ESG Reporting in Malaysia

Abstract

ESG reporting is gaining momentum in Malaysia as businesses recognize the importance of sustainable practices. The regulatory framework provided by the Securities Commission encourages companies to disclose relevant ESG information, fostering transparency and accountability. ESG reporting offers numerous benefits, including enhanced long-term sustainability, improved risk management, and attraction of responsible investment. Investor demand for ESG information is growing, leading to increased adoption of ESG criteria in investment decisions. Future trends in ESG reporting include standardization and harmonization, technology integration, focus on materiality, stakeholder engagement, expanded scope, increased investor demand, and regulatory developments. As Malaysia moves towards a greener and more socially responsible future, ESG reporting will continue to play a pivotal role in shaping businesses' strategies and decision-making processes.

Introduction: Environmental, Social, and Governance (ESG) reporting has gained increasing prominence in recent years as businesses worldwide recognize the importance of sustainable practices. In Malaysia, companies are also embracing this trend, as stakeholders demand greater transparency and accountability in their operations. This article explores the current state of ESG reporting in Malaysia, the regulatory framework supporting it, and the benefits it offers to businesses and society at large. The Regulatory Landscape and Different Frameworks: In Malaysia, the Securities Commission (SC) has taken significant steps to promote ESG reporting. In 2018, the SC introduced the Sustainability Reporting Framework (SRF) as a voluntary guideline for listed companies. The SRF aligns with international standards such as the Global Reporting Initiative (GRI) and encourages companies to disclose relevant ESG information in their annual reports. While compliance with the SRF was voluntary, listed companies were encouraged to adopt it to enhance their ESG performance and meet the growing expectations of investors and stakeholders. In 2016, ESG reporting was made mandatory for Public Listed Companies by Bursa Malaysia. The SC issued revised guidelines on sustainable and responsible investment funds in February 2023. It's important to note that while Bursa Malaysia recommends the use of the GRI Standards, the adoption of specific reporting frameworks remains voluntary for listed companies. However, companies that choose not to adopt these frameworks are encouraged to provide clear and robust ESG disclosures that meet stakeholders' expectations. Global Reporting Initiative (GRI) is the leading and widely used reporting framework in Malaysia, but several other frameworks are also used by companies for ESG reporting. These frameworks include Sustainability Reporting Framework (SRF) by Securities Commission Malaysia (SC), Carbon Disclosure Project (CDP) and United Nations Sustainable Development Goals (SDGs). However, on 11th April 2023, the Malaysian Government announced to launch a new framework for ESG reporting focusing on small and medium enterprises (SMEs). This reporting framework will be available to use by the end of 2023. Benefits of ESG Reporting: ESG reporting provides numerous benefits to both businesses and society. By incorporating ESG factors into their decision-making processes, companies can identify risks and opportunities that traditional financial reporting may overlook. This enables businesses to enhance their long-term sustainability, manage reputational risks, and attract responsible investment. Moreover, ESG reporting fosters transparency and accountability, allowing stakeholders to make informed decisions and hold companies accountable for their environmental and social impacts. Driving Sustainable Practices: ESG reporting acts as a catalyst for companies to adopt sustainable practices, thereby addressing pressing environmental and social challenges. By disclosing their carbon emissions, water consumption, waste management, and other environmental metrics, companies can identify areas for improvement and set targets to reduce their ecological footprint. Additionally, reporting on social aspects such as employee welfare, diversity, and community engagement helps to foster a positive corporate culture and build stronger relationships with stakeholders. Investor Demand for ESG: Investors are increasingly recognizing the importance of ESG factors in evaluating investment opportunities. Many institutional investors and asset managers have incorporated ESG criteria into their investment decision-making processes. This growing demand for sustainable investments has led to a surge in green bonds and sustainability-linked financing in Malaysia. ESG reporting allows companies to demonstrate their commitment to sustainability, attracting responsible investors who prioritize long-term value creation. Challenges and Opportunities: While ESG reporting in Malaysia is gaining momentum, there are still challenges to overcome. Some companies may perceive ESG reporting as an additional burden, requiring resources and expertise they may lack. However, the benefits of ESG reporting far outweigh the costs, as it enhances a company's reputation, attracts investors, and mitigates risks. Moreover, the availability of ESG reporting frameworks and guidelines, such as the SRF, helps companies navigate the reporting process effectively. Future trends in ESG reporting: 1. Standardization and Harmonization: As ESG reporting becomes more prevalent globally, there is a growing need for standardization and harmonization of reporting frameworks. Companies and investors alike are calling for a unified set of standards to ensure consistency and comparability of ESG data. Organizations such as the Global Reporting Initiative (GRI) and the Sustainability Accounting Standards Board (SASB) are working towards aligning their frameworks, which will streamline reporting processes and enhance credibility. 