75% of senior executives in investment firms agree that a company’s sustainability performance is materially important to their investment decisions, and nearly 50% would not invest in a company with a poor sustainability track record (A global survey in 2016 conducted by MIT Sloan Management Review).
Are companies in Asia Pacific catching up with that trend? Yes, many Asia Pacific countries, particularly Malaysia, have shown high rates of sustainability reporting, driven by regulation. (KPMG’s corporate responsibility reporting survey 2015).
Bursa Malaysia has been a key driver in promoting sustainability since 2007. In 2015, Bursa Malaysia requires listed companies to disclose their Sustainability Statements in their annual reports with specific time frame for each market. In order to comply with latest mandate, companies in Malaysia will need to be aware of reporting realities and obstacles they may be faced with.
Therefore, we invited Renard Siew, the Curator of Global Shapers Community Kuala Lumpur, global advisory member of Economics Without Borders Australia, to share his real perspectives about sustainability reporting in Malaysia. As a corporate mover, a civil society doer, a policy thinker and a researching learner, Renard has accumulated valuable experiences and insights about the topic.
SS : How has CSR/Sustainability evolved within the Malaysian the private sector?
R : Five years ago, CSR initiatives resembled philanthropy – single donations. Corporations basically gave out a large amount of donation to charitable organizations of their choices for environmental or social causes. A lot of activities were very one-off base. In recent times, I’ve seen many corporations who want to expand CSR beyond the philanthropy concept. They actually want to assess how their businesses are generating positive or negative impacts on environment and surrounding community.
For example, in property sector, health and safety of contracted workers is a material issue. Companies that go beyond CSR concept will look at whether the current policies within the country are adequate or not. From that, they will come up with an internal safe guide policy that goes beyond what has been legislated, in order to ensure that the workers are protected.
“If you look at setup of sustainability department, many of them sit within corporate communications which means sustainability doesn’t become a main course, it’s a side dish. As a result, we don’t see the significant impact from sustainability department.”
SS : As you’ve mentioned material issues, let’s talk about stakeholder engagement and materiality – wonderful concepts, brought up by GRI without enough explanation. Many companies are faced with challenges when conducting stakeholder engagement exercises. How are Malaysian companies practicing them?
R : In Respect to material issues, If you look at publicly listed corporations’ reports, there are some issues that are supposed to be material but are not reported. Companies deny the materiality of some issues to avoid reporting on them. Not all corporations have this practice, but notably a few do. For them not reporting on material issues means that they do not have to be accountable for them. Which I think it’s not the right approach.
As for stakeholder engagement and materiality, The process itself, is not easy because you have to consider what your internal and external stakeholders perceive. Sometimes, internal stakeholders don’t understand the severity of the material issues. For example, some internal stakeholders don’t rank water as an important issue to the business because there is rainfall in Malaysia all year round. But yet, you have water scarcity in some states and climate change is real, some of the internal stakeholders have no insights about those issues.
SS : What about reporting and disclosure landscape in Malaysia?
R : I think Malaysian corporations are not quite up to standards with GRI reporting yet. You still find disclosure quite a big issue. For example, many companies in healthcare sector don’t publish their health and safety statistics, frequency of accidents, loss time injuries. You actually can’t obtain such data publicly. Sime Darby is publicly listed corporation that has been existing for more than 100 years so we’re quite mature in our reporting process.
SS : What are the main reasons as to why sustainability reporting in Malaysia hasn’t picked up?
R : I think the first challenges has to do with comparability. Being the first company to take the lead is quite hard: where will you be starting from? what benchmarks you are going to use?
The next challenge is the fear among corporations. It’s very typical in Malaysia that the media will immediately pick up on any negative information from your report and all of sudden, you become the center of attention, therefore corporations always try to seek for benchmarks or case practices.
The third challenge really boils down to cost – it’s costly to set up a reporting structure or framework within an organization. For example, for some corporations that I spoke to, it may take them up to 5 years to set up a system which can help them measure and track carbon emissions. There are many factors affecting this like, the scale of the organization, the country where they have their operations in. Different legislated standards between countries and states within one country leads to confusion of companies. Let’s take water issue as an example. China’s environmental regulations related to water are apparently different from Southeast Asia’s. Even in Malaysia, it’s not dictated by the federal constitution but every single state within Malaysia has their own setup in terms of how they manage water. These complexity causes hidden costs for companies as well.
The last challenge is capacity building by which I mean having the right talents – people who understand sustainability. If you look at setup of sustainability department, many of them sit within corporate communications which means sustainability doesn’t become a main course, it’s a side dish. As a result, we don’t see the significant impact from sustainability department.
SS : I believe support and mandate from the regulators are important in those situations. Bursa Malaysia has been very active in promoting holistic understanding and wider uptake of corporate responsibility. The mandate in 2015 that required all listed companies to publish sustainability reports in stages over a three-year period is an example. What are other initiatives that you’ve been observing?
R : To be honest, other than the mandate, sustainability reporting in Malaysia is still unregulated. However, there have been many positive initiatives from Bursa Malaysia. One example is FTSE4Good Index – Asean’s first globally benchmarked Environment, Social & Governance Index (ESG Index) launched in 2014 to measure the performance of companies demonstrating strong ESG practices. Over the past 2 – 3 years, there have been lot of sustainability forums. Many key players were invited to engage in dialogues with Bursa Malaysia to discuss about sustainability topics such as reporting and especially, to introduce about FTSE4Good Index. The argument is that if companies constitute within this index, chances are that they will actually hit a higher ROE. Bursa Malaysia is trying to gather evidence in a more localized context to convince other key players that this is something they need to pursue.
SS : Our last question: what is your hope for sustainability scene in Malaysia in the next 5 years?
R : 5 years is not too far, actually. I want to see CSR move beyond philanthropy, become mainstream and not a side dish. Instead of taking CSR/Sustainability as PR exercise, I hope corporation will come up with sustainable and real initiatives on the ground that benefit the environment and community as well as the companies themselves.