AS companies restrategise their business models and operations, following the Covid-19 attack, a “green” recovery should be their top priority.
With intensified focus on environmental, social and governance (ESG) principles, the current thinking is to integrate them into the overall business strategy, down to the day-to-day operations.
As companies focus on financial health, senior leadership should also look to include sustainability, and ESG principles, as a core to their recovery plans.
While 70% of Malaysian companies have put in place a business continuity plan, about 31% noted that their boards were insufficiently experienced or provided no guidance in crisis preparation, a recent survey by the Institute of Corporate Directors (ICDM) showed.
There is a notion that these principles will negatively impact revenues and profits.
But in terms of investments, it was sustainable funds that had held up better than conventional ones in the first quarter.
“This out-performance appears to have benefitted from selecting stocks with better ESG credentials, ’’ said Institute of Corporate Directors Malaysia (ICDM) president and CEO Michelle Kythe Lim.
Seven out of 10 sustainable equity funds finished in the top halves of their Morningstar categories, and 24 of 26 ESG-tilted index funds did better than their closest conventional counterparts, said Morningstar.
The emergence of new technology and socioeconomics has also led to a re-examination of corporate governance principles and board practices.
With growing concerns on cybersecurity, personal data privacy and ownership, companies need to bolster ESG and data stewardship.
Highlighting the growing demand for knowledge in cybersecurity, ICDM’s programme in “cybersecurity considerations amidst the pandemic, ” had attracted strong interest from directors across all companies.
The implementation of Section 17(A) of the Malaysian Anti-Corruption Commission Act 2009, effective on June 1, signifies an increased emphasis on the roles and responsibilities of boards.
Under this law, commercial organisations are also liable if their employees are involved in corruption.
“With the burden of liability shifting to boards and directors, senior leaders will need to step up their efforts to imbue the right culture and governance processes, ’’ said Lim.ICDM was set up by the Securities Commission to enhance the professionalism and effectiveness of corporate directors in Malaysia.
ESG, which involves a company’s management of the environment, relationships and leadership, is becoming an important investment criteria among socially conscious investors.
The launch of the FTSE4Good Bursa Malaysia index of companies in 2014, supports ESG integration and the transition to a lower carbon and more sustainable economy.
A PwC survey shows that private equity houses and their investors are engaging more in responsible investments; increasingly, investors want to know that a company has robust policies in place to ensure a safe operating environment.
ESG efforts should be more than box-ticking items but true integration measures especially in reporting.
CIMB Group, which provides sustainability-linked loans (SLLs), will also fund more companies keen on adopting carbon reduction technologies, and robust sustainability standards.
“The ‘greening’ of our financing portfolio is happening in stages; we will have a strong focus on attracting and encouraging clients across various industries to raise their sustainability standards, ’’ said CIMB group CEO Datuk Abdul Rahman Ahmad.
CIMB has issued a US$680mil sustainable development goal bond, with proceeds channeled towards sustainable outcomes.
It has allocated RM3bil towards SLLs to serve customers implementing impactful sustainability initiatives.
As a signatory of the Collective Commitment to Climate Action, CIMB is developing concrete actions to increase its contributions to positive climate impacts, and align its lending with the objectives of the Paris Agreement on climate change.
CIMB is an active participant of Bank Negara’s value-based intermediation community of practitioners where sustainability drivers are being aligned and integrated with Islamic banking products and services.
From the governance perspective, Duopharma Biotech is targeting to adopt integrated reporting which covers all aspects of the company’s performance and value creation, in three years’ time.
Duopharma Biotech does not fall under the remit of a large company as defined by the Malaysian Code on Corporate Governance; it is not subjected to Practice 11.2 where large companies are encouraged to adopt integrated reporting based on a globally recognsed framework.
But several measures undertaken have positioned the group to adopt integrated reporting.“Duopharma Biotech, which is a constituent company in the FTSE4Good index, will strive to maintain this status by managing and monitoring ESG practices strategically, ’’ said group managing director Leonard Ariff Abdul Shatar.
In terms of the environment, Duopharma Biotech is targeting a reduction of 5% in energy intensity on a yearly basis.
It aims to reduce water consumption by at least 1% annually, through initiatives such as rainwater harvesting in its sites at Bangi and Klang.
It also plans to reduce its production of scheduled wastes by 3% annually; the volume of effluent discharge has decreased at the Bangi and Klang sites due to more efficient production processes.
Out of its training budget last year, 82.82% was utilised amounting to RM1.04mil.
Duopharma Biotech has updated its learning and development framework to be in line with its competency model that defines the competencies and interventions required at progressively higher levels.
The new framework covers five modules in on-boarding of new recruits and core learning in compulsory soft skills for an effective and harmonious working environment. Also included are professional learning in foundation and technical courses; leadership learning applicable to supervisors onwards and talent development.
Women make up about half of its workforce, and 55% of mid-senior management; job opportunities are also provided for persons with disabilities.
CIMB Group and Duopharma Biotech are corporate members of ICDM, that are at the forefront of ESG issues.
Besides, enhancing a company’s attractiveness to investors, ESG performance can also help to improve employee satisfaction and attract more talent.
Enthusiastic employees will strengthen the talent picture and provide a boost to much needed human capital.
Yap Leng Kuen is former editor of StarBiz. The views expressed here are the writer’s own.
This article was first published in The Star Online on 21 September 2020.