Directors must be well-informed on ESG issues


DIRECTORS of corporate entities have to keep abreast of the issues relating to the environmental, social, and governance (ESG) in their respective industries to play a meaningful role in the positions and meet the demands of stakeholders.

Institute of Corporate Directors Malaysia chairman Tan Sri Zarinah Anwar (picture) said policy responses to ESG issues are still a work-in-progress in Malaysia as authorities have only made corporate firms delineate their activities in recent years.

“Just like other corporate governance principles, ESG practices are still a work in progress. It is a journey for Malaysia as mandatory sustainability reporting was only made compulsory in 2016 for large-cap companies.

“There is a greater impetus now with the recently published update of the Malaysian Code of Corporate Governance by the Securities Commission that requires greater efforts by corporate boards to ensure integration of sustainability into their businesses.

“Directors need to stay abreast of the sustainability issues that are relevant to their businesses and industries and they need to be much more fluent of the issues to help steer companies towards a robust performance,” she said during a virtual press briefing of its fourth AGM last Friday.

Zarinah added relevant and swift responses should be prioritised in managing ESG issues, particularly for the corporate entities, considering billions of capital could be at stake.

“Communication has to be speedy and not let adverse impacts occur to prevent any crisis from spiralling.

“This is also to ensure companies can preserve long term value as well as ensure a positive impact on society and environment accounting for sustainability when exercising their duties,” she said.

With more sustainability issues emerging in the corporate sector, ESG has been used as a yardstick by institutional investors to evaluate investments and risks.

Commenting on the concerns raised of billions worth transactions at Serba Dinamik Holdings Bhd by its external auditor, KPMG PLT, Zarinah said the onus is on the company’s board of directors to respond accordingly to ensure the trust of the shareholders is not breached.

She said when the auditors raise queries, then the onus is on the board to respond accordingly and not to sidestep the auditor as a firm is acting as an “external auditing secretary” and it is their job to raise red flags.

“The board must respond satisfactorily to issues raised by auditors. Previously, we have seen where the board does not do this and in turn, shareholders “voted with their feet” and there is a collapse of share price and diminishing of market capitalisation,” she said.

In its assessment of Serba Dinamik, KPMG raised red flags over several issues, including on transactions RM3.5 billion with 11 customers, of which the oil and gas service provider company rejected and planned to appoint an independent firm to review the issues.

Recently, Malaysian corporates have seen some ESG related issues.

Concerns on Top Glove Corp Bhd, Hartalega Holdings Bhd and Maxter Glove Manufacturing Sdn Bhd, a subsidiary of Supermax Corp Bhd, have emerged over the glovemaker’s staff living quarters and worker’s rights.

This has led to US Customs and Border Protection (CBP) prohibited the import of Top Glove products last year, saying it had found reasonable evidence indicative of forced labour practices at the company’s production facilities across Malaysia.

The same labour conditions also swept the palm oil plantation industry where CBP has blocked the import of palm oil made by Malaysian producer FGV Holdings Bhd and Sime Darby Plantation Bhd.

Last week, state state-owned energy company Petronas and Indonesian counterpart PT Pertamina were on a watchlist for removal from JPMorgan’s ESG EMBI index.

The bank said in a statement in a statement last week that both oil majors are expected to exit the JPMorgan’s ESG suite at the June month-end rebalance, as their scores fell below a required threshold and they are no longer eligible for inclusion.