There is increasing regulatory and stakeholder demand for businesses to disclose non-financial metrics of the environmental and social impact of their operations. Organisations are now urged to better manage these risks, progressing in a way that delivers both a decent rate of return as well as wider environmental and social benefits and greater accountability. There is also increasingly strong evidence of a connection between good corporate practices and financial performance – an ethics premium. According to Ethisphere’s Ethics Index, the world’s most ethical companies outperformed a comparable index of companies by 24.6 percent from January 2017 to January 2022.
With heightening expectations around environmental, social and governance (ESG) issues, Ts. Mahadhir Aziz, CEO of MDEC, Malaysia’s lead digital economy agency, addresses six questions frequently asked about sustainability reporting.
Firstly, what exactly is ESG?
Environment, social and governance – or ESG for short – refers to a set of criteria used to measure an organisation’s performance in a range of areas such as carbon emissions, contributions to society and boardroom diversity. In addition to regulatory and stakeholder demands for disclosure of performance against these criteria, investors globally are increasingly using these – alongside traditional financial metrics – to evaluate potential investments. ESG rating also allows an organisation’s sustainability performance to be measured against industry peers.
Why is sustainability disclosure important to digital companies in Malaysia?
This is important both for companies’ continuous improvement and stakeholder decision-making. It is crucial to provide insights into organisations’ sustainability initiatives as increasing pressure from a wide range of stakeholders is compelling businesses to prove their ESG effectiveness, accountability, and transparency through disclosures.
Engaging with targeted stakeholders and obtaining meaningful feedback on businesses’ sustainability performance and reporting processes helps to meet their expectations. A holistic approach, incorporating triple-bottom-line, i.e. People, Planet and Profit considerations, will also serve as a sound business model that supports continuity and competitiveness in the longer term.
Why is it important to Malaysia’s digital economy?
Our Government has committed that we will achieve net-zero as early as 2050 and to take into account ESG principles in government decision-making. This requires a concerted, whole-of-nation effort and a high level of green commitment and investment to ensure that we achieve our climate change goals and step up the country’s competitiveness.
Although the industry has an ostensibly clean business model, studies estimate that the global digital economy’s share of Greenhouse Gas (GHG) emissions ranges from 1.8 percent to 2.8 percent and is rising, as is energy usage. However, to counterbalance this, studies also show that smart digital solutions have the potential to reduce global GHG emissions by up to 15 percent by 2030 across a variety of areas from agriculture, to energy, manufacturing and transport.
Further, the “Digital with a Purpose” report by the Global Enabling Sustainability Initiative (GeSI) suggests that digital tech solutions can positively contribute to 103 out of the 169 United Nations Sustainable Development Goals. Malaysia’s expanding digital economy, which is targeted to contribute at least 25.5 percent of GDP by 2025, reflects these global trends and clearly has a critical role to play in the nation’s shift to more sustainable economic practices on both fronts.
Why should digital companies embrace ESG?
I firmly believe that a strong sustainability profile will give Malaysian businesses a competitive edge in the global digital marketplace.
Without a doubt, ESG factors are having a greater influence on digital companies, from customer behavior to investor and stakeholder expectations, to reporting requirements. Clearly, a number of exemplar companies already exist in the industry that are fully committed to ESG and sustainability, such as Astro, Axiata, Digi, Media Prima and TM to name a few. However, many businesses still have a limited understanding of the positive impact of embracing sustainability on corporate performance and are hesitant to commit.
What are some questions an organisation should ask before starting on its sustainability journey?
An organisation that is aiming to make sustainability its core value and part of its corporate strategy should consider:
- What are the issues that we need to focus on and why?
- How do we create appropriate goals and develop a road map to implement them?
- What new strategies can we develop for better stakeholder value?
- How do we accurately disclose our sustainability impact to create trust?
What help can MDEC offer?
I pledge that we will play our part fully. I believe that the most significant contribution MDEC can make is by raising awareness and understanding of sustainability issues across the digital economy and helping companies to take that important first step to commit ESG. MDEC is currently working with several like-minded partners on solutions to address this, which will include pledges to deliver concrete action to reduce climate impact. I will be making an announcement about this soon.