AS businesses around the world face increasing pressure to incorporate sustainability practices into their operations, governments are taking proactive steps to enforce mandatory ESG reporting. Malaysia, as a significant player in the South-East Asian region, is no exception to this global trend. To shed light on the implications of mandatory ESG reporting in Malaysia and the emerging trends within the country, StarESG turned to STACS founder and managing director Benjamin Soh, who leads STACS as Asia’s leading ESG data and technology company. Soh shares his insights on the impact of new regulations on corporate behavior, available resources for small-medium enterprises (SMEs) to navigate ESG reporting complexities, and his predictions for the most exciting trends expected to shape the ESG landscape in Malaysia throughout this year.
Soh: “ESGpedia also enables companies to receive insights from AI-harmonised data to inform their ESG strategy and meet rising stakeholder expectations, as well as leverage ESG solutions and services to drive sustainability efforts.”
What impact do you foresee these new regulations having on corporate behaviour and accountability?
Businesses in Malaysia, and South-East Asia, are seeing an increase in ESG reporting regulations, not just for listed companies, but also progressively extending to SMEs. Publicly listed companies are increasingly expected to comply with compulsory ESG reporting, facing stricter rules to adhere to ESG policies.
For Malaysia, Bursa Malaysia enhanced the Sustainability Reporting Framework to standardise ESG disclosures, encouraging reporting against international best practices with common indicators and bolstering investor confidence since 2016.
Malaysia has also made efforts to ensure that its SMEs are not overlooked or left behind in the process. Capital Markets Malaysia (CMM) recently launched the Simplified ESG Disclosure Guide (SEDG) to assist SMEs in adopting ESG practices, offering a simplified and standardised set of disclosures aligned with global and local frameworks. While not mandatory, the SEDG helps SMEs stay competitive, respond to stakeholder demands, and qualify for incentives tied to enhanced ESG disclosures.
COP28 has set the precedence for an increased need to tackle environmental concerns, especially with the announcement of the country’s Budget 2024 last October. With a focus on incorporating sustainability into economic policies, the measures presented aim to drive sustainable growth for Malaysia to achieve carbon neutrality by 2050.
Additionally, it set up the foundation for the National Energy Transition Roadmap (NETR) and the New Industrial Master Plan 2030 (NIMP) which will be guided through its newly launched National Industry Environmental, Social and Governance Framework (i-ESG Framework).
Malaysia is seen to be expediting its ESG efforts amidst Asia’s growing focus on sustainability in recent years, evolving positively to reflect its broader commitment to sustainable development and responsible corporate social responsibility
What support or resources are available to help SMEs navigate the ESG reporting landscape and ensure they meet the necessary requirements?
Key challenges most businesses, especially SMEs, face are directly related to the lack of resources and digital tools readily accessible for seamless adoption to empower them in their ESG reporting and sustainability journey. Notably, a huge gap between the demand for ESG data in relation to the availability of data exists in the Asia Pacific region.Today, the responsibility for reporting ESG performance, encompassing supply chain activities, lies with publicly listed companies. This involves the demanding process of collecting data from various sources such as SMEs, suppliers, clients and other stakeholders within the supply chain.
In the Malaysian context, where SMEs dominate the market and supply chains, this challenge is particularly pronounced. SMEs face difficulties in commencing their ESG disclosure journey efficiently, mainly attributed to the absence of streamlined digital processes, sufficient resources and requisite expertise.
With the recent announcements of its i-ESG Framework, Malaysia is aiming to make sustainability practices more feasible for a broader range of businesses.
What are five of the most exciting developments in the ESG space that we can expect to see in 2024?
> Legitimacy of ESG claims and mitigating greenwashing: 2024 is expected to be pivotal in refining the approach towards corporate responsibility. A key aspect of this shift is the increased scrutiny of greenwashing practices, which is used to describe superficial or misleading claims about a company’s environmental efforts.
> Supply chain transparency, especially in emerging markets: The importance of supply chain sustainability as a 2024 ESG trend is increasingly coming to the forefront. Bloomberg recently published an insightful analysis of how Apple’s supply chain is on a collision course with climate change, highlighting it and other multinationals’ massive exposure to Asia amid increasing extreme weather events and carbon-intensive economies in that region.
> Technology and data-driven approaches to ESG: Data transparency and existing ESG technology solutions in the region are paramount to facilitate progress tracking, and reporting to ensure compliance with ESG regulations, and taking action towards decarbonisation.
