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How Malaysia scores on ESG

How Malaysia scores on ESG

02 Aug 2022

MALAYSIA may be in the infant stage of adopting environmental, social and governance (ESG) practices, but we are flourishing among our Asean counterparts.

The nation’s ambition to achieve carbon neutrality by 2050 highlights a progressive position relative to other Asean countries.

This ambition is supported by five pillars in deploying renewable energy (RE) managing carbon emissions, water and waste; driving the development of sustainable cities; and accelerating the green economy.

Companies are also actively pursuing their ESG programmes. Multinational corporations have set energy consumption as a key area in their ESG commitment.

Green energy

Large local companies, at the launch of the Green Electricity Tariff in November 2021, are opting for electricity supply from RE sources generated from solar and hydro power.

A dedicated category for the commercial and industrial sector allocation of 300MW of solar quota under the Net Energy Metering (NEM) Nova programme was fully taken up, only after three months of its inception in April, 2021.

NEM Nova is a programme for commercial and industrial users of electricity to install solar photovoltaic systems for self-consumption and allows excess electricity to be exported to the national grid at system marginal price.

Government-linked companies are exploring the green energy option with major real estate developers.

To achieve sustainable city status, the low carbon city framework under the 12th Malaysia Plan targets to decarbonise over 30 cities first, followed by another 120.

Electric vehicle (EV) incentives were proposed under Budget 2022 to support the implementation of the low carbon mobility blueprint, including the full exemption of import and excise duties and sales tax for EVs.

Malaysia aims to deliver 31% of RE in the national capacity mix by 2025, and 40% by 2035.

“Better speed of implementation is needed to transition to a low-carbon energy system through solar, hydro, bioenergy and new sources,’’ said Ernst & Young Consulting Sdn Bhd Malaysia Climate Change and Sustainability Leader and Partner, Arina Kok.

Malaysia also plans to introduce a hydrogen economy and technology roadmap, which will widen the sources of green energy.

Carbon neutrality

A key theme of the 12th Malaysia Plan is “advancing sustainability” which outlines its aspirations to become a carbon neutral country by 2050, and puts Malaysia as among the earliest in Asean to support this climate action.

Malaysia is the only Asean country to introduce a voluntary carbon market in its Budget 2022, setting a platform for carbon credit trading between green asset owners and other entities transitioning towards low-carbon practices.

The national policy on climate change, initiated in January 2022, covers three strategic thrusts to align collective action to deliver Malaysia’s nationally determined contributions towards achieving the aims of the Paris Agreement – an international treaty on climate change that aims to limit global warming.

Sustainable sukuk

In terms of green financing, Malaysia issued the world’s first sovereign US-denominated sustainability sukuk in 2021, through US$800mil 10-year trust certificates.

As of November 2021, Malaysia accounts for US$3.9bil of issuance value or 56% of the total Asean sustainable and responsible investing (SRI) sukuk issuance.

In Budget 2022, the government proposed the issuance of up to RM10bil of sustainable sukuk for eligible social or environment-friendly projects.

Malaysia Boleh

Public-listed companies in Malaysia are doing well compared to Asean countries, coming in second highest on the MSCI All Country Index (ACWI) ESG Leaders Index, which consists of large and midcap companies across developed and emerging markets, according to a report by PwC Malaysia and Capital Markets Malaysia.

Malaysia accounts for 28 companies within this index, while Thailand leads with 29 companies.

In the Science-Based Targets Initiative (SBTI), nine Malaysian companies are committed to emission reduction targets grounded in climate science; Malaysia comes in after Singapore (14).

At Bursa Malaysia, a consultation paper is underway, to improve the quality of sustainability disclosures and meet the information needs of capital market stakeholders.

Currently, the FTSE4Good Bursa Index highlights companies with a leading approach to address ESG risks. The FTSE4Good Bursa Malaysia Shariah Index caters to investor demand for ESG and shariah-compliant solutions, while ESG scores are made available through the FTSE Russell ESG ratings.

The Corporate Governance (CG) Watch 2020 has found that the Malaysian CG code is more aligned on sustainability than that of most Asian countries, said Institute of Corporate Directors Malaysia (ICDM) president and CEO, Michele Kythe Lim.

The code recommends that Malaysian boards “anticipate and address material ESG risks and opportunities” as an integral part of their fiduciary duty.

Later this year, the second International Directors Summit organised by ICDM will address four key areas – networked thinking risk mindset; digital culture; stakeholder co-creation’ and long-term innovation.

Securities Commission (SC) Malaysia will introduce a new sustainability-focused onboarding programme – the Leading For Impact Programme – for directors of listed companies.

The SC has also developed a public consultation paper on the Principles-Based SRI Taxonomy in 2021, that enables capital market participants to identify economic activities that are aligned with ESG objectives, and make informed decisions for fund-raising and investments.

Malaysia is at an advanced stage on policy and regulatory actions in sustainability risk management and disclosures, development of the sustainability index and deployment of sustainability finance, said a recent report by Ernst & Young.

“These policy developments to mainstream sustainability themes augur well for the advancement of ESG in Malaysia,’’ said Kok.

For the long haul

While Malaysia is doing relatively well compared to our peers in the region, sustainability is not a destination but a journey.

“Malaysia’s regulatory framework is strong but a mindset shift is important to move corporate Malaysia to self-regulation and better internalisation of sustainability and ESG principles,’’ said Lim.

To address the current ESG skill gaps among Malaysian boards, it is important to build ESG-competent boards and directors, as well as a pipeline of ESG-competent director talents.

The work ahead is heavy especially to stay in the forefront of ESG developments, but these are the upcoming trends that governments and consumers internationally are looking to.

Source: The Star