THE size of a company may not matter in terms of qualifying for inclusion into the FTSE4Good Bursa Malaysia (F4GBM), which is an environmental, social and governance (ESG) index.
However, the impression and perception of the index will improve based on its constituents, even though it is not an opt-in index (where companies choose to participate in) but one in which an organisation qualifies for, based on the Financial Times Stock Exchange’s (FTSE) assessment methodology.
As such, larger and more established companies should lead the way.
As an example, government-linked companies had led in terms of adopting the Global Reporting Initiative reporting framework relating to critical sustainability issues, ahead of the launch of the Sustainability Reporting Framework and F4GBM index.
Against growing awareness of ESG, boards have been found to be lacking in ESG skills, as revealed in the Malaysian Board Practices Review 2020 that was conducted by the Institute of Corporate Directors Malaysia (ICDM).
Respondents of the study acknowledged that ESG (44%); digital, social media and technology (44%) and human resources, culture and succession (55%) were skills and competencies that were least present but required in their current boardroom structure.
“This suggests a strong need for companies to relook at their board composition, to reassess and reconsider what skills or experience are needed for companies to stay on top of the game,’’ said ICDM president and CEO Michele Kythe Lim.
ICDM will play the role of a one-stop centre for boards and directors in delivering bespoke offerings such as board evaluation and placement services, as well as development programmes to ensure that it can equip boards and directors with ESG skills.
The institute will continue to widen and deepen its director talent pool and empower more boards to be ESG-ready, through its customised board development programmes.
The FTSE4Good’s measure of a company’s ESG performance is essentially a risk assessment, and also an effort to motivate companies to inculcate a 360-degree view of their impact on the environment and communities they operate in.
It is a measure of an organisation’s values and business ethics which translate into the decisions they make.
Through ICDM’s board evaluation process, companies will now be assessed against new practices introduced under the recent Malaysian Code on Corporate Governance 2021 revision.
This is focused on strengthening the oversight on sustainability and promoting more meaningful engagement between the company and their stakeholders.
“In such volatile and uncertain times, investors will look to minimise risky investments, with the Covid-19 pandemic strengthening their conviction to look at performance beyond financial returns,’’ said Kythe Lim.
Most fund managers opine that there is still insufficient quality ESG data locally.
The current 76 FTSE4Good constituents is less than 10% of the overall listed companies on Bursa Malaysia, which is insufficient to formulate a specific strategy around this asset class. Still, investors are expected to continue prioritising ESG credentials.
Institutional investors, specifically, government-linked investment companies such as the Employees Provident Fund, Kumpulan Wang Persaraan and Khazanah Nasional Bhd, as well as Institutional Investors Council Malaysia, have also advocated for greater ESG/sustainability adoption and disclosure.
About 80% of listed companies are syariah-compliant, and there are many areas – syariah, ESG, ethical, economic, environmental and social, sustainability – that overlap.
“It is timely that Malaysia capitalises on its strengths by finding ways to harmonise or align these existing asset classes with that of the global view to position our companies on the global stage,’’ said Kythe Lim.
It is important to note that whether or not a company qualifies for the FGBM index may not be entirely reflective of the organisation’s performance.
This is especially since the assessment for qualification is based on publicly available information, an approach which validates the importance of good corporate governance.
In this respect, transparency is key to ensure that both internal and external parties are aware and aligned on the disclosures.
Among ICDM members, UEM Edgenta Bhd, Kenanga Investment Bank Bhd and TMC Life Sciences Bhd were recently listed on the FBM Emas index, following which they will be accorded ESG ratings.
This will make them eligible to be assessed for the F4GBM index.
“UEM Edgenta plans to develop a robust corporate ESG framework to produce a sustainability vision, mission, goals and milestones, to be implemented over the next three to five years,’’ said UEM Edgenta managing director and CEO Syahrunizam Samsudin. (pic above)
As part of its Edgenta of the Future 2025, the group aspires to develop a holistic sustainability blueprint and strategy for a full-fledged sustainability business arm.
This is to provide end-to-end solutions to clients covering consultancy services, energy performance initiatives and waste management solutions.
At UEM Edgenta, energy performance contracts help to reduce energy cost and contribute towards climate change mitigation while 100% recycled pavements are used in infrastructure solutions.
Waste management involves end-to-end separation and segregation of clinical waste, preventing waste from 33 government hospitals, nine health clinics, 12 private hospitals and 694 private clinics throughout Malaysia from going to landfills.
“As the largest investment bank in the country, Kenanga Investment Bank is set to expand its sustainability disclosures in the upcoming sustainability statements,’’ said Kenanga Investment Bank group managing director Datuk Chay Wai Leong.
It is also looking to strengthen its capacity in assessing and mapping ESG risks and opportunities by adopting relevant frameworks and metrics.
Kenanga Investment Bank also aims to actively engage with the United Nations Global Compact Network Malaysia and Brunei, which will open up a wealth of resources and programmes that will support the group in its ESG journey.
At TMC Life Sciences, its new expansion of Thomson Hospital Kota Damansara has qualified for a silver rating under the GreenRE index for green buildings.
In terms of human capital development, TMC Life Sciences has defined pathways to support its employees to further their education in areas such as nursing, embryology and others.
With the implementation of the Thomson Worry-Free programme, the group is strongly committed to support its employees in dealing with the challenges of life.
Subsidised childcare is provided at the Thomson Little Stars childcare centre while under the Thomson Home Ownership programme, special assistance is given to first-time home buyers.
ESG as an asset class will become more prominent as companies become more aware of the importance of ESG, and boards and directors push for their ESG strategies.
This article was first published in The Star Online on 9 August 2021.