Unlock ESG for your business

IM Possible Solutions Sdn Bhd managing director and Tunku scholar Amir Isyam Abdul Rahim says as smart business owners, we must be strategic in what we choose to adopt as the business itself must be sustainable for us to contribute to the planet’s sustainability.

AS Malaysia races towards a carbon-neutral future, understanding and implementing ESG (Environmental, Social and Governance) strategies are no longer optional — they are essential.

As business owners, whether through our picking or enforced by the demands from policymakers and the supply chain, ESG must be considered. We need to be aware of the policies in this space and how we need to pivot our business to stay ahead.

In this article, I will explore why ESG is crucial, and how to implement it strategically and in a cost-effective manner.

ESG scope and why it is crucial

Globally, the climate crisis has driven nations to commit to international treaties, such as the Paris Agreement and the UN Sustainable Development Goals. Malaysia has pledged to become carbon-neutral by 2050, integrating these goals into the 12th Malaysia Plan, affecting every government ministry and agency.

Bursa Malaysia in 2016 introduced sustainability reporting for public-listed companies and in 2022, a carbon trading market with rumours of a possible carbon tax to follow.

Bank Negara Malaysia through its Joint Committee on Climate Change has also called for the implementation of sustainability oversight which will, in turn, likely result in sustainability reporting obligations on all bank customers, including SMEs.

These moves, driven by global investor pressure, will, if not already being done so, create a ripple effect and push companies to adopt and report on their ESG initiatives.

The push for ESG is present for the same reasons as seen with the EU Corporate Sustainability Due Diligence Directive, the IFRS Sustainability Disclosure Standards and more. ESG is not a fad and is here to stay.

ESG goes beyond environmental concerns and corporate social responsibility (CSR). It encompasses various issues, including anti-corruption policies, procurement practices, gender pay gaps, labour conditions, occupational safety, sustainable consumption and more.

Essentially, ESG measures an organisation’s broader impact on society and the environment. While it is tempting to claim to be an expert in ESG, its vastness means that you should view anyone who does so with a bucket of salt.

Scoping ESG for your company

Noble intentions aside, ESG is becoming mainstream due to regulatory and financial pressures. There-fore, sustainability teams must manage enthusiasm and focus on integrating existing initiatives into an ESG roadmap rather than only creating new ones that incur additional costs.

Convincing management to fund new initiatives requires a clear understanding of regulatory compliance and financial and social benefits. For instance, manufacturers exporting to the US or Europe must address labour conditions to avoid business disruptions.

The role of a sustainability team is primarily risk assessment and mitigation. Look at conducting thorough assessments of your business operations and markets to identify where a lack of ESG initiatives could jeopardise compliance and financing as a first priority.

Navigating Malaysia’s ‘Wild West’ phase

ESG regulations in Malaysia are in their infancy, and reporting requirements are basic. However, expect these to become more complex as regulators align with global standards, potentially introducing audit components in the future. Developing your ESG roadmap and reporting with future compliance in mind can save significant time and resources.

One way is to have regular engagement with your industry regulators and keep updated with the relevant guides they introduce. For example, Capital Markets Malaysia last October released the Simplified ESG Disclosure Guide for SMEs in Supply Chains, making Malaysia the first country to offer small-to-medium enterprises within global supply chains a standardised set of guidelines for ESG disclosures.

Eventually, you will need a sustainability team that does continuous monitoring and evaluation to ensure compliance and avoid greenwashing. Given most initiatives will be implemented by operational teams, the sustainability team’s understanding of business operations will be crucial to aligning ESG initiatives with existing reporting processes to streamline information gathering for sustainability reports.

Ideally, the sustainability team should be integrated with your strategy or performance management teams to ensure seamless alignment with overall business objectives.

Hiring the right consultant

If hiring an ESG consultant is one of your considerations, understand the value chain of ESG consultancy. There are three categories of the value chain for companies:

Roadmap development: This involves materiality assessments, stakeholder engagements, benchmarking and more. Large consulting firms often excel here, but be wary of high-level, impractical recommendations.

Initiative-specific studies: This includes operational studies like energy efficiency, renewable energy, life cycle assessments and more, which are typically already bundled into solutions/products e.g. most solar panel providers will give you a basic estimation of your energy savings.

Sustainability reporting: Many organisations today claim to specialise in ESG reporting but it is crucial to understand if your business needs a detailed report. This is decided based on the company’s circumstances and the compliance component needed locally and internationally (if you export).

Choose based on your objective, budget, time constraints and specific business circumstances.

The journey towards effective ESG integration is complex but vital. While motivations may vary, the push for better corporate practices marks a significant step forward. As smart business owners, we must be strategic in what we choose to adopt as the business itself must be sustainable for us to contribute to the planet’s sustainability.

This article first appeared in Star Biz7 weekly edition

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