Concepts of Sustainability and ESG (Environmental, Social, and Governance) have come full circle in Malaysia. It is now the hottest buzz word in the corporate world and Government sphere in Malaysia. 

I will be frank, I will not claim to be an expert despite actually being a part of a sustainability solutions firm, Acasia Group Malaysia. However, I believe my experience and that of my firm allows me some insights to write this article. Given that now everyone is claiming to be an expert in this space, I felt it is timely to write this article to help sustainability teams navigate their roles and get the most out of these “experts”.

Why is ESG suddenly a hot topic in Malaysia?

Globally, due to increasing awareness on the dangers of climate crisis, international treaties are being signed by nations. Malaysia itself has pledged to be a carbon-neutral nation by as early as 2050 due to the Paris Agreement and the UN Sustainable Development Goals (17 goals, 247 indicators in total).

They have in fact incorporated this into the 12th Malaysian Plan which is the 5 year development plan of the government that affects every ministry and agency. This is what is causing every government entity to now scramble to figure out what is their ESG initiative internally and externally for the stakeholders that they manage.

One particular big reason we are seeing a major push is that Bursa has introduced sustainability reporting for public listed companies since 2016. And they have introduced the ESG framework as well as are in the process of developing a carbon trading market. I believe this is also because of the global pressure of foreign investors who have indicated that they will not invest in our stock market if companies don’t have this standard.

Now, both foreign and local investors and financing have also picked this up further reinforcing the need for companies to have some sort of sustainability story.

This in turn now has public listed companies pushing on non listed companies who are their vendors to also adopt some form of sustainability efforts. 

So what do you need to know:

1. The scope of sustainability and ESG goes beyond environment and CSR

Why don’t I claim to be an expert? Sustainability and ESG in particular is a wide concept that repackages a lot of existing subject matter items. It is a concept that measures a company or organization’s collective consciousness for social and environmental issues. Specifically, ESG is a metric to evaluate an organization’s impact beyond its mission-driven operations and financial performance. In simple terms, almost anything and everything can be part of ESG. Eg. Anti-corruption policy, procurement policy, gender / employee pay gap, labour conditions, CSR, Occupational safety and health etc. It is not just about the environment and CSR.

Even my partners in Acasia, Andrew Dana Wesley and Muhammad Hakimi Bin Fazli who were part of the largest global pure play sustainability consultancy would be hard press to say they are experts. Small plug: Though I would argue between all of us, we come pretty close. 😉

2. How to scope down ESG for your company?

First of all, despite the noble scope of your job as the sustainability team, understand that many of your bosses don’t understand what ESG is about. They are only jumping on the bandwagon because regulation and more importantly financing is pushing their business to do so. 

These two things are the driving force that is forming a virtuous cycle (or vicious cycle – depending on your perspective) 

So control your enthusiasm and that of your consultant (the big boy consulting firms are famous for this) in creating new initiatives that “save” the environment/world that involves additional cost. If anything, because ESG is far reaching, understand that you don’t need to create new initiatives for your company’s ESG Roadmap; rather you can repackage existing initiatives as part of your reporting. 

So how do you convince your bosses to fund new initiatives? Follow money and regulation. You need to assess the business’s operations and its markets for risks where not having a particular initiative will affect your compliance and access to financing. For example:

• If you are in manufacturing and you are exporting to the US and Europe, not having an ESG framework/initiative that addresses labour conditions will be detrimental for your business.
• If your investors/shareholders have ESG investing policies, not having ESG initiatives that are aligned to theirs may result in them no longer investing in your organisation.

Whether you call it a materiality assessment, stakeholdering mapping, understand that your role is actually a risk mitigation role. If you or your consultant aren’t doing that in your roadmap development; something is wrong there. 

Side note: I personally don’t believe consumer preferences are a strong argument yet for the ESG case to your bosses. It may be so in 7 to 15 years time; but for now it’s just a nice side note for the overall story.

3. ESG and sustainability is currently in the “Wild West” phase in Malaysia

Bursa Malaysia and other relevant government agencies are only in the beginning stages of trying to figure out how to get companies to comply with ESG. As such their reporting requirements in their framework is still pretty basic. Hence just having an ESG report is considered sufficient. Which is why in some cases of consultants or even management, all they care about is getting any type of reporting out.

But note that over the coming years it will grow more complex as the regulators catch up and try to implement global standards. I would not be surprised if there will even be an audit component by the regulators in the future.

So consider the development of your roadmap and initiatives and reporting in light of your budget and the amount of rework you want to do in the future. Perhaps the cheaper consultant who is actually an annual report writer really isn’t the best way to go. 

Again, depending on your business nature and entity, consider adopting international standards like the GRI reporting standard if it makes sense for your business and risk management.

4. A sustainability team’s role is more that just the ESG Roadmap/policy and the sustainability reporting

As mentioned above, yours is a risk management role. On top of that it is also a M&E role as your stakeholders – read financiers, shareholders, regulators – will expect compliance. It’s about not just the roadmap and the reporting but also aligning the actual monitoring and reporting to ensure no green washing by operations. 

