity 2016-2025 and such.
On the technology front, the National Fourth Industrial Revolution (4IR) Policy has also made sustainability and ESG issues are the critical point, with clear outcomes to be achieved by 2030 to support the country’s commitment to the UN-SDGs. To resource the implementation of the SDGs, the Malaysian government, in addition to the initiatives in the 11th Malaysia Plan, has also mapped out the SDGs in the Twelfth Malaysia Plan (2021 to 2025) and the Thirteenth Malaysia Plan (2026 to 2030).
To drive sustainability / ESG adoption by the private sector the Securities Commission (SC) Malaysia laid the foundation of sustainable and responsible investment (SRI) in 2014 by introducing the SRI Sukuk Framework. More recently, SC also initiated the Sustainable and Responsible Investment (SRI) Roadmap and released the 2021 Malaysian Code on Corporate Governance (MCCG).
Bursa Malaysia took the lead in ASEAN by introducing a globally benchmarked ESG Index and the FTSE4Good Bursa Malaysia (F4GBM) Index as early as 2014. This index is to increase the profile and exposure of companies with leading ESG practices. These helped investors make ESG investments in Malaysian listed companies. Bursa Malaysia has several initiatives to support the private sector, including the Sustainability Road Map, BURSASUSTAIN, a one-stop knowledge centre.
There is also the JC3 platform, established in September 2019, to pursue collaborative actions for building climate resilience within the Malaysian financial sector. The JC3 is co-chaired by Bank Negara and SC Malaysia, with members including senior officials from Bursa Malaysia and the industry.
Bursa Malaysia launched the Bursa Carbon Exchange (BCX) in Dec 2022, a voluntary carbon market (VCM) and the world’s first shariah-compliant carbon exchange. This exchange enables companies and other entities to trade voluntary carbon credits from projects that remove, reduce or avoid greenhouse gas (GHG) emissions to help them meet their climate targets.
The country has been putting in place support in terms of financing sustainability. There is the RM1 billion Low Carbon Transition Facility by Bank Negara Malaysia (BNM) to support the adoption of sustainable and low carbon practices by small and medium enterprises. The banking sector has also started announcing ESG-linked financing.
Read: 4 Things That You Should Know About ESG In Malaysia
SI: How is Malaysia standing in the region compared to other nations, as well as globally?
AVM: A recent publication (April 2022) published by PwC Malaysia and Capital Markets Malaysia (CMM) shows that Malaysian public listed companies have done comparatively well in Sustainability / ESG indicators in comparison to other ASEAN countries’ peers based on leading ESG indicators. The publications also find that there are 28 Malaysian companies listed in the MSCI All Country World Index (ACWI) ESG Leaders Index [1].
The Index consists of large and mid-cap companies across developed and emerging markets countries. Malaysian companies are also comparatively advanced in embracing global standards, with nine companies currently committed to emissions reduction targets grounded in climate science through the Science Based Targets initiative (SBTi).
Malaysia accounts for the second highest number among ASEAN peers for the MSCI ACWI ESG Leaders Index and the SBTi indicators. Despite these encouraging findings related to sustainability and ESG practices within the Malaysian private sector, the report also states that there are challenges in measuring and comparing ESG efforts across various organisations.
The recently launched (Sept 2022) Malaysia Businesses Sustainability Pulse Report (SPR) 2022 by UN Global Compact Network Malaysia & Brunei (UNGCMYB), based on a survey done among both large and small business organisations, reveals varying levels of readiness among companies to adopt ESG practices. Many companies indicated that they are considering but need more understanding regarding the various ESG practices.
This calls for bridging the knowledge gap through awareness-building and competency development programs. The study also indicated that ‘Social’ and ‘Governance’ related practices are relatively stronger than ‘Environment’ related practices.
Despite the growing trends of Malaysian stakeholders’ sustainability demands, 45% of Malaysian companies had still not allocated a budget for sustainability initiatives, with 33% claiming a lack of sustainable financing plans.
While the survey indicates varying levels of ESG adoption, some large companies in Malaysia have embarked on sustainability / ESG-related strategies, like Sarawak Energy, the first corporation in Malaysia to commit to the “Business Ambition for 1.5°Celsius” under United Nations Global Compact. It has committed to set a science-based emission reduction target across relevant scopes, in line with the Paris Agreement, to pursue efforts to limit the global temperature increase to 1.5°C above pre-industrial levels by 2030.
Another example is HSBC Amanah Malaysia, which completed a bespoke green trade financing facility for Guan Chong Cocoa Manufacturer Sdn Bhd. This ESG financing supports Guan Chong’s ambition to achieve 100% Traceable and sustainable cocoa by 2030 from its direct cocoa bean sourcing network. VINDA (hygiene products), with its Malaysian R&D and manufacturing base, is a good case study for sustainability commitments in terms of its products and social agendas.
