Some small and medium scale enterprises (SMEs) are already reporting on various aspects of their environmental, social and governance (ESG) and sustainability indicators.
But they should look into doing it better.
Increased ESG compliance and reporting is not so much about spending more money but collection of data and getting guidance as well as information on how to benchmark their businesses.
SMEs must accept that this new wave on ESG is here to stay.
Global ESG Monitor (GEM) co-founder Michael Diegelmann.
“Top management has to get started; choose this path or risk not being in business or not being able to raise funds for their initial public offerings,’’ said Global ESG Monitor (GEM) co-founder Michael Diegelmann.
They should build a taskforce, decide on what is material for their company, build a strategy and report on their progress in ESG and sustainability matters.
“It may be small steps but they should start their journey; demonstrate their steps and goals with a time horizon,’’ added GEM co-founder and head of research, Ariane Hofstetter.
The time horizon can be based on a closer future than 2050, the year for net zero carbon emissions.
GEM co-founder Ariane Hofstetter.
In view of the growing importance of this area to SMEs, the researchers are also looking into helping SMEs gain more information on how they can further improve in their ESG reporting.
Currently, GEM’s study on transparency in non-financial reporting is based on the ESG and sustainability reporting in the 30 companies on the benchmark FBMKLCI companies.
The GEM Malaysia Regional Report was launched in Kuala Lumpur on March 21, at the inaugural Thought Leadership Platform ‘Sustainability Perspectives,’ by Perspective Strategies in partnership with GEM, an independent research initiative dedicated to investigating ESG transparency.
Findings indicate that the companies had fallen behind in the transparency of their non-financial reporting, scoring an average of 54 out of 100 points.
Within these companies on the FBMKLCI, areas of reporting that can be improved include:
> Supply chains; in order that stakeholders can understand the risks deriving from supply chains, more detailed description on supply chains is needed, such as geographic location or types of suppliers engaged.
> More detailed background information on their materiality analysis of factors likely to affect their financial condition; examples – specifying the year of data collection and describing how they collected the data.
More comprehensive information on their stakeholder mapping process, such as details on how they determine which stakeholder groups they engage with.
This enhances transparency and helps stakeholders better understand how companies are identifying and prioritizing sustainability issues.
> Formulas to calculate Scope 2 indirect emissions; it should be stated if they are location or market-based – two methods of reporting emissions related to electricity consumption.
> Scope 3 direct and indirect emissions; more detailed information is required.
> Women on board representation; besides gender, age and ethnicity, there should be more details to demonstrate the effectiveness of an inclusive work culture.
Environmental considerations; there should be more detailed reporting on water and waste management.
GEM is the only survey analysing the ESG and sustainability reporting of companies; it was started three years ago, analysing companies in Germany, Europe, the US and Australia.
Companies on the FBMKLCI were chosen for analysis as Malaysia, being a growth economy, presents opportunities for engagement with people who want to make a change in the ESG and sustainability field.
Companies with high scores include Tenaga Nasional, Press Metal, Petronas Carigali and RHB Bank.
Perspective Strategies founder and principal partner/GEMregional partner Andy See.
“We are bringing GEM to Malaysia to help companies rise to the occasion to benchmark themselves against global peers; they will have also more tools of analysis to use as they join the wave in taking ESG and sustainability reporting seriously,’’ said Perspective Strategies founder and principal partner/GEM regional partner, Andy See.
While enhancing understanding on ESG and sustainability reporting among FBMKLCI companies, the survey helps the public to discuss quality ESG reporting while making their investment decisions.
As Malaysian companies grow on the global ranks, they also see room for improvement and areas in ESG transparency that require critical action.
Change is happening and sustainability is now a global issue; Malaysian companies, big and small, should buckle up to face a future of ESG and sustainability challenges.
