Malaysia’s ESG practices on par with other developing markets


SUSTAINABILITY awareness among Malaysian corporates is on par with other developing markets as the push for environmental, social and governance (ESG) efforts among stakeholders and investors become more prominent.

The Covid-19 pandemic has accelerated the green concept among corporates despite it still being relatively new to the local market.

Rakuten Trade Sdn Bhd VP Thong Pak Leng said ESG efforts in the country are gradually improving, mainly due to demands from stakeholders who are more aware of ESG values in investing.

“Malaysian ESG is on par with other developing nations. I think overall, our ESG is improving due to the pressure of many institutional investors and other stakeholders.

“The main challenge is most companies are still growing whereby most of their resources will be allocated to their expansion plans.

“I believe once companies reach a certain size or scale, their ESG will improve,” he told The Malaysian Reserve (TMR) recently.

Among the principles introduced to enhance ESG efforts among corporates is the Sustainability Framework launched by Bursa Malaysia Bhd in 2015 which led to mandatory sustainability reporting for large-cap companies.

Bank Islam Malaysia Bhd economist Adam Mohamed Rahim Malaysian said at the sectoral level, companies in the oil and gas (O&G) sector may face problems to promote more ESG practices due to its nature of operations.

The global shift to embracing sustainability objectives within a company may have a slight effect on the local economy due to its dependence on the sector.

“At the sectoral level, the vulnerability from a sustainability perspective mainly hinges on the economy’s dependence on high-carbon industries, which in this case is the O&G sector.

“Due to this, there would be a risk of stranded assets as the world accelerates its transition to a low-carbon economy and this is of particular concern for the O&G sector which generates an important contributor to the nation’s economic growth,” he told TMR.

To maintain its performance amid the global transition towards a greener economy, Adam said companies need to have a balance between making profits while adhering to ESG values.

A company’s overall performance may be impacted if it puts too much attention on ESG compliance without properly managing the costs to be borne.

“At the same time, companies which focus solely on profits without adhering to ESG principles may be able to bump up their earnings, but will bear the consequence later in the form of dissatisfaction from investors towards practices that are not ESG friendly,” he added.

Several Malaysian corporates have been embroiled in ESG-related issues as of late.

The import of products by glove conglomerate Top Glove Corp Bhd, and plantation companies Sime Darby Plantation Bhd and FGV Holdings Bhd have been banned by the US Customs and Border Protection over alleged evidence of forced labour practices.

National oil company Petroliam Nasional Bhd (Petronas) and Indonesian counterpart PT Pertamina were excluded from JPMorgan’s ESG Emerging Market Bond Index last month

The bank said one of the outside firms used to assess the ESG score required for inclusion in the index noted that some of Petronas’ or its affiliates’ activities in “high-risk regions” may be regarded as a violation of United Nations arms embargo.

In a response to its exclusion, Petronas said it does not reflect the group’s commitment to ESG practices and is regrettable.