Mandatory sustainability reporting poses challenges for first-timers

Sustainability reporting has long been the exception rather than the norm in corporate Malaysia. However, since Bursa Malaysia Bhd launched its Sustainability Framework in 2015, first-timers among public-listed companies (PLCs) in Malaysia embarking on the journey of sustainability reporting have been busy trying to understand what and how to deliver it.

About 107 Malaysian PLCs with a market capitalisation exceeding RM2 billion are involved in the mandatory sustainability reporting. And for those with financial year ended Dec 31, 2016, they are now at the tail end of preparing their sustainability report. The report should be rolled out alongside their company’s annual report within the coming months.

Two consultancies, Ernst & Young Advisory Services Sdn Bhd (EY) and PwC Consulting Services (M) Sdn Bhd, shared some insights on their journey with their clients who are sustainability reporting first-timers.

PwC sustainability and climate change senior manager Elaine Chan said the biggest challenges faced by first-time reporters include under- standing what sustainability is and why there is a need for it.

“Some still see it as a cost, viewing Bursa Malaysia’s requirements as merely a compliance exercise. In such cases, sustainability reporting is either a tick-the-box exercise or treated as a public relations stunt,” she said.

At PwC, they are trying to change clients’ mindset on this. It hopes to show the embedding sustainability into their business strategy can add value to their business. Next would be the reporting process itself.

“Organisations that lack sufficient understanding of sustainability reporting, for example, may find it difficult to go through the materiality assessment process, as this involves identifying sustainability issues that are important to the business and its stakeholders,” Chan said.

When organisations are unable to do this, she adds, they may end up only selecting issues at the availability Philip adds that companies now realise that report writing should not be something that only starts at the end of the financial reporting period of data or on management’s willingness to disclose such information. This results in selective reporting, which can undermine the quality of disclosure.

When handling its set of clientele, EY finds that company management is cautious when disclosing information, resulting in disclosures’ positive outcomes.

“The reporting principle, however, expects companies to be transparent as stakeholders are interested to know how the companies have performed both positively and negatively,” said EY advisory partner Philip Rao.

He said the management also expresses concern on the quality of the data collected and its accuracy. Other related challenges include determining what to report.

Companies find acquiring a stakeholder’s input to determine what to disclose challenging, as it requires companies to have a structured system in place to engage and manage their stakeholders’ concerns,” he said. The exercise of collecting data for disclosure is another uphill task.

Philip said companies have to manage data gaps and compile relevant data within a short timeframe in order to meet the reporting timeline. He added that allocating resources to lead the sustainability reporting exercise is also a feat for the companies.

Most do no not have a designated department to manage sustainability reporting, but with the corporate strategy, corporate communication, human resources or health, safety and environment department tasked to take the lead.

Chan said PwC underscores to its clients the importance of sustainability as “a journey in resilience”. More than reporting for the sake of compliance, it helps the clients view sustainability holistically — how it can lead to operational efficiencies and give businesses greater competitive advantage through new market opportunities and improved brand perception. She pointed out that one of their clients is exploring sustainability initiatives that can improve its reputation and trust among its stakeholders and mitigate the negative impacts created from its development projects.

“In addition, companies are also learning to produce reports that are more balanced, comparable and meaningful, as required by Bursa Malaysia. If there are gaps in policies or performance data, companies should be forthcoming in stating their plans and steps to address these gaps,” she said.

Philip said companies now realise that report writing should not be something that only starts at the end of the financial reporting period. It should be something that is ongoing throughout the year to ensure that all necessary data and information are captured and accurately reported.

“On a positive note, the data collection exercise drives companies to look closely into existing data collection platforms and data analysis processes to find ways to continuously improve data accuracy,” he said

Philip said one of the notable achievements of the ongoing exercise is the growing awareness of top management on sustainability reporting that it should not be a “tick-the-box” exercise. Instead, sustainability reporting should be embedded into their business strategy to manage risks and take the advantage of business opportunities.

Board members and CFOs are also seen playing a more important role to drive this agenda, in view of the requirement for annual reports to include narrative statement of how a company manages material economic, environmental and social risks and opportunities.