Post-pandemic realities, accelerating economic headwinds and new compliance rules are prompting multinational corporations (MNCs) and large firms to rethink how they can do more with less for last mile logistics, to better tackle Scope 3 or supply chain emissions. Malaysian public listed companies (PLCs) in the logistics sector find themselves increasingly at risk of being left out of the value chain by these partners if they do not decarbonise fast enough and adopt environmental, social and governance (ESG) best practices.
Addressing key stakeholders at a recent workshop organised by the CEO Action Network (CAN) and the Ministry of Transport (MOT) Malaysia, Malaysia’s deputy minister of transport Datuk Haji Hasbi bin Haji Habibollah said that PLCs in the transport and logistics sector need to see shifting expectations of multinational corporations that employ their services as a risk that needs to be managed.
“Malaysian companies are at risk of being excluded from future business opportunities unless you adapt to ESG practices,” he said, adding that there must be a mindset shift to move corporate Malaysia to self-regulation and better internalisation of sustainability and ESG principles.
A study by Standard Chartered in 2021 revealed that 78 per cent of MNCs will remove suppliers that endanger their carbon transition plan by 2025. These MNCs are also expected to exclude 35 per cent of their current suppliers as they transition away from carbon.
Furthermore, according to assessments by ESG ratings firms, the logistics and transportation sector is exposed to a high and above-average degree of ESG risk, as the sector is the backbone of Malaysia’s growth. The nature of the sector means that it is at the heart of the entire value chain of Malaysian businesses. As part of the 12th Malaysia Plan, Malaysia has committed to reducing the intensity of greenhouse gas emissions across the economy by 45 per cent of its gross domestic product (GDP) by 2030, and the logistics sector has a key role to play in meeting this target.
Bursa Malaysia, which spearheads the CAN initiative alongside chief executive officers, managing directors and board members of major Malaysian companies, believes that PLCs should work to engage with their supply chains and “bring everyone along”, even as new ESG rules under its recently-announced enhanced sustainability disclosure requirements will not be directly imposed on non-listed companies. Speaking at the workshop, Bursa CEO Datuk Muhamad Umar Swift said that this will create a “ripple effect throughout their value chains”. He also added that CAN is placing emphasis on the transport and logistics as these players are particularly critical in driving ESG and transitioning Malaysia towards becoming low-carbon.
CAN is Malaysia’s first sustainability-focused informal coalition of leading CEOs and senior corporate decision-makers. It has since grown to include over 60 leading businesses in Malaysia, representing over 20 priority sectors.
Logistics firms who shared their insights at the workshop said they feel the urgency to better integrate ESG practices, but also emphasised how challenging it is to persuade their staff and internal stakeholders, especially if they are not client or supplier-facing, to be on board the ESG journey. Past studies have also shown that cost reduction continues to remain a key focus of supply chain management strategies.
Show cost-saving results to staff, say logistics representatives
To get employees to care about ESG, logistics firms should consider “selling” sustainability as a cost-control measure that delivers savings, said Edwin Yeap, executive director of CJ Century Logistics Holdings Berhad, a supply chain solutions provider headquartered in Klang, Selangor. Yeap was speaking at the panel session of the workshop.
CJ Century started off by implementing cost control initiatives that demonstrated how ESG could contribute to the company’s bottom line. “When employees saw the results of the cost control initiatives, we started getting more buy-in from them,” said Yeap.
A key example of cost-cutting measures employed by CJ Century was deploying solutions to optimise transportation routes. By carefully reviewing routes, consolidating shipments and bookings in advance and maintaining effective load planning, CJ Century was able to improve delivery times and maximise the load capacities for transporting their customer’s goods.
CJ Century also fosters a strong relationship with their suppliers, which enables them to secure better and higher quality materials and services at lower prices.
Adopting energy efficient practices at their premises is another important cost control initiative. Lighting and appliances are switched off when not in use, and air conditioning temperatures are set at 24°C, which strikes a balance between comfort and energy savings. Air-conditioning units are also automatically set to shut off at 6 pm to further save costs and energy. Employees are also advised to prioritise video conferencing and other communication technologies to reduce the need to travel, For waste management, employees are encouraged to recycle and minimise printing.
With the above measures in place, CJ Century estimates that it has reduced its non-salary operating costs by 2 to 3 per cent. “A lot of our initiatives have financial backing,” said Yeap. “There will inevitably be cost considerations involved [in adopting ESG], but a lot of times we are able to justify that by getting better returns moving forward.”
For example, the company installed two solar photovoltaic panels at their warehouses, which produce up to 900 kilowatt-(peak). According to Yeap, the payback period for the solar panels is between 3 to 4 years and CJ Century has achieved 50 per cent savings in their electricity bills from the panels.
Yeap added that constant engagement with employees is also important in effectively communicating the importance of ESG. ”We need to constantly train and guide them,” he said.
John Teoh, chief strategy officer of logistics company GDEX Berhad, echoes that convincing staff to embrace ESG is a pressing issue. He said that GDEX sets up briefings for its employees to raise their understanding and awareness on ESG, and to facilitate data collection.
Getting emissions data right – how investments in technology can help
Yeap said that one of the main challenges faced by CJ Century on their ESG journey is when they get the wrong type of greenhouse gas (GHG) emissions data from employees. For example, when energy consumption data is required, employees provide the data in the local currency unit, instead of in kilowatt-hours.
He advised firms to first understand what they need to measure and to set up the correct methodology before rolling out the programme to their staff.
