ESG adoption and market trends in Malaysia: Embracing sustainability for a competitive future
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Malaysia is experiencing a significant shift in its corporate landscape as the adoption of Environmental, Social, and Governance (ESG) principles becomes increasingly prevalent. ESG considerations are no longer just a niche concern; they are now central to business strategies across the country. In the past twelve months, The Carbon Collective Company has engaged with numerous Malaysian companies of different industries and sizes and observed that the ESG market is too significant for investors and businesses to overlook. This article explores and provides insights we gained into the driving forces behind Malaysia’s ESG adoption, the challenges faced, and how digitalization is aiding in overcoming these obstacles.
What we see as the key factors driving ESG adoption in Malaysia across industries
1. Increasing Regulatory Requirements: The surge in regulatory measures aimed at promoting ESG transparency including the mandating of the listed companies to disclose their ESG performance. Non-compliance not only carries legal implications but also poses reputational risks. Regulatory mandates, coupled with the new BURSA guidelines, have been instrumental in propelling ESG practices within the Malaysian business ecosystem.
2. Growing Investor Demand: Investors, both local and global, are increasingly seeking ESG-aligned investments. They understand that integrating ESG principles can lead to more resilient and sustainable businesses and mitigate ESG risks. Malaysian companies have witnessed heightened investor interest in ESG performance, making ESG adoption an attractive strategy for attracting capital and enhancing market competitiveness.
3. Improving Operational Efficiency: ESG adoption is not merely about ticking boxes; it’s a strategic approach that enhances operational efficiency. Over time, sustainability measures and the adoption of circular economy practices have proven to reduce resource consumption, lower operational costs, and reduce environmental and social risks. In a highly competitive market, Malaysian companies are embracing ESG practices to secure long-term profitability and navigate the complexities of an ever-changing world.
4. Enhanced Stakeholder Engagement: An integral part of ESG adoption is strengthening stakeholder engagement. Malaysian companies are recognizing the importance of building robust relationships with stakeholders, including employees, customers, and communities. Effective engagement not only generates goodwill but also enhances reputation and resilience in an unpredictable world.
The challenges on the ESG Journey we uncovered
While ESG adoption is gaining momentum in Malaysia, many companies are facing challenges, some of which include:
1) ESG Roadmap Unclear within the Company
A lack of clarity within the organization regarding the ESG roadmap can hinder progress. Companies need a well-defined strategy and clear communication channels to ensure everyone understands the importance of ESG initiatives. Preparing for public disclosures can be a daunting task.
2) Technical know-how and resources
While the top management is determined on ESG adoption, they tend to face resistance due to a lack of internal expertise in defining the ESG strategy, ESG data, methods of disclosures and stakeholder engagement. Not having an ESG guide who can champion the ESG journey, eventually defers the implementation and ESG tends to remain a buzzword during the board meetings.
3) The ever-changing landscape of ESG disclosure guidelines
ESG is a complex topic. While there are some international and regional standards and frameworks to guide organisations and ease the ESG journey, these guidelines are constantly evolving, and new frameworks are being released. Different stakeholders demanding disclosures in different standards make data collection and reporting more complex.
4) Timing and Cost of Implementation
Most businesses in Malaysia are still in the early stages of developing their ESG strategies and find it expensive or an additional expense to hire/train resources or to outsource their ESG data collection and reporting.
5) Lack of awareness on how to generate ROI from ESG Disclosures
A bulk of the listed companies in Malaysia with whom we interacted looked at ESG reporting as a mere compliance requirement. Unlike more mature markets where organisations benefit from their ESG development, this includes Enterprise risk reduction, raising investor confidence, improving customer loyalty, expanding businesses, and attracting and retaining talents, to name a few.
Overcoming Challenges with Digitalization
While ESG adoption in Malaysia matures, the organisations are uniquely positioned as they can quickly adopt the best practices of advanced and more mature markets such as the European ESG market. The digitalisation of ESG is emerging as a lifesaver that quickly solves all the challenges faced in the Malaysian market.
ESG implementation can be streamlined by digitalising
- Pre-defined flexible structure and strategy: A comprehensive tool with all the capabilities is a perfect ground to start your ESG journey compared to starting with no definitive structure thus saving months in setting up a strategy, reducing the chances of human errors and overlooking of certain data. An intuitive tool that can guide and champion the ESG adoption.
- Data Collection and Management: A digital solution that can seamlessly integrate with the existing systems, minimizing disruptions, and simplifying the implementation process to enable a company to collect, analyse, and manage ESG data more efficiently, therefore reducing the time and resources required for this crucial aspect of ESG reporting.
- Compliance with international standards: Embedding a structure that collects data and reports as per a specific standard is one of the advantages of digitalisation and updates on standards can be implemented without any downtime if it were to be on a cloud. Interoperability between different standards and frameworks would be an added advantage enabling the users to generate different reports for different stakeholders without duplicating efforts.
- Analysing ESG data: Additionally, utilizing a powerful computing tool to produce analytics and reports throughout the year instantly can significantly reduce the resources required to compile annual reports, thereby maximizing ROI from the investment and suddenly ESG reporting is no more any annual check box activity.
- Cost-Efficiency: A cloud-based ESG software solution can be a good option as it lowers the costs by eliminating the need for expensive hardware and infrastructure and allows you to start the ESG journey from Day 1 giving you’re a head start over competition. Companies can opt for scalable solutions that grow with their ESG needs.
- Stakeholder Engagement: Companies can maximise their returns on their ESG efforts when the tool can be used to engage with different stakeholders dynamically.
It’s evident that ESG adoption is not merely a trend but a transformational force in the Malaysian market. Driven by regulatory changes, investor demands, operational efficiency gains, and stakeholder engagement, ESG principles are shaping the future of business in Malaysia. Companies of all sizes across Malaysia, from the top 1000 enterprises to mid-size businesses and SMEs do face challenges such as implementation costs, timing, and internal clarity however, embracing digitalization can unlock the full potential of ESG practices. Furthermore, the broad adoption of ESG reporting ensures that businesses of every scale contribute to building a sustainable and competitive future in the global arena. As always, the early adopters of a proven solution have a cutting edge over the latecomers.
Author: Gokul Shekar – Head of Climate Change & ESG – The Carbon Collective Company
Author: Gokul Shekar – Head of Climate Change & ESG – The Carbon Collective Company
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