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ESG and Climate Consciousness as a Strategic Differentiator for Businesses

October 18, 2021
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ESG and Climate Consciousness as a Strategic Differentiator for Businesses

By Nazatul Izma

As financial stewards and advisors, accountants must be aware that ESG and climate matters are being applied as filters by stakeholders, which could result in non-compliant organisations or businesses being sidelined or denied by providers of capital. These stakeholders include investors, financial institutions, insurers and regulators.

One, many fund managers, institutional investors and asset owners are signatories to the UN Principles for Responsible Investment (PRI) that have committed to invest in companies that embrace ESG or sustainability in their business activities. A recent Deutsche Bank/Global Sustainable Investment Alliance analysis projected that ESG-mandated assets are expected to reach USD160 trillion by 2036, implying nearly 100 percent ESG integration in fund management, said Tan Sri Abdul Wahid Omar, Chairman of Bursa Malaysia and a leading proponent of ESG and business sustainability, in his keynote address at the inaugural MIA Climate Change & ESG Conference 2021.

Two, many financial institutions are signatories of the UN Principles for Responsible Banking and they too support the transition towards a low carbon economy. For example, banks such as HSBC have pledged to be net-zero by 2050. HSBC along with Maybank and CIMB have committed to stop funding coal projects.

Importantly, regulators are also prioritising ESG and climate change best practices in support of decarbonisation and sustainability in line with global developments. “Bursa Malaysia’s FTSE4Good Bursa Malaysia Index recognises PLCs that have taken steps to improve their ESG practices and disclosures. Since its launch in 2014, the number of constituents has tripled from 24 in 2014 to 76 stocks following the last review in June 2021,” declared Tan Sri Wahid. More recently, on 5 July 2021, Bursa Malaysia launched the FTSE4Good Bursa Malaysia Shariah Index comprising 54 constituents of the FTSE4Good Bursa Malaysia Index that are Shariah-compliant according to the Securities Commission’s Shariah Advisory Council’s screening methodology.

Apart from introducing ESG-related indices, Bursa Malaysia also played a pioneering role in compelling PLCs to adopt good ESG practices and disclosures, said Tan Sri Wahid. “Since the establishment of the Sustainability Reporting Framework back in 2015, all Malaysian PLCs are now disclosing Sustainability Statements and Reports annually.”

Meanwhile, the updated Malaysian Code on Corporate Governance (MCCG) issued by the Securities Commission in April 2021 introduced best practices and guidance to strengthen board oversight and the integration of sustainability considerations in the strategies and operations of companies.

In acknowledgement of these trends, ESG and climate change are understandably being adopted as a key agenda or focus area for Malaysian corporates. Leading corporations such as Petronas, Maybank, and Tenaga Nasional Berhad have stated their net-zero ambitions to address the impacts of climate change, said Tan Sri Wahid who lauded them as excellent role models for sustainability.

Companies that choose to ignore sustainability/ESG considerations in their business do so at their own peril. “(They) will not be sustainable as they will be deprived of both equity and debt financing to fund their projects, be unable to get insurance cover or need to pay higher premiums to underwrite some of their risks, and face difficulty in hiring the human capital talent necessary to drive their business. Nor will they be able to sell their products or be part of the global supply chain as customers become more discerning in buying only sustainable products in the future,” warned Tan Sri Wahid.

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