Simply put, E.S.G. refers to Environmental, Social and Governance factors which are deemed to be the source of corporation sustainability, if complied upon. It is one of the latest and most popular principle that corporations around the globe are keen on framing their business practice and performance over, to fit into the current global-appreciated values.
The concept of E.S.G. was first introduced in 2004, through a joint initiative involving the UN Global Compact, International Finance Corporation (IFC), and the Swiss government. The result of their study titled ‘Who Cares Wins’ led to a strong consensus of integrating E.S.G. factors into investment decisions.
E.S.G. principle is found to be crucial, not only to corporations, but to organizations, companies, investors as well as governments due to the principle covering non-financial factors such as water treatment, climate change, health and safety policies when framing their practice. Businesses with strong E.S.G. disclosures and integrate a higher level of E.S.G. principles are opted to gain more trust from investors as there is greater information transparency, better risk management as well as stronger and more resilient financial performance, leading towards greater business sustainability.
E.S.G. APPLICATION IN MALAYSIA
In Malaysia the application of E.S.G. principle is still on a voluntary basis. In other words, currently it is not yet an obligation for all corporations to factor in when framing their business practice and performance. Moreover, Malaysia is yet to have a standardized E.S.G. guideline available that can provide a uniform standard of E.S.G. compliance to be measure up against.
According to The Malaysian Business Sustainability Pulse Report 2022, businesses in Malaysia has the problem of disproportionate level of E.S.G. readiness, as it was found that the Malaysian companies prioritized the disclosure of governance (G) factor over other environmental (E) and social (S) factors. This disproportionate E.S.G. compliance leads to different E.S.G. practices and disclosure standards among corporations, eventually affecting the quality of E.S.G. information by Malaysian companies.
These disproportionate E.S.G. readiness is not without initiatives for uniformity. In 2014, there has been means introduced by different bodies to help regulate the E.S.G. principle such as the Malaysian Code for Institutional Investors, SRI Sukuk Framework and FTSE4Good Bursa Malaysia. These initiatives have contributed in persuading businesses in Malaysia to be open to voluntary disclosure of E.S.G. principle. Furthermore, with the Malaysian Government setting their eyes on the objective of producing net zero carbon emission by 2030, Malaysia is most definitely heading towards a stricter and uniform compliance of E.S.G. principle.
CONCLUSION
In conclusion, E.S.G. is a principle which requires corporations to take into non-financial factors of environmental, social and governance in framing their business to help ensure the business sustainability. It helps corporations to manage the risks and opportunities relating to the environmental, social and governance criteria.
Despite Malaysia currently has no standardized E.S.G. guideline available, the implementation of the principle is getting crucial as it has become a global critical tool for businesses to survive in today’s market.
