Bursa Malaysia has been advocating for companies to adopt sustainable practices for more than a decade.
Bursa Malaysia has been among the forefront of those advocating for the adoption of sustainable practices among companies for 15 years – long before the term “environmental, social and governance (ESG)” gained widespread traction in the business community.
This hails back to 2007 when the regulator of the Malaysian capital market required public-listed companies (PLCs) to have a sustainability statement within their annual reports to disclose their efforts.
It has also launched the FTSE4Good Bursa Malaysia (F4GBM) Index in 2014 and the Sustainability Reporting Guideline in 2015, amongst many others, with the aim of driving the ESG agenda among listed companies.
As a strong proponent of businesses to be more sustainable, socially responsible and ethical, Bursa Malaysia chairman Tan Sri Abdul Wahid Omar speaks with StarESG on the progress the country’s PLCs have made along the ESG journey.
Bursa Malaysia will be launching more environmentally-skewed indices in the near future, said Abdul Wahid.
How much progress have listed companies made thus far, in terms of adherence to Bursa’s listing requirements pertaining to sustainability disclosures? What are some of the key areas where the exchange would like to see further improvements?Bursa Malaysia has been conducting annual sustainability disclosure review (SDR) exercises based on listed companies’ sustainability statements or reports since 2017. The primary aim is to monitor progress made as well as to facilitate feedback on potential gaps and improvement opportunities.
Our 2021 SDR, undertaken in collaboration with the Minority Shareholder Watch Group, covered all Main and ACE Market listed companies. More specifically, the exercise covered the Sustainability Statements/Reports of 869 listed companies (740 Main Market; 129 ACE Market) for financial year ended April 1, 2020 to March 31, 2021. Listed companies that are classified under PN17 of the Main Market and GN3 of the ACE Market were excluded from our assessment.
I must say the overall progress is quite encouraging. The average compliance levels vis-à-vis our listing requirements are high, where the Top 100 listed companies recorded an average of 98%, while the score for all Main Market listed companies stood at 86%. Having said that, the overall quality of disclosures leaves considerable room for improvement where, against a stringent set of criteria, the Top 100 listed companies scored an average of 58%, while all Main Market listed companies scored 40%.
For ACE Market listed companies, their compliance level is at a full 100% as they are only required to include in their annual reports, a simple narrative statement of their management of material sustainability risks and opportunities. As for quality of disclosures, they are being assessed using the same stringent criteria utilised for their Main Market counterparts, and the resultant average score is 23%.
Based on our assessment of sustainability disclosures made, the key areas requiring further improvements include disclosures pertaining to:
> How the remuneration of directors and senior management is linked to sustainability-related key performance indicators.
> Reasoning for chosen scope of sustainability statement/report.
> The company’s materiality assessment process (e.g. stakeholders engaged for the prioritisation of the PLCs material sustainability matters).
> Board approval and/or endorsement of the outcome of the company’s materiality assessment process.
How does Bursa Malaysia plan to further elevate listed companies’ ESG disclosures and practices to be more aligned to international standards or best practices?As a frontline regulator and market operator, Bursa Malaysia provides ongoing guidance, advocacy and engagements in the marketplace to ensure inculcation of good ESG practices amongst listed companies.
One major initiative that the exchange is currently embarking on is undertaking a comprehensive review of our Sustainability Reporting Framework. The primary aim is to better address the evolving informational needs of key capital market stakeholders such as institutional investors. In particular, the exchange is placing a lot of emphasis on enhancing the availability, quality and comparability of our listed companies’ sustainability disclosures.
Following on from the above, our proposals include requiring all listed companies to provide disclosures on a set of common sustainability matters and indicators that are deemed material regardless of size or sector. In addition, we proposed to mandate climate change-related disclosures that are aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. This would address the urgent need for listed companies to internalise and effectively manage climate change-related risks and opportunities in order to successfully transition to a low-carbon world. Combating the impacts of climate change will not only strengthen our listed issuers’ business resilience, but will also realise Malaysia’s aspiration of becoming a net-zero greenhouse gas emissions nation as early as 2050.
Apart from the above, other key proposals include:
1. Requiring disclosure of data for at least three financial years and performance targets, for each reported indicator.
2. Requiring a statement whether the sustainability disclosures have been assured and if so, the scope of such assurance.
Additionally, the exchange further proposes that, where appropriate, the sustainability practices and disclosures of the ACE Market listed corporations be strengthened to be broadly on par with those of the Main Market. Overall, Bursa Malaysia’s enhanced Sustainability Reporting Framework will serve as a springboard to propel listed issuers to adopt international best practices and realise our national aspiration of being the region’s leading capital market for sustainability.
