Climate risks are already becoming commonplace, as can be seen by the 2022 Tonga tsunami and the Malaysian mega floods of 2021. Unsurprisingly, the World Economic Forum’s latest Global Risk Report 2022 ranked climate inaction, extreme weather and biodiversity loss as the top three global risks by severity over the next ten years.
To help mitigate the climate crisis, ESG action for sustainable development will be critical and requires collaborative action from both public and private sectors. Here in Malaysia, the government has signalled its increasing emphasis on sustainability and climate action via the 2022 Budget, including incentivising zero carbon neutrality and looking into a domestic carbon trading market to control Malaysia’s greenhouse gas emissions and hit the carbon targets. This is supported by recommendations and requirements on green financing, sustainable investment and ESG disclosure issued by powerful regulators such as Bank Negara Malaysia, the Securities Commission and Bursa Malaysia and state pension fund, the Employees Provident Fund. As drivers of the economy, large corporations can help to lead climate action for long-term sustainability by relooking at their purpose, and integrating ESG matters into their business model.
While corporations are increasingly aware of the business case for ESG, the next step is to recalibrate existing strategy and operations to become more sustainable in the long run. At a panel session on Integrating ESG to Drive Business Growth, held at the recent MIA CFO Conference, MIA CEO Dr. Nurmazilah Dato’ Mahzan in her opening presentation stated that accountants can take the lead in ESG and that new ESG skillsets are needed for long-term enterprise sustainability.
“Accountants play different roles in driving the oversight and implementation of ESG. Within the management team, the CFO is always at the heart of the organisation, and he or she is ideally positioned to understand what is happening within the organisation and its ecosystem. In the context of ESG, CFOs need to understand the risks, the opportunities and the strategies that need to be in place.”
Accountants on boards, who are appointed as directors or chairpersons or members of the audit committee, are essential in governance and the organisation’s take-up and traction of the ESG agenda, she added.
Dr. Nurmazilah also listed a range of new skills that accountants and CFOs will need to be effective in comprehending and implementing ESG issues and processes. While not exhaustive, these include:
Accountants will need to be able to assess and conduct M&A and valuation exercises that connect and integrate ESG as well, she added. Given their expertise in disclosure, accountants will also be tasked with preparing sustainability reports that take into account the data points required in the latest guidelines and disclosure requirements, along with the preparation of integrated reports and other disclosures compliant with standards and principles such as GRI (Global Reporting Initiative) and Science Based Targets for zero carbon economy.
As assurance providers, accountants especially those working in internal audit will have to consider the reliability of ESG data, reports and metrics.
To ensure compliance, accountants will need to be abreast of the latest and diverse regulations and guidance locally and globally, including ESG guidance in the Malaysian Code of Corporate Governance (MCCG), the Bank Negara Malaysia Climate Change and Principle-based Taxonomy (CCPT), the UN SDGs (Sustainable Development Goals), ISO Standards on Environment and Climate Change, and guidance on Sustainable and Responsible Investment (SRI), at a minimum, advised Dr. Nurmazilah.
She then proceeded to moderate the panel session featuring Azizan Abd Aziz, CFO, Bank Islam Malaysia Berhad; Dr. Renard Siew, Head, Sustainability, MRCB; and Herbert Chua, Assurance Partner, PwC Malaysia. Below are some takeaways:
- Prior to drawing up a road map for sustainability, it is critical to ensure the right tone at the top to internalise an organisational culture of sustainability and ESG. The board has to drive the ESG agenda. It is insufficient to appoint a Chief Sustainability Officer or establish a sustainability department without board-level support and recognising sustainability as a board-level issue. Once the tone at the top is set, the rest will flow accordingly, such as setting the organisation’s ESG priorities, establishing a framework and roadmap with milestones and targets, and driving increased awareness among management and operational employees.
- A corporation’s sustainability road map must incorporate plans for concrete actions, specific interim targets, and defined timeframes en route to achieving the bigger goals of net-zero carbon by 2030 or 2050.
- Science-based targets to achieve net-zero carbon by a certain point e.g. 2030 or 2050 must be supported by the transformation of organisational processes, controls and governance.
- Emissions data is a pain point in ESG implementation and reporting. It is critical to improve emissions data collection across Scope 1, 2 and 3. Do consider putting in carbon footprint templates or carbon accounting systems and metrics.
- For better accountability and assurance, it would be helpful to establish a data governance process and to bring in independent assurance for these data sets.
- For greater effectiveness, link ESG targets back to the performance evaluation and remuneration of boards of directors and management.
- Organisations should recruit talent from diverse fields, especially STEM (science, technology, engineering and mathematics) to drive their ESG strategy and implementation.
- Engaging external stakeholders and communicating the organisation’s ESG story is essential for success. As there are numerous frameworks and guidelines available for ESG reporting, organisations are recommended to adopt a particular framework and move forward.
- Effective ESG disclosure is transparent on measurement and data and should be linked back to business strategy and performance over the past, present and future.
- A whole-of-nation game plan with interim targets and milestones will be needed to mobilise the entire private sector towards ESG and sustainability, including small and medium enterprises.
- Business sustainability is beneficial for the sustainability of the economy and therefore drives sustainable development and nation-building.