“We need to set the foundation right and need to have a system to measure that.” Yeap added that investing in new assets and software can help logistics companies in this aspect. For instance, GDEX developed an in-house application called iFleet that monitors fleet usage which helps to optimise routes. The system collects, tracks and reports vehicle-related data such as speed, location, and idling time from GPS trackers. It also records fuel and maintenance costs as well as insurance, inspections, vehicle mileage and utilisation data.
By leveraging on technology and collecting and reporting data in real-time, iFleet allows GDEX to make more informed decisions that lead to more accurate data collection and improved fleet efficiency.
How Logistics Firms Can Start Disclosing Their GHG Emissions – Case Study: CJ Century Logistics Holdings BerhadA timeline of how CJ Century embarked on sustainability-related disclosure measures. It now targets to further track Scope 3 emissions. Source: CJ CenturyCJ Century Logistics Berhad specialises in integrated logistics, oil logistics, procurement logistics and data management solutions. The company has taken a step-by-step approach in disclosing its GHG emissions, beginning with low hanging fruits of Scope 1 and Scope 2 emissions, before proceeding to tackle the more complex Scope 3 emissions.
In 2021, CJ Century started tracking and disclosing carbon emissions under Scope 1 (which consist direct carbon emissions emitted from fuel consumption of their owned fleet of vehicles) and Scope 2 (which consist indirect carbon emissions consumed by their organisation such as purchased electricity) in accordance with the Greenhouse Gas Protocol Corporate Accounting & Reporting Standard.
Moving on, the company plans to start measuring Scope 3 emissions in 2023. Compared to Scope 1 and Scope 2, which are emissions directly and indirectly released by a company, Scope 3 emissions are much broader and cover all other indirect emissions in a company’s entire value chain. For logistics companies, Scope 3 emissions are related to the whole supply chain which includes carriers, raw material procurement and transportation companies covering activities such as cargo handling at storage facilities, extraction of raw materials, disposal of packaging materials and many more.
Yeap acknowledges that tackling Scope 3 will be challenging, hence, CJ Century is taking an incremental approach, by first focusing on measuring emissions from employee commuting and leased assets before moving on to cover business travel, transportation and distribution in 2025.
Yeap said that there is now a real need to also look at the carbon emissions of its holding company CJ Logistics Group in Korea. “We are sharing a lot of Scope 3 data with them and asking them for a lot of assistance with regards to measuring Scope 3 emissions” said Yeap.
CJ Century began its training to help its staff understand Task Force on Climate-related Financial Disclosures (TCFD) requirements in 2022. Its corporate communications team attended an external training to enhance its understanding of TCFD reporting frameworks and methodologies. This marks the company’s first step in its preparation to voluntarily adopt TCFD-recommended disclosures by 2024, one year ahead of Bursa’s requirement for PLCs in Malaysia.
Having a clear supplier strategy
Suppliers play a crucial role in the logistics industry. Recognising the need to effectively communicate the company’s values to its suppliers, CJ Century introduced a Supplier Code of Conduct in 2020, which serves as an important component of implementing ESG practices into its supplier management strategy.
The Supplier Code of Conduct acts as a guide for suppliers to comply with CJ Century’s standards in the areas of good labour practices, occupational health and safety, environmental compliance, security practices, responsible business ethics and legal compliance.
For example, by fostering strong supplier relations through regular communications and setting clear expectations, companies can ensure reliable supply of goods and reduce costs through economies of scale and negotiate better pricing. Suppliers that have positive relationships with logistics companies can also help make supply chains more resilient by providing backup inventory and alternative sources of supply.
Another effective strategy in managing suppliers is to regularly evaluate and monitor supplier performance to determine whether they are meeting the needs of the company and to identify areas of improvement. Building a diverse supplier base can also help logistics companies mitigate risks and reduce the impact of disruptions.
The ‘G’ in ESG – risk and materiality assessment
CJ Century adopted several key sustainability initiatives under the Governance pillar in 2022. In addition to revising its grievances, disciplinary manual and whistleblowing policies, the company also focussed on enterprise risk and materiality assessment.
The company conducted its initial risk assessment in 2017. A second, more in-depth company-wide enterprise risk assessment was done in 2022, which saw a broader range of risk factors, particularly in examining the environmental aspects.
A materiality assessment with stakeholders was also carried out by CJ Century in 2022 via an online survey to identify the most significant economic, environmental, social and governance issues relevant to the company’s sustainability strategy. A total of 20 key sustainability matters were evaluated based on their impact to CJ Century’s business and the interests of its internal and external stakeholders including the board of directors, senior management, employees, clients, industry peers, strategic partners, suppliers, fund managers, financial analysts, financiers and bankers.
As ESG adoption becomes more widespread across the transportation sector, external factors have also played an increasing role in nudging employees to adopt ESG.
“Our staff are now embracing ESG with more affection simply because the customers are pushing ESG initiatives on us. [They ask] can you share with us your sustainability framework? Can you get a sustainability person to see us?” said Yeap. “Because of that kind of push, our team is embracing sustainability a little bit better.”
He added on the benefits of ESG and its impact: “What sets us apart from the rest – we are able to win not only more contracts but better ones because we have these sustainability measures in place.”
This article was first published on Bursa Sustain, Bursa Malaysia’s one-stop knowledge hub that promotes and supports development in sustainability, corporate governance and responsible investment among public-listed companies.
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