The exchange has also made numerous resources available to assist PLCs in their journey toward sustainability. Among them is BursaSustain, a one-stop knowledge centre for corporate governance, responsible investment and sustainability, which contains a repository of information, publications, news articles and e-learning modules.
In 2021, we collaborated with the United Nations Global Compact Network Malaysia and Brunei in developing a Corporate Sustainability Practitioner (CSP) Competency Framework and a digital self-assessment tool. The CSP Competency Framework is designed to help guide sustainability practitioners develop core competencies, as well as enable companies to develop structured talent development programmes to drive corporate sustainability. Through this competency framework, we hope we can support corporate sustainability practitioners in building capacities to become effective change agents for a responsible and successful business.
More recently in June, we released the Guidebook 2 of our PLC Transformation Programme, titled Sustainable, Socially Responsible and Ethical PLCs. Among other things, the guidebook emphasises the need for PLCs to develop a well-defined ESG approach, which includes better governance, more effective management of environmental and social performance and embedding robust ESG practices across key functions of the organisation.
Since your announcement that Bursa Malaysia will be working closely with the Ministry of Environment and Water and other relevant ministries, as well as stakeholders to develop a Voluntary Carbon Market (VCM), what has been the progress?In our recent media release dated Aug 15, Bursa Malaysia announced that we will launch the VCM exchange later this year, which will allow businesses to purchase voluntary carbon credits from climate-friendly projects and solutions to offset their carbon footprint. The exchange is currently working with various stakeholders on the VCM exchange’s key building blocks, which include drafting the VCM rules to provide clarity to market participants, building a sustainable supply of high-quality carbon credits aligned with our product specifications and engaging corporates better to understand their future expectations and demands for carbon credits.
The coming months will see us ramping up our capacity-building initiatives to raise awareness of carbon credits and their potential uses, carbon credit origination process and project development, etc. We will also leverage on our MoU with Verra and work with relevant stakeholders to organise these sessions.
As a facilitator of carbon trading, Bursa Malaysia will ensure appropriate governance structure and robust mechanisms are put in place to support a vibrant and transparent VCM exchange.
The F4GBM Index has been in existence since 2014. Are there any plans to extend or to introduce more ESG-centred indices to better cater to the needs of different investors?In addition to the FTSE4Good Bursa Malaysia (F4GBM) index, Bursa Malaysia has launched the FTSE4Good Bursa Malaysia Shariah (F4GBMS) index in July 2021. The F4GBMS index caters to investor demand for ESG and Shariah-compliant investment needs. This new themed index is designed to track constituents in the F4GBM index that are shariah-compliant.
The F4GBMS Index currently comprises 65 constituents and serves as a basis for fund managers to develop new investment products comprising a portfolio of shariah-compliant equities guided by sustainable investing principles.
We plan to further build on this momentum with the launch of more environmentally skewed indices in the near future. How much progress have listed companies made thus far, in terms of adherence to Bursa’s listing requirements pertaining to sustainability disclosures? What are some of the key areas where the exchange would like to see further improvements?
Bursa Malaysia has been conducting annual sustainability disclosure review (SDR) exercises based on listed companies’ sustainability statements or reports since 2017. The primary aim is to monitor progress made as well as to facilitate feedback on potential gaps and improvement opportunities.
Our 2021 SDR, undertaken in collaboration with the Minority Shareholder Watch Group, covered all Main and ACE Market listed companies. More specifically, the exercise covered the Sustainability Statements/Reports of 869 listed companies (740 Main Market; 129 ACE Market) for financial year ended April 1, 2020 to March 31, 2021. Listed companies that are classified under PN17 of the Main Market and GN3 of the ACE Market were excluded from our assessment.
I must say the overall progress is quite encouraging. The average compliance levels vis-à-vis our listing requirements are high, where the Top 100 listed companies recorded an average of 98%, while the score for all Main Market listed companies stood at 86%. Having said that, the overall quality of disclosures leaves considerable room for improvement where, against a stringent set of criteria, the Top 100 listed companies scored an average of 58%, while all Main Market listed companies scored 40%.
For ACE Market listed companies, their compliance level is at a full 100% as they are only required to include in their annual reports, a simple narrative statement of their management of material sustainability risks and opportunities. As for quality of disclosures, they are being assessed using the same stringent criteria utilised for their Main Market counterparts, and the resultant average score is 23%.
Based on our assessment of sustainability disclosures made, the key areas requiring further improvements include disclosures pertaining to:
> How the remuneration of directors and senior management is linked to sustainability-related key performance indicators.
> Reasoning for chosen scope of sustainability statement/report.
> The company’s materiality assessment process (e.g. stakeholders engaged for the prioritisation of the PLCs material sustainability matters).
