The ESG agenda today is a boardroom staple. Since it exploded into the mainstream in the late 2010s driven by major global agreements, investor demand followed by new regulation, discussion and debate on the topic have been widely catalogued on public platforms and media.
However, despite the depth and breadth of coverage, many struggle to connect the principles or approach to the outcomes or tangible impact.
According to PwC’s 27th Annual Global CEO Survey, 58% of Asean directors agree that sustainability, climate change and ESG agenda, metrics and targets are among the most challenging areas that require more training for their boards, and fewer than 20% of boards understand the link between their climate commitments and capital allocation decisions.
These signals point to a common conclusion—the difficulty is not so much in recognising the importance of ESG, but in defining the correlation of the concepts to relevant, executable initiatives that will positively impact the organisation or business.
Short-term pressures
Part of the difficulty comes from operating in an environment motivated by the reward of achieving short-term goals.
While many companies claim to support sustainable growth, internal incentive structures often reinforce short-term pressures, and only about 30% of firms tie ESG to long-term incentive plans, according to another PwC report.
This gap between what is declared versus the tangible corporate priorities becomes especially apparent under investor or operational pressure, according to a March 2023 report from EY Europe.
Boards may believe in sustainability, and organisations may align to ESG-based values, but when the rewards or incentives, governance and internal systems do not align, ESG commitments risk remaining aspirational.
Capability and information gaps
These short-term pressures do not exist in a vacuum.
They expose capability gaps that limit a board’s ability to translate ESG intent into effective oversight and stewardship.
Directors increasingly understand that climate—as a subset of the ESG pillars—should influence business strategy, but many remain uncertain on the legitimacy and authenticity of the ESG data, and the premise of interpreting it, based on the survey findings on ESG disclosure and preparedness by Deloitte.
This uncertainty may weaken the robustness of company performance assessments.
This is where targeted support becomes critical. Institutions such as the Institute of Corporate Directors Malaysia (ICDM), the national institute of directors established by the Securities Commission Malaysia (SC), play an important role in helping boards close critical capability and information gaps.
For example, board directors may only see narrowly framed management information, or insufficient comparative and consistent tracking of historical data, making it hard to accurately assess risks like climate‑related financial impacts or the way external analysts are viewing sustainability performance.
Independent directors in particular need depth, if not a richer information mix, to ask the right questions and make sound decisions.
Directors are able to ground their knowledge through ICDM’s programmes, peer sharing platforms and resources, like the Mandatory Accreditation Programme Part II: Leading for Impact (LIP), which was introduced in 2023 under SC’s Corporate Governance Strategic Priorities 2021–2023.
They develop skills to decode emerging ESG metrics, engage with external expert reports and tap into broader data sources so they are not reliant solely on internal information.
Other key organisations also play a pivotal role in advancing the climate agenda, like Climate Governance Malaysia.
The goal is not to turn directors into ESG specialists, but to equip them with frameworks and practical tools to evaluate and analyse challenges and information to determine a clear path forward.
Programmes that break down ESG into strategic, financial and non-financial implications; scenario-based exercises; and peer learning platforms help directors understand how sustainability considerations should inform and influence governance, risk, talent and capital decisions.
ICDM carries out the independent board evaluations, assessing how effectively boards oversee the setting of sustainability strategies, priorities and targets; the extent to which sustainability is embedded within the company’s overall business model and long-term strategy; the robustness of oversight over ESG-related risks and opportunities; and whether executive performance and incentives are meaningfully linked to ESG-related KPIs.
Collectively, these dimensions reflect the quality, clarity and decision-usefulness of the ESG information provided to the board, and the board’s ability to translate the sustainability commitments into accountability, behaviours and long-term value creation.
Top 3 focus areas for boards
Boards today face growing expectations from regulators, investors and global supply chain partners to show that sustainability is built into the businesses.
To showcase impact, ESG principles must be integrated in an organisation’s core governance architecture, rather than treated as a separate agenda.
