For the last two decades, sustainability reporting for businesses has predominantly been a voluntary practice.
However, there is a growing trend of global and Malaysian alignment in sustainability reporting, spurred by the rising regulatory demands for companies to disclose sustainability-related activities to stakeholders.
Sustainability reporting is now regarded by customers, regulators, and investors as a crucial metric for assessing a company's overall performance.
What is sustainability reporting?
Fundamentally, sustainability reporting involves revealing environmental, social, and governance (ESG) objectives and articulating the strides taken in their attainment. It transcends the mere expression of a company's sustainability ambitions by actively evaluating the implemented action plan aimed at reaching these goals.
Strategic objectives known as Environmental, Social, and Governance (ESG) goals are established by businesses to adeptly oversee their influence on society and the environment. These objectives are divided into three essential categories:
Environmental
Concentrating on a company's ecological performance and endeavours to reduce its environmental footprint.
Social
Encompassing relationship management with employees, suppliers, customers, and communities impacted by the company's operations.
Governance
Centred on evaluating the company's leadership, internal controls, audits, and overall corporate governance practices.
Why is sustainability in business important?
In the context of sustainability reporting, businesses in Malaysia aligning with the national net-zero target of 70% renewable energy capacity by 2050 are increasingly integrating the Net Zero concept into their reporting frameworks.
This strategic move demonstrates a company's authentic commitment to sustainability by not only disclosing its environmental, social, and governance practices but also showcasing tangible efforts to offset carbon emissions.
The transparency provided through sustainability reporting, including the adoption of Net Zero, becomes a vital tool for building investor confidence, meeting regulatory expectations, and ensuring competitiveness within the evolving landscape of sustainable business practices.
Another consideration is the recent regulation implemented by the European Union (EU), known as the Carbon Border Adjustment Mechanism (CBAM).
This carbon tariff which applies to carbon-intensive products: iron/steel, cement, fertilizers, aluminium, hydrogen and certainly electricity, was anticipated to impact 6-7% of economic sectors in 2023, the first year of its transitional phase.
However, its influence on the economy is expected to escalate in the following years, becoming more significant when it becomes enforced in 2026. Beginning from October 2023, Malaysian businesses exporting the aforementioned products to the EU are mandated to disclose their greenhouse gas (GHG) emissions.
To ensure the security of their business, companies are obligated to embark on the path of reducing their carbon footprint and kickstart sustainability reporting.
Given the current trend and increasing demand for sustainability reporting worldwide, stakeholders are becoming more cognizant of its significance. They recognize that engaging in sustainability reporting can yield various advantages for the company, such as securing financial support from investors and enhancing the company's brand reputation.
Consequently, stakeholders are ensuring that everyone within the company practices sustainability in their roles to contribute to the overall success of the organization.
What are the frameworks available for Malaysia companies?
The Global Reporting Initiative (GRI) stands out as one of the oldest and most commonly embraced sustainability reporting standards globally. The GRI Standards exemplify global best practices for publicly reporting on a variety of economic, environmental, and social impacts.
GRI reporting is designed to be modular, allowing companies the flexibility to create sustainability reports using all or selected parts of the GRI Standards, reflecting their most significant categories and their sustainability impacts.
The CDP, formerly known as the Carbon Disclosure Project, houses the largest database of corporate greenhouse gas (GHG) emissions and energy usage data globally.
CDP reporting is structured as an annual questionnaire covering various Environmental, Social, and Governance (ESG) topics, with a particular focus on GHG emissions and other environmental impacts.
Each organization's CDP score is determined based on questionnaire responses, and CDP provides a transparent scoring methodology, ensuring respondents understand the expectations for achieving a high sustainability rating.
In adherence to the new guidance from Bursa Malaysia, corporations are now required to follow the Task Force on Climate-related Financial Disclosures (TCFD) to enhance and expand the reporting of climate-related financial information.
TCFD reporting aims to provide valuable and forward-looking information for business decision-making, which can be seamlessly integrated into mainstream financial filings.
Additionally, TCFD disclosures identified the information necessary for investors, lenders, and underwriters to adequately assess and price climate-related risks and opportunities in their investments.
The benefits of adhering to TCFD recommendations include:
1. Increased confidence from investors and financiers, potentially leading to easier or improved access to capital.
2. More effective fulfilment of existing disclosure requirements related to reporting material information in financial filings.
3. More strategic and comprehensive approach to understanding and managing material risks associated with climate change.
What are the benefits of sustainability reporting for a business?
An organization's reputation hinges on consistent performance and effective communication. Showcasing your ESG commitment and goals through sustainability reporting sets your company apart by building trust and transparency, thus solidifying positive brand reputation.
This trust from stakeholders, such as customers and investors, eventually becomes your unique selling point in a crowded market, distinguishing your brand and fostering support.
Securing capital investment is crucial for established businesses. Investors seek a clear understanding of associated risks, and in today's climate (excuse the pun) ESG factors play a pivotal role. Providing a comprehensive ESG risk profile is a strategic move, as investors acknowledge its ever-growing impact on long-term financial performance.
In the present day, consumers are increasingly mindful of sustainability, affecting their product choices. Shopee & the Malaysian Green Technology and Climate Change Corporation launched the “Jom Beli Produk Hijau” campaign in September 2023 to further promote awareness on green products.
This shift underscores the importance for businesses to prioritize and communicate their sustainability efforts, as it will significantly influence consumer loyalty and purchasing decisions.
The increasing dedication to sustainable business practices is more than just a viral trend; it stands as a global imperative.
Striving for net-zero greenhouse gas emissions carries the potential for a tangible, real-world impact on humanity, reaching beyond the confines of spreadsheets, board meetings, and quarterly reports to directly affect the air we breathe.
Companies bear a responsibility — not only to themselves and stakeholders but also to the broader global community — to be accountable for their environmental impact.
Saxon Renewables
Saxon Renewables offers sustainability reporting services to the dynamic markets of Malaysia and Singapore. Our comprehensive reporting solutions cater to the unique needs of various industries in these regions, ensuring compliance with international standards and regulations.
By partnering with Saxon Renewables, companies can navigate the intricacies of sustainability reporting, fortify their environmental commitment, and gain a competitive edge in these evolving markets.
Feel free to reach out to us for additional information and support as you embark on your journey to address carbon footprint.