> ESG fintech and AI to remain key drivers: The intersection of financial technology and sustainability is rapidly emerging as a critical component in the transition towards a more environmentally friendly economy. As we look to 2024, the application of AI in sustainability efforts is expected to grow substantially. AI’s ability to aggregate and harmonise ESG data, optimise resource usage, and enhance energy efficiency stands as a testament to its potential in reducing environmental impacts.
> Increasing digital tools and resources for SMEs: No longer confined to large corporations and financial institutions, ESG reporting regulations are now increasingly extending to non-listed companies and SMEs. A plethora of new digital tools and resources are emerging to serve this need, including from Singapore.
What digital tools and resources are available to help SMEs comply with disclosure requirements?
STACS’s ESG data and technology platform, ESGpedia, provides businesses and SMEs with an end-to-end suite of sustainability solutions to help them achieve their ESG goals regardless of their business needs, and ensure compliance towards ESG regulations.
While MNCs have the capacity and capabilities to invest in ESG consultancy services and initiatives, this is not the case for SMEs. As such, a significant gap emerges between the growing data needs for comprehensive ESG reporting from publicly listed companies, and the actual availability of such data in SMEs and entities in their supply chain, presenting a notable challenge in fostering ESG compliance.
As the platform is aimed for simple adoption amongst SMEs, the barriers to entry are kept low — the SEDG is fully integrated and digitalised on ESGpedia for free usage by Malaysian SMEs to start on their ESG reporting journey. The digitalised SEDG tool will be in the form of a digital assessment, equipped with guidance notes to provide SMEs with additional information on the requirements of the disclosure.
Malaysian SMEs can also use the ESGpedia platform’s embedded carbon calculator in accordance with GHG Protocol and ISO14064 methodologies to attain an automated carbon calculation and greater insights into their GHG emissions.
ESGpedia also provides a free ESG Starter Tool kit for SMEs to take the next steps towards ESG reporting. This enables SMEs to leverage digitalisation to easily kickstart their ESG reporting journey in accordance with their local reporting requirements, and future-proof against looming ESG regulations globally.
The ESGpedia platform employs an AI-powered engine that provides two key approaches:
> ESGpedia Nexus helps companies to comply with increasing ESG regulations, by empowering them to build and share their ESG profiles through the ESG reporting portal with an in-built greenhouse gas (GHG) calculator, get insights through the dashboard and analytics and engage with a marketplace of sustainability solutions to take active steps towards decarbonisation.
> ESGpedia Intelligence enables banks, investors, insurers and corporates to access a complete picture of aggregated ESG data via AI-powered harmonisation of unstructured ESG data, supporting better decision-making.
What steps can SMEs take to ensure transparency and sustainability within their supply chains?
SMEs can leverage existing digital programs and solutions to create their ESG profiles and amplify them on a global marketplace. By doing so, corporates and MNCs, especially those in advanced markets under regulatory pressure, will be able to seek out these sustainable SMEs and use them in their supply chains.
One such program is the ESBN Asia Pacific Green Deal digital assessment launched by the ESCAP Sustainable Business Network (ESBN). The free program empowers businesses and SMEs across the Asia Pacific region to take the first step towards ESG reporting by providing an incentive program that awards badges as recognition to companies that have taken steps towards disclosing their data and showing improvement in their ESG efforts. The badges are available in Gold, Silver and Green to recognise various tiers of efforts. The ESBN was launched last year in May on ESGpedia in the form of a digital assessment with guidance notes to simplify the process for SMEs.
ESGpedia currently serves as the primary technology that powers the ESBN Asia-Pacific Green Deal digital platform and the Asean Single Accesspoint for ESG Data pilot initiative, both of which aim to empower businesses and SMEs across Asia towards ESG reporting and bridge the data gap in the Asia Pacific region.
In the ESG data landscape, AI empowers the process of collecting, cleaning and harmonising data. It also offers predictive capabilities that can help with climate risk evaluation and decision-making.
AI-powered companies like STACS, Unravel Carbon, MioTech and Nexus FrontierTech are examples of technology firms on the cutting edge of building platforms that help corporates, SMEs and financial institutions bring transparency and accountability to the ESG performance of their operations, supply chains and investment portfolios.
Through AI, businesses are better equipped to tackle ESG data challenges, which include understanding resources and gaining bargaining power with suppliers, while enabling digital compliance with ESG regulatory requirements across Europe and Asia. For companies in Malaysia, this can be a powerful tool because it allows them to streamline their ESG data collection, ensuring higher accuracy and consistency in reporting.
