ANDREW Chan, PwC Malaysia’s sustainability and climate change leader, discusses the ESG theme in corporate Malaysia. Below are excerpts of an email interview with him.
Q: How does one grapple with the varied interpretations of ESG, globally? Which set of ESG criteria should Malaysian corporations use?
A: This is about the challenges around the standards and frameworks, because there are so many of them. There are more than 300 definitions of sustainability and ESG.
There are two broader views. One is the traditional view of philanthropy and corporate social responsibility (CSR), which we feel is not really sustainability. The other definition involves what the more progressive companies and regulators focus on - sustainable value creation, where the key paradigm shift for companies is moving from a profit maximisation lens to a value optimisation lens. How much reporting and discussion do you have on metrics of profit versus metrics of purpose? If you think of it as philanthropy, you’re not really going to be generating value for the organisation.
It’s about ensuring everyone wins as opposed to win-and-lose and outcompete the competition, versus how do we best serve our customers, our community, our employees, our broader stakeholders - it tends to be much more of a win-win situation.
Q: Is there a solution to the current state of ambiguity with regards to ESG standards? Do you think there will be a fixed standard for ESG standards, going forward?
A: Let’s put it into context. Financial reporting standards have been evolving over 100 years, and they are still changing. Regarding sustainability - it is an alphabet soup of frameworks, standards and guidelines such as the Sustainability Accounting Standards Board (SASB), and Task Force on Climate-related Financial Disclosures (TCFD), and Sustainable Development Goals (SDGs).
It’s confusing to companies because investors, finance providers, regulators and stakeholders have different expectations on which approaches they prefer. So, how do you manage that?
We found that if you respond to these frameworks from a reporting basis and are just compliance based, you would fail to capture the value from the sustainability agenda. Most likely you would see sustainability as a cost to the business.
If you use the sustainability agenda as a performance improvement concept, you are much more likely to drive innovation, cost reduction and risk reduction, as well as elevate your brand. You can use ESG data to provide intelligence and recommendations to the management team, who can then act on it positively.
Q: What is the level of ESG compliance or even awareness among listed companies and debt issuers in Malaysia today?
A: For us, it’s this transition period where companies’ management need more support from directors but directors need to be upskilled in terms of not just what is ESG but how ESG impacts the business’ ability to generate value, and how ESG should be implemented. We haven’t yet reached the tipping point, to get enough of our directors to a more detailed level of understanding of ESG, such that they can in turn, guide management.
Where does a listed company go for resources or expertise to learn how to become ESG compliant? Do you think more companies should allocate more resources towards becoming ESG compliant?
There are a lot of frameworks out there, which come with guidelines. For example, the Sustainable Development Goals (SDGs). Again though, it probably goes back to that earlier point about there being too many frameworks and guidelines.
As for allocating more resources towards becoming ESG compliant, for many of us, we’d want to see companies do more because it leads to better outcomes for, obviously the citizens and the planet.