This means you need to understand the operations side of the business as most of your initiatives will be implemented by them. Part of this understanding must be built during the roadmap development stage to ensure you aren’t developing things that they believe don’t work. 

In addition, make your life easier by aligning the initiatives to existing reporting lines and processes within the organisation to ensure you are not scrambling for information when it comes time to do the sustainability reporting. It’s not about you being separated from your strategy department & Performance Management Office (PMO). If anything your sustainability initiatives must align to it and if you ask me, the sustainability team should be part of your strategy department and/or PMO office.

5. How to hire the right ESG consultant for your company?

Now with all of the above in mind, it is my conjecture that you will not be able to escape the hiring of consultants. Partially because you are probably stretched and there are just so few of your team and/or you are in a time crunch as your boss is now pushing you to get this done as they are afraid of the regulation and financing implications.

To help you navigate your consultants, you need to understand the value chain of ESG consultancy. In my mind, there are three main categories when it comes to organisational ESG:

• Roadmap development:
  • the actual development of the ESG roadmap with the materiality assessment and stakeholder engagements, benchmarking, stock take of existing initiatives, document review etc.
  • This is where most of the big boy consulting firms are. And be careful with some of them as they can imagine the most ridiculously high level things that are not implementable or relevant.
• Initiative specific studies for operations:
  • The studies and initiatives to actually operationalise initiatives identified as part of your ESG framework. Eg Energy Efficiency studies, renewal energy studies, life cycle assessment, GHG monitoring and calculation, carbon footprinting, carbon inventory analysis, social accountability audit, governance policies review, environmental impact assessments, etc.
  • This is where most of the small boy consulting firms are and if I am being honest, they are more likely service providers of the solutions that the initiative calls for. Eg solar panel provider, carbon calculation solution, digital & modern waste management, smart technologies provider,  carbon credit facilities, impact monitoring solutions, etc. 
  • There will be tensions here because depending on your initiative, this is normally under the control of your operational heads whereby you have little say in how they do things.
• Sustainability reporting:
  • The sustainability/ESG reporting as part of the annual report.
  • This is where the majority of people who claim to do this are actually just annual report writers.
  • However, what people don’t realise is that it’s an important compliance component and part of a larger agenda if you have stakeholders (investors and financing) who are more likely to be critical and scrutinise the details of the report. 

Most consultancies will not have a holistic view because there are very few who can do the whole ecosystem. Depending on your budget, the time and what your business needs, hire the right consultant.

Shameless plug: My company, Acasia can do the whole ecosystem. The combination of our partners’ experiences make us the ideal entity to handle any and all your ESG needs. We have not only consultancy experience but operational experience having done operations audits as well as running our own sustainability operations in our solid waste management services business in Kedah. The combined operational and consultancy experiences in a breadth of areas that cover not just environmental initiatives but the social and governance ones too; gives us a unique advantage over the rest of our competitors. You can follow our social media via our website at: https://acasiagroupmy.com/

Note: the value chain of ESG consultancy mentioned here does not include public policy on ESG and sustainability as that is a separate topic altogether that I would be happy to share. In fact see the bonus tip below.

6. Bonus tip for Policy makers and Government Linked Companies (GLCs)

Policy and Regulators: Understand that your role needs to be more strategic than just introducing ESG to companies. You need to consider how these policies will affect the economy and trade of Malaysia as a whole. It’s not just about reporting the UN SDG indicators to the Economic Planning Unit (EPU). In fact I personally think it is EPU that needs to take the lead to make sure all ministries and agencies are keeping the bigger picture in mind.

For example:

• What is the point of a green procurement policy if you don’t make provisions for local companies to be hired as pilots. If we don’t facilitate the opportunities to create enough companies with green alternatives, all these procurement contracts will go to foreign companies to the detriment of our local manufacturing.
• Other countries are even using this agenda to block foreign companies’ products from entering the market to protect their local companies. How are we mitigating this for our companies and/or protecting our markets the same way?

Government Linked Companies (GLCs): Understand that the government commitments will likely be transferred to you as the government will be struggling to show net carbon by 2050. So even if that isn’t related to your business operations, I suspect your ESG initiatives will need to include a carbon counting element. 

Good luck with your ESG journey! Despite my cynicism on the motivations of ESG, I truly do believe it is a step forward from where we are. This is one of many situations that I am grateful that public policy and government has stepped up to get corporations to do better. If we had waited for corporations to do it themselves, we would never get here. I look forward to a future where the whole ecosystem actually comes together to build a more sustainable world rather than a situation where financers and regulators are putting out compliance requirements without actually understanding how complex it is for companies to comply and the challenges to actually ensuring compliance.

PS: if you are interested in talking to me in my capacity as Acasia’s director and partner, feel free to reach out to me via amir@acasiagroupmy.com.

We also offer ESG and sustainability training and sensitization sessions for management and sustainability teams. These sessions go a long way to ensuring management buy in for your sustainability work and for team to avoid multiple rework.