Listed companies lack details in ESG reporting, undermine ESG credibility

It is crucial for firms to view ESG from a risk and opportunity perspective 

by JUNE MOH 

MALAYSIAN FTSE Bursa Malaysia KLCI (FBM KLCI) Index companies still lack the appropriate content and detail needed for optimal transparency on environmental, social and governance (ESG) reporting despite striving to follow all formal requirements. 

According to data from Global ESG Monitor (GEM), Malaysian companies can significantly enhance their ESG reporting by adopting a holistic approach that focuses on key details and demonstrates the effectiveness of their initiatives. 

GEM co-founder Ariane Hofstetter said it is crucial for companies to view ESG from a risk and opportunity perspective, rather than solely adhering to the concept of “woke capitalism”. 

“By increasing the quality and depth of information provided, companies can enable stakeholders to better understand their performance and make well-informed decisions regarding their interactions with the company,” she told The Malaysian Reserve (TMR). 

To enhance ESG reporting, companies should be more specific about the formulas and methods used to calculate KPIs, says Hofstetter (Pics source: Perspective Strategies)

She said companies could consider addressing key areas in supply chains, materiality analysis, key performance indicators (KPIs) precision, workforce representation and environmental considerations, in a more detailed manner to improve ESG reporting. 

“Enhancing transparency and traceability within the supply chain is essential for identifying potential risks and opportunities. By providing detailed information about suppliers, sourcing practices and production processes, companies can demonstrate their commitment to responsible supply chain management. 

“While it is commendable that many companies are using materiality analysis as a strategic instrument, it is important to provide additional details. This includes specifying the year in which the analysis was conducted, the methods employed to define materiality and the impact of these findings on business operations and decision-making processes,” she said. 

Hofstetter added that to enhance ESG reporting, companies should be more specific about the formulas and methods used to calculate KPIs. 

“For instance, when reporting Scope 2 emissions, it is crucial to clearly state whether the numbers were calculated based on location or market. 

“Precise and transparent calculations provide stakeholders with a better under- standing of the company’s environmental impact,” she said. 

She added that when addressing environmental factors in ESG reporting, companies should remember that it encompasses more than just climate issues. Water and waste management are equally important aspects to consider. 

“By comprehensively addressing these areas in their reporting, companies can demonstrate their commitment to environmental stewardship and sustainable practices,” she said. 

The enhanced sustainability reporting requirements indicated a strong commitment to non-financial reporting, Diegelmann says

Bursa Malaysia Enhanced Sustainability Reporting

The enhanced sustainability reporting requirements introduced by Bursa Malaysia on Sept 26, 2022, indicated a strong commitment to non-financial reporting, said GEM co-founder Michael Diegelmann. 

“The guidelines are expected to bring a higher level of precision, particularly in climate reporting, as the Task Force on Climate-related Financial Disclosures (TCFD) becomes influential. 

“Currently, 67% of companies in the FBM KLCI Index reference this standard, but many still fall short in fulfilling its requirements accurately. 

“This is evident when examining the results of Scope reporting, especially for Scope 2. The majority of companies in the index do not yet specify whether their Scope 2 emissions were compiled using the location-based method or the market-based method,” he said. 

Malaysian companies can significantly enhance their ESG reporting by adopting a holistic approach that focuses on key details and demonstrates the effectiveness of their initiatives

Scope 1, 2 and 3 Emissions 

There are different categories of greenhouse gas (GHG) emissions, and businesses and organisations are under pressure to explain how they are cutting all three. 

The scope system has been developed by the Greenhouse Gas Protocol, intended to help measure progress in making the huge reductions that are needed to limit global temperature rises to well below 2°C — the central aim of the Paris Agreement.


From GEM Malaysia Regional Report 2022 

A lack of depth and detail in ESG reporting has resulted in a poor overall ESG transparency score for Malaysia’s top 30 companies. 

The 30 companies that form the flagship FBM KLCI Index lacked the appropriate content and level of detail needed for optimal transparency even though they used inter-nationally recognised frameworks, standards and strategic tools in their ESG reporting, according to GEM. 

Thus, they ranked in the midfield among global and regional peers, said GEM — a company that analyses ESG and sustainability reporting of companies in the world. 

The transparency scores of the top 10 FBM KLCI companies based on the Global ESG Monitor are: 

Other key findings of the GEM Malaysia Regional Report include: 

The Malaysian Code on Corporate Governance (2021) specifies that there should be at least 30% “women directors” on the boards of Malaysian companies. FBM KLCI is already in a good position in this respect, as mixed boards have already been identified for 80% of the companies surveyed. 

In the reports themselves, however, the companies are more cautious in this respect: Only 77% report the total percentage of their employees by gender. The descriptions in the FBM KLCI are also rather restrained when it comes to the topic of age split (67%) or ethnicity (43%). 

Significant transparency gaps exist in ESG reporting, with scores of 55%, 39% and 54% in each respective category. 

A lack of detail in reporting has resulted in a poor overall ESG transparency score. For example, 90% of Malaysian companies report that a materiality analysis was completed but only 20% provide background information on the year of data collection and how the data was collected. In addition, 67% of companies list their stakeholders but only 37% provide information on how the stakeholders were determined. 


  • This article first appeared in The Malaysian Reserve weekly print edition