Malaysia also has good small and medium-sized companies that have adopted ESG-oriented business strategies. Some examples of Malaysian small or medium enterprises to watch in the ESG space include the Green Factory (wood furniture), Edar (formerly BeliGas), BoomGrow (Agro tech), Next Green (sustainable paper mill), NettsGroup, The TLC (home cleaning), Hexafoods & Hexa IOT are all Malaysian homegrown companies that are great case studies for sustainability /ESG related practices.
The other important readiness for sustainability (ESG) is at the market, consumer, or individual level. Responsible members of society and consumers of products/services have a role in realising sustainable development through the lifestyles they lead. Malaysian consumers are beginning to show interest in demanding ‘green’ products or sustainability.
Many local enterprises are emerging in the fashion and food sectors that consumers support. Civic society and educational institutions (from primary school to universities) are influential in educating the general public/society, businesses, and individuals to help realise sustainable development goals. Civic society organisations can help businesses to understand ground-level issues, eg. environmental and ecological degradation.
In Malaysia, there are both global non-government organisations like the UNGCMYB, and local ones like the TRCRC, RIMBA, and many other NGOs playing a crucial role in such efforts. Finally, it’s heartening to see media organisations now playing an essential role in communicating about ‘responsible businesses.’
Read: How Technology And ESG Making The World A Better Place
SI: Where is Malaysia heading with ESG? What does the future of ESG look like? Is Malaysia on the right track? If not, what can be done to ensure we can meet the goals related to sustainability?
AVM: At the national level, policies and frameworks are implemented to drive the adoption of sustainability / ESG practices in the private sector. Malaysia can be seen as early stages of its ESG journey compared to, say, Nordic and some northern EU counties but is already ahead in ASEAN (based on a study by the NUS and ASEAN CSR of Sustainability Reporting in ASEAN).
There are also vital sustainably finance-related initiatives, including the Bank Negara Climate Taxonomy and green financing products emerging fast. There is still some paucity regarding policy blocks for economically accessing technologies. There also seems to be some incongruence between policies at the federal level and those at the state level.
What is also needed is better literacy of sustainability, ESGs and the UN-SDGs at all levels of business organisations and even more among small business owners. There is a lot of confusion with the current ‘compliance’ approach. The Sustainability Pulse Report (by UNGCMYB – Sept 2022) also found that businesses still perceive sustainability / ESG adoption from only a ‘risk’ perspective and not as an opportunity for product/process innovation.
There is also room for exploring traditional knowledge (as done by companies like Tanamera Spa products or Frangipani resorts with their water treatment facility) for modern market needs.
Read: ESG Investing – How To Integrate It Into Your Investment Planning?
SI: How successful is the ESG deployment at Monash Universiti Malaysia, and what are the challenges you/the organisation are facing regarding ESG?
AVM: Monash University overall and the campus in Malaysia can be seen as being committed to driving sustainable change and empowering communities through its education, research, and leadership. Monash’s new strategic plan, Impact 2030 [2], defines priorities and actions for the University for the next decade, focusing on climate change, preserving geopolitical security, and fostering thriving communities as the challenges Impact 2030 will address.
They are also efforts to make the campus infrastructure more environmentally friendly, and the issues of social justice and inclusion are core to Monash University’s goals and values. The university has a diversity and inclusion framework to support campus social justice.
The School of Business, Monash University Malaysia, is an advanced signatory of the UN Principles of Responsible Management Education. This means that sustainability/ESG elements are embedded in a myriad of subjects taught, faculty conduct research in this realm, and there is also engagement with relevant stakeholders to promote sustainability / ESG in business and society.
A recent such high-level event was the ‘State of Sustainability in the Malaysia Private Sector,” a Roundtable organised collaboratively by the UN Global Compact Malaysia and Brunei and the School of Business Monash University Malaysia in Oct 2022. In this roundtable, representatives from private industry, government, and academia discussed the findings of the Malaysia Businesses Sustainability Pulse Report 2022, launched by UNGCMYB.
The challenges for Monash University Malaysia, as with any private institute of higher learning in Malaysia, are that businesses and other organisations need to understand that there is a wealth of knowledge related (be it research-related or training content) to environmental issues, ecology, community development, business, etc. in the university.
Through public-private academic collaborations, there can be mutual benefits through knowledge exchange, and that is what you should know about the corporate sustainability trends in Malaysia.
[1] https://www.msci.com/documents/10199/9a760a3b-4dc0-4059-b33e-fe67eae92460-
[2] https://www.monash.edu/__data/assets/pdf_file/0011/2692901/Monash-strategic-plan-print-version.pdf