> Board approval and/or endorsement of the outcome of the company’s materiality assessment process.
How does Bursa Malaysia plan to further elevate listed companies’ ESG disclosures and practices to be more aligned to international standards or best practices?
As a frontline regulator and market operator, Bursa Malaysia provides ongoing guidance, advocacy and engagements in the marketplace to ensure inculcation of good ESG practices amongst listed companies.
One major initiative that the exchange is currently embarking on is undertaking a comprehensive review of our Sustainability Reporting Framework. The primary aim is to better address the evolving informational needs of key capital market stakeholders such as institutional investors. In particular, the exchange is placing a lot of emphasis on enhancing the availability, quality and comparability of our listed companies’ sustainability disclosures.
Following on from the above, our proposals include requiring all listed companies to provide disclosures on a set of common sustainability matters and indicators that are deemed material regardless of size or sector. In addition, we proposed to mandate climate change-related disclosures that are aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations. This would address the urgent need for listed companies to internalise and effectively manage climate change-related risks and opportunities in order to successfully transition to a low-carbon world. Combating the impacts of climate change will not only strengthen our listed issuers’ business resilience, but will also realise Malaysia’s aspiration of becoming a net-zero greenhouse gas emissions nation as early as 2050.
Apart from the above, other key proposals include:
1. Requiring disclosure of data for at least three financial years and performance targets, for each reported indicator.
2. Requiring a statement whether the sustainability disclosures have been assured and if so, the scope of such assurance.
Additionally, the exchange further proposes that, where appropriate, the sustainability practices and disclosures of the ACE Market listed corporations be strengthened to be broadly on par with those of the Main Market. Overall, Bursa Malaysia’s enhanced Sustainability Reporting Framework will serve as a springboard to propel listed issuers to adopt international best practices and realise our national aspiration of being the region’s leading capital market for sustainability.
The exchange has also made numerous resources available to assist PLCs in their journey toward sustainability. Among them is BursaSustain, a one-stop knowledge centre for corporate governance, responsible investment and sustainability, which contains a repository of information, publications, news articles and e-learning modules.
In 2021, we collaborated with the United Nations Global Compact Network Malaysia and Brunei in developing a Corporate Sustainability Practitioner (CSP) Competency Framework and a digital self-assessment tool. The CSP Competency Framework is designed to help guide sustainability practitioners develop core competencies, as well as enable companies to develop structured talent development programmes to drive corporate sustainability. Through this competency framework, we hope we can support corporate sustainability practitioners in building capacities to become effective change agents for a responsible and successful business.
More recently in June, we released the Guidebook 2 of our PLC Transformation Programme, titled Sustainable, Socially Responsible and Ethical PLCs. Among other things, the guidebook emphasises the need for PLCs to develop a well-defined ESG approach, which includes better governance, more effective management of environmental and social performance and embedding robust ESG practices across key functions of the organisation.
Since your announcement that Bursa Malaysia will be working closely with the Ministry of Environment and Water and other relevant ministries, as well as stakeholders to develop a Voluntary Carbon Market (VCM), what has been the progress?
In our recent media release dated Aug 15, Bursa Malaysia announced that we will launch the VCM exchange later this year, which will allow businesses to purchase voluntary carbon credits from climate-friendly projects and solutions to offset their carbon footprint. The exchange is currently working with various stakeholders on the VCM exchange’s key building blocks, which include drafting the VCM rules to provide clarity to market participants, building a sustainable supply of high-quality carbon credits aligned with our product specifications and engaging corporates better to understand their future expectations and demands for carbon credits.
The coming months will see us ramping up our capacity-building initiatives to raise awareness of carbon credits and their potential uses, carbon credit origination process and project development, etc. We will also leverage on our MoU with Verra and work with relevant stakeholders to organise these sessions.
As a facilitator of carbon trading, Bursa Malaysia will ensure appropriate governance structure and robust mechanisms are put in place to support a vibrant and transparent VCM exchange.
The F4GBM Index has been in existence since 2014. Are there any plans to extend or to introduce more ESG-centred indices to better cater to the needs of different investors?
In addition to the FTSE4Good Bursa Malaysia (F4GBM) index, Bursa Malaysia has launched the FTSE4Good Bursa Malaysia Shariah (F4GBMS) index in July 2021. The F4GBMS index caters to investor demand for ESG and Shariah-compliant investment needs. This new themed index is designed to track constituents in the F4GBM index that are shariah-compliant.
The F4GBMS Index currently comprises 65 constituents and serves as a basis for fund managers to develop new investment products comprising a portfolio of shariah-compliant equities guided by sustainable investing principles.
We plan to further build on this momentum with the launch of more environmentally skewed indices in the near future.
