PETALING JAYA: Carbon footprint reduction, labour welfare and diversity, tax strategy, and executive remuneration concerning pay ratio are the four components and low-hanging fruits for Malaysian companies to draw up their environmental, social and governance (ESG) strategy.
According to Prime Minister’s Office economic director Shahril Hamdan, even though there is no universal definition or global standard for ESG investing, ESG performance is essential in securing international financing access, be it loans, investment, insurance, or other products.
Contrary to popular belief that ESG will cost the business and marginalise the profit, a McKinsey review of more than 2,000 studies concluded that better ESG scores translate to about a 10% lower cost of capital. It is linked to lower regulatory, environmental and litigation risks associated with high ESC-scoring companies.
“Public-listed companies must disclose their material economic and environmental management via their annual reports’ sustainability statement,“ said Shahril at the Malaysia Debt Ventures Bhd (MDV) chairman’s Quorum Knowledge Sharing Session entitled ESG-driven economic policy post-pandemic: What it has to offer?
In addition, there is an FTSE4Good Bursa Malaysia Index, which has become the local stock exchange’s benchmark for ESG compliance.
“For micro, small and medium enterprises (MSME), there is little visibility on the adoption of ESG. We also need to recognise that many smaller businesses find it challenging to adopt and comply with ESG practice due to a lack of funding and understanding of its principles.
“Today, many ESG financing initiatives are mainly available for larger businesses. The MSME community remains a sizeable untapped segment. We will need more MSME-tailored programmes created with consideration of their constraints and progressively evolve from the companies’ assessment and responsibility to achieve the agenda,“ he said.
“Workforce diversity and labour welfare are other vital dimensions of ESG principles for Malaysia’s businesses. Whether large or small companies, it is the top management’s responsibility to provide a healthy and safe workplace for their employees, including foreign labour.
“A safe workplace is essential to the workers’ productivity. All companies should regard sexual harassment as severe misconduct and impose a zero-tolerance policy. The tabling of the Sexual Harassment Bill should be expedited as Malaysia has no specific law against sexual harassment. The new law will strengthen provisions for women protection at the workplace in the existing Employment Act 1955,“ he said.