GOVERNANCE is a key aspect in the check-and-balance process and is critical to the proper functioning of any organisation.
Governance is the third pillar of the environmental, social and governance (ESG) considerations, the concept of which began in 2004 when the then United Nations (UN) secretary-general Kofi Annan invited financial institutions to develop guidelines and recommendations on how to better integrate environmental, social and corporate governance into the financial sector, according to the Jeffrey Sachs Center on Sustainable Development at Sunway University.
This led to 20 financial institutions preparing the ‘Who Cares Wins: Connecting Financial Markets to a Changing World’, which in turn led to the launch of the UN-backed Principles of Responsible Investment in 2006.
Closer to home, ESG adoption among public-listed companies (PLCs) was very much driven by Bursa Malaysia.
In 2007, Bursa Malaysia required PLCs to have a sustainability statement in their annual reports to disclose their ESG efforts and followed up by launching the 2015 Sustainability Reporting Guideline to guide PLCs.
It also launched the FTSE4Good index in 2014 to assess the ESG performance of the top 200 largest PLCs.
“Clearly, ESG is an important driver of growth for the financial sector. However, ESG not only benefits companies in the financial sector. It also benefits companies in the real economy.
“Many studies in corporate finance have shown that ESG investments will lead to higher company values in the long-run.
“This is because high ESG companies have been found to accumulate valuable intangible capital such as better branding and reputation, higher levels of employee satisfaction and lower levels of regulatory risk,” it said.
With customer and supply chain pressures driving the ESG message down the supply chain, as well as increasing investor belief that companies that perform well on ESG are better positioned and more prepared for uncertainty in the long term, companies are more likely than ever to embrace the agenda.
That said, bribery and corruption can affect progress for companies, said Anti-Bribery Anti-Corruption (ABAC) Center of Excellence group chief executive officer (CEO) Zafar I. Anjum.
“Unfortunately, bribery and corruption can undermine a company’s ESG policies and processes – the perceived risks of bribery and corruption can also lead to a trust deficit in a company. This could happen if investors and shareholders feel its processes and systems are not sufficiently geared to prevent bribery and corruption.”
He stressed that only the implementation of a robust anti-bribery and anti-corruption programme can reflect positively on a company’s ESG compliance, as it would “lead to corporate growth, foreign investment, international recognition, the establishment of a global baseline of standards and, in turn, propel the nation’s economy.”
Role of recognition
When it comes to how awards programmes such as the ESG Positive Impact Awards play a role in Malaysia’s ESG journey, the Jeffrey Sachs Center on Sustainable Development said that it contributes in two ways.
By including small and medium enterprises (SMEs) as participants of the awards, it said, the awards programme extends ESG principles from PLCs to these smaller companies. This is an important move, as the majority of the country’s business establishments are SMEs.
“In addition, the awards will showcase ESG best practices of participants from various economic sectors. These best practices are objectively assessed and selected by expert judges.
“Through this process, ESG best practices can be widely disseminated so that they can be adopted by the wider business community in Malaysia, thus scaling up the benefits of ESG business practices for all segments of the Malaysian public,” it said.
ABAC Center’s Zafar, on the other hand, said that the ESG Positive Impact Awards recognise the successes and cement the credibility of Malaysian businesses.
“It will encourage businesses to do better and learn from each other. Malaysia’s ambition to achieve carbon neutrality by 2050 highlights a progressive position relative to other Asean countries.
“The ESG Positive Impact Awards will play a key role in this journey; they will become a catalyst for leadership and set trends for wider adoption of the ESG among industry leaders and professionals in the ecosystem,” he said.
Go boldly, but with purpose
On advice to those seeking to embark on their ESG journeys, the Jeffrey Sachs Center on Sustainable Development noted that ESG is a business imperative.
It stated, “ESG is an investment, not charity. This is because companies must continuously create value to compete and remain relevant in the market. Therefore, ESG strategies have to return value to the company in the long-run.
“Malaysian businesses have to be discerning in choosing their ESG strategies. Companies must be constantly aware that ESG strategies and business strategies are interlinked, hence they have to be formulated in an integrated manner with a long-term view to deliver the optimum value to company shareholders and benefits to society.”
The ESG Positive Impact Awards 2022 is organised by Star Media Group Bhd, with OCBC Bank (Malaysia) Bhd as main sponsor.
Ernst & Young is the advisor of the awards programme, while working partners include ABAC Centre of Excellence, Business Council for Sustainable Development (BCSD) Malaysia, Climate Governance Malaysia, Earthworm Foundation, Green Growth Asia Foundation, Institute for Democracy and Economic Affairs (IDEAS), Malaysia Green Building Council, Malaysian Green Tech and Climate Change Centre, Malaysian Institute of Corporate Governance, Jeffrey Sachs Centre, Sustainable Development Solutions Network (SDSN), as well as the Malaysian Research Accelerator for Technology and Innovation (MRANTI).