Sustainability in Malaysia: Bolted on, or built in?

There are clear signals that Malaysian regulators and businesses are cottoning on to the concept of sustainability - but the challenge ahead will be turning this talk into action.

The view of Malaysia’s iconic Petronas Towers is a busy one these days. Construction activity surrounds the towers and dominates Kuala Lumpur City Centre, as new skyscrapers, hotels and residences rise in the capital of a country that has three years left to achieve its grand Wawasan 2020, or Vision 2020.

Launched by former Prime Minister Tun Dr Mahathir Mohamad’s government, it aims to make Malaysia a developed country by 2020. And it looks to be on track: Even as other economies around the world experience much slower economic activity - and despite the distractions of the ongoing 1MDB saga - the Malaysian government has projected an enviable 4.5 per cent growth rate in 2016 for the country.

It is encouraging, therefore, that even as Malaysia continues to develop, the sustainability conversation among its business commmunity has been one that is growing and gaining momentum.

This is largely thanks to the country’s stock exchange, Bursa Malaysia, which in October 2015 launched a new sustainability framework for its public listed companies and a sustainability reporting guide and toolkit.

This mandates all listed companies to publish sustainability reports in stages over a three-year period. First up: Those with a market capitalisation over MYR2 billion (US$452 million) will be required to disclose a sustainability statement in their annual report issued for the financial year ending on or after 31 December 2016. All other listed companies will be required to do the same by 2018.

Bursa’s required sustainability statement refers to the management of material economic, environmental and social (EES) risks and opportunities of their business, and replaces the existing statement on corporate social responsibility (CSR) activities that listed companies were required to disclose.  

This is a clear signal of the progress made by Malaysian regulators in understanding and applying the concept of sustainability in business.

Sustainability, after all, is not a mere CSR or philanthropy exercise. It is about embedding sustainability principles – addressing environment, social and governance issues – throughout an entire business.

While in KL earlier this month to moderate a discussion at Bursa’s first sustainability forum for the year, it was clear to me that Malaysian businesses are cottoning on to the advantage of embracing sustainability.

When I asked the 200-strong audience made up of senior board members from Malaysia’s public listed companies if they viewed sustainability as a compliance issue or a value proposition, an overwhelming number raised their hands on the latter.  

I was surprised because the feedback that I gathered in my preparation for the forum indicated that the level of awareness among many directors and CEOs on sustainability in Malaysia was relatively low, and that they have not fully understood why investors today are increasingly looking at ESG factors before they decide to invest in a company.

One industry observer said many Malaysian businesses still viewed it as a compliance exercise, and some grumbled about not having sufficient resources to carry this out when “times are bad”.

Panelists at Bursa Malaysia’s first sustainability forum for 2017 held at Sime Darby Convention Centre in Kuala Lumpur. Image: Bursa Malaysia 

But this is precisely why Bursa decided to host the forum, which was titled ‘Sustainability: The new business model’. The exchange wants to help companies understand the concept of sustainability holistically and see the value in integrating its principles into their businesses.

Datuk Seri Tajuddin Atan, Bursa’s chief executive officer, emphasised in his opening speech that there is a growing consensus among investors that sustainability performance translates into higher investment returns.

Malaysia’s institutional investors EPF (Employees’ Provident Fund) and KWAP (The Pensions Trust Fund) have also “made it clear that they are taking ESG factors into consideration as part of their investment decision-making process”, he noted.

“There is a strong value proposition for companies to embed sustainability (into their business), not only from a risk management perspective but as part of a cog in the wheel of progress in moving towards a (sustainable) future,” he said.

Bursa’s guidelines encourage companies to take the materiality approach - meaning, report according to what is important to their business – without being too prescriptive.

Property conglomerate Sunway Group, which is listed on the FTSE4Good Bursa Malaysia Index, is one of the leading corporates in Malaysia that has made headway in embedding sustainability within the organisation. It had issued its first sustainability report in 2011 which discloses the company’s performance on economic, social and environmental issues.

A lot of the talk around sustainability in Malaysia is merely, well, talk. The sustainability actions of most listed companies – bar a few – are so far more “bolted on than built in”.

The group’s property development division managing director Sarena Cheah shared at the forum how it has put sustainability at the heart of its township developments, for instance, by building to green building standards, supporting educational activities and providing healthcare solutions and facilities.

It most recently launched the spanking new Jeffrey Sachs Centre on Sustainable Development at Sunway University – a US$10 million gift from Sunway’s Jeffrey Cheah Foundation, named after the group’s founder.

The centre, opened by Malaysian Prime Minister Datuk Seri Najib Abdul Razak, will be a hub for research and policy practice, and will train a new generation of students on sustainable development.

Najib has also said Malaysia is committed to the UN’s Sustainable Development Goals and the country’s 11th Malaysia Plan (11MP) emphasises “green growth development strategy”.

All these activities point to a Malaysian regulatory and business landscape that is increasingly participating in the global conversation on sustainability and shaping it to its local context.

Still – it is important not to get carried away. Hardik Sanjay Shah from ESG research firm Sustainalytics, who also spoke at the forum, noted that in general, Malaysia companies lag the rest of Asia in sustainability performance.

In the Channel NewsAsia Sustainability Ranking last year, only one Malaysian firm, telecommunication company Digi, which is majority owned by Norway’s Telenor, made it to the Top 100 list.

The ranking identifies and celebrates the top 100 sustainable companies in Asia and highlights the top 20 Asian companies in each of the 11 markets covered.

Industry insiders also tell me that a lot of the talk around sustainability in Malaysia is merely, well, talk. The sustainability actions of most listed companies – bar a few – are so far more “bolted on than built in”, said the head of sustainability at a listed Malaysian conglomerate.

The challenge will be to help companies learn how to do just that – build it in.

To do this, Bursa has created toolkits to help listed companies get started, and there is also a plethora of material on- and offline available to these companies.

What’s crucial is that the Malaysian business community continues this conversation and turn this “talk” into actual initiatives on-the-ground that improve their sustainability performance.

Bursa’s CEO Tajuddin told Malaysia’s business leaders: “The exchange not only recognises the importance of sustainability but has placed it at the core of the Malaysian capital market.”

In this respect, Bursa Malaysia is doing a great job of keeping it on the business agenda. It must keep doing so if Malaysia is to achieve its target of creating an inclusive and sustainable developed country as outlined by Vision 2020.

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