Making ESG accessible to all companies
10 May 2024
ALTHOUGH the 17 Sustainable Development Goals were adopted by the United Nations (UN) in 2015 companies were largely under the impression that such pursuits were mostly the responsibility of governments.
Ideas that the private sector are just as obligated to create a world with no poverty, has zero hunger, with access to health and education for everyone, were only subscribed to by a few corporations.
In fact, as the Ministry of Investment, Trade and Industry (Miti) senior director for Industry Development Division, Dr Meenachi Muniandy pointed out: “If you ask companies if they would say those are their priorities, definitely they will say ‘no’.”
Meenachi was presenting the ministry’s i-ESG Framework during Star Media Group’s ESG PIA Winners Showcase Agenda networking event, which was held on May 3.
Importance of ESG
However, she pointed out that today’s catch-all phrase for sustainability—ESG (environmental, social and governance)—has been in existence way longer.
The ideas were already present on Feb 1, 1999 when former UN secretary-general Kofi Annan called upon firms and their business associations to “embrace, support and enact a set of core values in the areas of human rights, labour standards, and environmental practices.”
She explained that the term “ESG” was then coined in a 2004 UN report called Who Cares Wins.
The report provided examples or components for “E”, “S” and “G” as well as on how companies can respond to climate change, treat their employees, build trust and innovation, and manage the supply chain.
She then addressed the reason why ESG is so important to the nation’s economy by saying that Malaysia is a small and highly open economy.
“Trade accounts make up more than 100% of the gross domestic profit, which means we are dependent on trade, with the European Union, for example, is a major trading partners.”
With more first-world countries pushing ESG and their sustainability agendas via regulations, exporting countries, such as Malaysia, have to meet these requirements.
In fact, Malaysia has pledged to observe the Paris Agreement 2015 and fulfil the objectives of the UN’s SDGs.
“We are committed to reducing our emission level intensity to 45% of GDP by 2030 as compared to the 2005 levels.
“We also aspire to become a net zero country as early as 2050,” she shared.
To align with these commitments, she explained that Bank Negara introduced the Climate Change and Principle-based Taxonomy, which mandates financial institutions on sustainability reporting.
“Financial institutions would have to disclose their Scope 3, which means they would eventually need to get disclosures from their clients,” she said.
She also indicated that companies that want to be listed will also have to meet Bursa Malaysia’s ESG requirements as well as the Securities Commission’s (SC) own requirements.
Approaching MSMEs“When we started our journey in 2022, our division was established on Nov 1, i-ESG division, with the ‘i’ standing for ‘industry’”, she mentioned.
“We were tasked to come up with the framework for the manufacturing sector in ESG.”
During the survey, she said Miti realised that ESG awareness was low among the micro, small and medium sized entrepreneurs (MSMEs).
These companies were also under the impression that ESG is difficult to implement and will incur more costs to them, for they lack the capacity, financial resources or technology.
“They think of it as a programme and not a journey, and that was actually the issue we identified in 2022,” she said.
Furthermore, the plethora of available standards in sustainability reporting and speed in which they evolve make it difficult for them to follow.
In September 2023, when Miti launched a new industrial master plan that included a mission to push for net zero within its four missions, the ministry recognised the need for a framework.
“In the subsequent month, we launched the i-ESG framework. This framework is guided by the 17 SDG goals, the 12th Malaysia Plan and two documents produced by Miti, which are the New Investment Policy and New Industrial Master Plan.”
Miti’s i-ESG Framework aims to foster economically beneficial environmentally sustainable and socially equitable manufacturing sectors.
Its main objective is to build and strengthen a system that encourages and enhances ESG practices among the manufacturers.
The framework will be in line with other plans and roadmaps that are supposed to come by the end of this year, such as the Nationally Determined Contribution Roadmap, the National Energy Transition Roadmap and the 13th Malaysia Plan.
The i-ESG Framework
The framework has four components; standards, capacity building, financing and market mechanism.
It also lists 70 strategies, 50 deliverables and is supported by six enablers.
Miti’s portal that hosts the framework has detailed information on ESG as well as the reasons to push for the standards.
It holds a readiness assessment tool called i-ESGReady that companies can use to gauge themselves with.
They need to answer about 40 questions in terms of their ESG practices and at the end of the form, they will be shown either if they are at the basic, limited, evolving or advanced level.
“If you’re at the evolving or advanced levels that means you are actually on the right track.
“You may not need much help from Miti, but if you’re at the basic or limited levels, then you may look at Miti’s starter kit,” said Meenachi.
The starter kit is available at the conclusion of the readiness assessment, after pressing the “done” button.
As it is just a starter kit, Meenachi cautioned that it is not a guideline or a standard and it is not a framework.
It however helps companies understand how to do their ESG reporting, as it will link them to the frameworks or standards that they will need to use.
“So if you want to disclose total energy consumption, the starter will show the link to the Global Reporting Initiative, to the European Sustainability Reporting Standards, the SDGs, to Bursa and more—but those documents will not show you how to disclose.
“That is in your own capacity, either you want to engage a consultant to gather the information, or you do it internally,” she added. In order to assist MSMEs in navigating the starter kit, which has 200-over pages and can be overwhelming, Miti has “ESG Clinics” to guide them in the process.
“Companies can join in a group of about 50 for us to conduct hand-holding sessions to teach them how to use the starter kit.”
She also said that Miti does awareness programmes nationwide, such as “Kenal ESG”, where it meets industries and participates in various webinars, seminars and forums organised by third parties.
It also runs “ESG Mentor”, where multinationals and large companies can team up with Miti to brief their vendors on adopting ESU practices and reporting on their sustainability.
The i-ESG Framework on Miti’s official portal at https://www.miti.gov.my/index.php under the “Transformation Industry” tab and is freely available to all companies.
Source: The Star