This means demonstrating how it empowers the board charters, committee mandates, enterprise risk management, budgeting processes, leadership KPIs and, increasingly, remuneration frameworks that tie rewards to sustainability outcomes.
This structural alignment is crucial because it addresses the earlier challenges.
Short-term pressures are easier to manage when incentives reflect long-term goals.
Capability becomes more meaningful when boards have consistent processes that guide how ESG information is escalated and scrutinised. Data quality improves when organisations have clearer expectations around what information is needed and why.
To date, ICDM has trained over 5,500 board directors under the Mandatory Accreditation Programme Part II to equip them with the foundation to effectively oversee material sustainability risks and opportunities.
An observation on current capabilities and emerging expectations points to the need for more tailored oversight structures, stronger data quality and deeper, more forward-looking board deliberations to support long-term resilience and competitiveness. The top three focus areas are to:
> Strengthen governance and accountability
Take clear ownership of sustainability by establishing the right ESG oversight structures, clarifying fiduciary responsibilities and ensuring ESG remains a standing and substantive board agenda item.
The appropriateness of a dedicated ESG committee versus integrated ESG oversight across board committees depends on the company’s level of maturity, governance complexity, availability of expertise and sustainability ambitions.
Less mature organisations may benefit from an integrated oversight model, where ESG considerations are embedded across relevant committees, such as audit, risk and governance.
More mature organisations may adopt a dedicated ESG committee to sharpen focus, deepen expertise and provide greater discipline over increasingly complex sustainability matters.
> Institutionalise sustainability into strategy and risk
Ultimately, responsibility for sustainability oversight rests with the board in its entirety.
Embed ESG and climate considerations into core business strategy, capital allocation and enterprise risk management; formalise ESG integration across all board and committee discussions, reinforcing accountability and long-term value creation.
Failing to do so risks missing long-term value opportunities, regulatory penalties and exposure to climate-related financial risks.
As regulatory frameworks tighten and greenwashing concerns intensify, directors must proactively navigate evolving disclosure requirements and industry best practices.
Beyond compliance, a well-governed ESG strategy strengthens corporate credibility, attracts sustainable capital and reinforces long-term competitiveness in the capital markets.
> Accelerate capability and execution discipline
Invest in continuous board and management upskilling, deepen sector-specific ESG expertise and practices, strengthen ESG data and disclosures, and ensure sustainability goals are practical, measurable and executable.
Peer sharing is critical to effective sustainability exchanges, as it allows directors to learn from real-world experiences, practical challenges and lessons drawn from implementation rather than theory alone.
Our initiative in establishing a LIP Alumni Network as a continuation of the programme provides a meaningful platform for directors to exchange good practices and board-level insights.
Through these peer exchanges, directors strengthen their oversight of sustainability risks and opportunities, sharpen board judgment and apply sector-specific lessons to boardroom discussions, with sharing to date spanning sectors such as manufacturing, finance, plantations, healthcare and other trending topics such as renewable energy and energy efficiency.
ICDM continues to support boards through board evaluations, targeted development, advisory support and practical tools that help directors link ESG commitments to governance decisions. A key effort is the Professional Directors Certification Framework (PDCF).
The multi-tiered certification pathway is designed to meet directors at different stages of their evolution in governance, from aspiring leaders to boardroom experts, emphasising real-world board impact, scenario-based assessments and forward-looking competencies essential for the next decade.
Through the PDCF, ICDM aims to raise the demand for qualified directors and address board-level skills gaps in crucial business levers such as risk, financial oversight and ESG governance to pave a stronger path forward.
A meaningful sustainability push requires a holistic approach—one where regulators set clear expectations, institutions build the necessary competencies and companies embed sustainability into strategy and execution.
Ultimately, sustainability needs a whole-ecosystem push, from regulators, corporate governance institutions, directors and companies working in sync.
