Corporate governance: An ESG perspective
This is the conclusion of a three-part discourse on governance.
AS A result of a spate of climate-induced disasters last year, there was much emphasis on ESG (environmental, social and governance).
For example, for the financial sector, the Securities Commission unveiled the principles-based Sustainable and Responsible Investment Taxonomy (SRI Taxonomy) for the Malaysian capital market in December last year.
It also issued the Climate Data Catalogue, which contains climate and environmental data. It is likely that in the years ahead, ESG will gain even more importance and will impact investment portfolios.
The Malaysian Code on Corporate Governance (MCCG) 2021 also introduced ESG measures that are in line with global regulatory trends for listed companies to adopt.
The revamped MCCG 2021 emphasises the need for corporate boards to integrate sustainability considerations in their decision-making in relation to formulating corporate strategy and governance.
The board is expected to address material ESG risks for long-term sustainability and work on a company’s sustainability strategies, priorities and targets, to be communicated to its stakeholders.
Commencing financial year ending 2023, Malaysian public -listed companies will need to comply with Bursa Malaysia’s enhanced sustainability reporting requirements.
Apart from the above, Bursa Malaysia released the Illustrative Sustainability Report (ISR) on Sept 20 as an additional tool to its enhanced sustainability reporting framework.
The aim of ISR is to enhance the commitment of listed issuers to subscribe to sustainability practices and disclosures.
Given the increasing importance of sustainability reporting, companies are compelled to adopt a proactive and strategic position rather than just superficial compliance.
Tax perspective
It is worthwhile to note that, from a taxation perspective, a Tax Governance Guide jointly published by the Malaysian Institute of Accountants and the Malaysian Institute of Certified Public Accountants was issued in October 2021.
It provided details on disclosure on tax governance and management of tax matters affecting corporations.
On April 15 last year, the Malaysian Inland Revenue Board (LHDNM) launched the Tax Corporate Governance Framework (TCGF), which provides an overview of its expectations on the tax corporate governance processes and structures that should exist in an organisation.
It also provides guidance on tax risk management principles and management of tax risks.
On a general note, it would be beneficial for the various regulators to continue to have increased communication with each other and be on the same page when it comes to issuing directives to the industry.
This would help to eliminate possible contradictions, ambiguity and confusion on implementation.
Future principles and challenges
It is important that governance rules, policies, procedures and regulations should not be a knee-jerk reaction to financial crises, scandals, the environment and so forth.
It is also imperative that, before any new or updated MCCG policies, practices or guidelines are publicly announced, the relevant regulatory bodies or authorities continue to engage with the various institutes and professional bodies, for feedback or comments.
This is to ensure interconnectivity and consistency and where possible, an alignment and resonation with the core MCCG policies, practices and guidelines.
A former British Prime Minister once said, ‘’the price of greatness is responsibility” and added, ‘’we make a living by what we get, we make a life by what we give’’.
In this respect, directors help to decide on and navigate towards the corporate destination. Good practice in the boardroom leads to good corporate governance.
Moving forward, boards and organisations must redefine their roles and the measure of values, in the light of greater public demand for sustainability.
Hence, focusing on the old traditional strategies in relation to financial performance is not the main factor.
Organisations must take cognisance of their corporate purpose, with sustainability being a key part of the board agenda for effective good governance and long-term value creation.
In addition to value for customers, organisations need to focus on diversity and inclusiveness, health, and wellness and the total economic impact of their operations, including carbon footprint.
It goes without saying that ethics and sustainability must be the focal points of good corporate governance. ESG consideration should always be on the board agenda.
With all the above, and with the constantly-changing governance and sustainability environment, it is very important that directors and other relevant personnel attend regular training programmes so that they are constantly updated on matters pertaining to ESG and reporting standards.
Finally, it must be borne in mind that the adoption of good corporate governance does not impede business objectives nor is it against deriving economic returns.
However, it is important that cognisance be given to social development, maintaining human rights and environmental stability.
It is about doing business with a conscience. The board must take responsibility for good governance in any company, because ultimately, organisational integrity begins at the top.
Simon Yeoh is the president of the Malaysian Institute of Chartered Secretaries and Administrators (MAICSA). The views expressed here are the writer's own.