2. Integration of Technology: Technology will play a crucial role in the future of ESG reporting. Artificial intelligence, machine learning, and data analytics will enable companies to collect, analyse, and report ESG data more efficiently. This will not only streamline the reporting process but also enhance the accuracy and reliability of the information disclosed. Furthermore, technology can facilitate real-time monitoring and reporting, allowing companies to address ESG issues promptly. 3. Focus on Materiality: In the future, there will be an increased emphasis on materiality in ESG reporting. Materiality refers to identifying and reporting on the ESG issues that are most relevant and impactful to a company's business and stakeholders. By focusing on material issues, companies can provide more targeted and meaningful information, enabling investors and stakeholders to make better-informed decisions. 4. Stakeholder Engagement: ESG reporting will evolve to include more robust stakeholder engagement. Companies will seek to involve a broader range of stakeholders, including employees, customers, communities, and non-governmental organizations (NGOs), in the reporting process. This will ensure that ESG reporting reflects the diverse perspectives and concerns of all stakeholders, fostering transparency and accountability. 5. Expanded Scope: In the future, ESG reporting will likely expand beyond the traditional focus on environmental and social aspects. Governance, which encompasses factors such as board diversity, executive compensation, and anti-corruption measures, will gain more prominence. Additionally, emerging issues such as data privacy, cybersecurity, and supply chain resilience will be incorporated into ESG reporting frameworks. 6. Investor Demand and Integration: The demand for ESG information from investors will continue to grow. Institutional investors and asset managers will increasingly integrate ESG criteria into their investment decisions, driving the need for comprehensive and reliable ESG reporting. This trend will further incentivize companies to improve their ESG performance and disclose relevant information. 7. Regulatory Developments: Governments and regulatory bodies worldwide are expected to strengthen ESG reporting requirements. Mandatory reporting frameworks may be introduced, compelling companies to disclose their ESG performance. This will create a level playing field and ensure that companies are held accountable for their environmental and social impacts. Conclusion: In conclusion, the future of ESG reporting will be characterized by standardization, technology integration, materiality focus, stakeholder engagement, expanded scope, investor demand, and regulatory developments. As companies strive for sustainability and responsible practices, ESG reporting will continue to evolve and play a critical role in driving positive change. As Malaysia moves towards a greener and more socially responsible future, ESG reporting will continue to play a pivotal role in shaping businesses' strategies and decision-making processes. References: Experts express importance of ESG reporting | The Star Securities Commission Malaysia Publishes Revised Guidelines on Sustainable and Responsible Investment Funds | Eye on ESG Malaysia to Launch ESG Framework in 2023 | Environment, Land & Resources (globalelr.com)

Author's Profile:

Ifrah Bukhari is a certified Business Analyst with a strong background in IT consulting and business analysis. With a focus on sustainable business practices, Ifrah has also gained certifications in ESG Risks and Opportunities, ESG and Climate Change, and ESG Risk Identification and Materiality. These certifications demonstrate her comprehensive understanding of environmental, social, and governance aspects in business operations.

Currently employed as a Business Analyst at Softech360, Ifrah plays a pivotal role in driving ESG reporting and consulting services.

With her vast experience in IT consulting, Ifrah possesses a deep understanding of the challenges faced by organizations in adopting sustainable practices. Through her work, she enables clients to navigate these challenges, identifying opportunities for improvement and implementing effective strategies to achieve their ESG goals.

In addition to her professional accomplishments, Ifrah is a published author, having contributed multiple research articles. Her ability to bridge the gap between IT and sustainability allows her to provide comprehensive solutions that drive long-term value for organizations.

She continues to drive the adoption of sustainable practices, enabling organizations to achieve their ESG goals and contribute to a more sustainable future.