Proactive leadership action to drive better ESG agenda
BERNAMA
09 September 2023
SINGAPORE, Sept 9 (Bernama) -- Malaysia’s agenda to move towards a sustainable future is reflected in its 2023 budget proposals, with the government’s intention to introduce a Carbon Tax to drive Environment, Social, and Governance (ESG).
There is also a growing understanding amongst Malaysian boards and companies of the importance of operating responsibly and the impact of ESG issues on society and economic sustainability, which directly correlates to long-term financial performance and corporate value.
According to KPMG International’s Survey of Sustainability Reporting 2020, 99 per cent of the top 100 companies in the country publish sustainability reports.
However, to ensure impactful outcomes, reporting and measurements are not sufficient, and regulations only minimise harm and not maximise good, says the chief executive officer of Stewardship Asia Centre (SAC) Rajeev Peshawaria.
SAC was established by Temasek Holdings, a global investment company headquartered in Singapore.
The centre defines stewardship as creating value by integrating the needs of stakeholders, society, future generations and the environment.
BERNAMA had the opportunity recently to hear from Rajeev on issues and possible alternatives surrounding ESG commitment. This is his response to the questions below:
Why are regulations, reporting, and measurements on ESG insufficient to bring about real change?
Taking regulation for example, Rajeev said it sets a minimum standard for good behaviour but what is needed for environmental and social sustainability is a maximum standard of good behaviour.
“Regulation does not form that. We need a huge amount of innovation. But innovation cannot be legislated. Innovation is driven by a different kind of intent not by regulatory pressure and not by reporting pressure.
“Even with the minimisation of harm, we are not sure as we see enough evidence of people finding loopholes. That is why you see some companies engage in ‘greenwashing’ rampantly,” he said.
On the other hand, Rajeev said SAC’s research found that the best companies in the world with a great track record of environmental and/ or social sustainability were not driven by regulation or even financial or tax incentives.
“They are not driven by reporting pressures either. They are driven by a certain set of values that they have in their culture and a different kind of leadership intent,” he said.
What is the problem with ESG framework?
“ESG relies heavily on measurement, but there is no standard measure for ESG,” said Rajeev.
Last count, he said, more than 800 ways to measure, thus, it is up to the companies to decide how to measure.
“There is no standardisation,” he stressed, adding that “if you rely too much on measurement, it creates bad behaviour.”
People will find ways to create what to measure and report the way they want to report, he said.
He reiterated that rules and reporting are there for the loopholes and that is not going to create the innovation needed to solve climate and societal problems.
Is ESG framework effective?
No, for several reasons, said Rajeev.
Among the reasons is by looking at greenhouse gas emissions and global temperature which are both rising.
According to the International Energy Agency, energy-related carbon dioxide emissions reached a record 36.8 billion tonnes in 2022.
The World Meteorological Organisation meanwhile said the temperature was likely to pass the threshold of 1.5C above pre-industrial levels within the next five years.
“So, if it was working, the situation would not be that dire, right? asked Rajeev.
Another reason is by looking at the trillions of dollars that are flowing into ESG funds.
“The question is, are those trillions of dollars flowing into ESG investing the same as those trillions of dollars being used to mitigate climate and social impact?
“Absolutely not,” he said.
What are the alternatives?
“We need proactive leadership action,” said Rajeev.
Those companies that are making a difference in environmental society are driven by a certain set of values and a certain kind of purpose.
“We call them stewardship values and stewardship purpose,” he said.
Employment Provident Fund (EPF) to divest from companies not committed to ESG goals.
“That is a very good thing,” said Rajeev.
However, Rajeev said more proactive action is needed.
According to him, the real champions do it because of stewardship values like interdependence where “the more they help the planet and society the more they will succeed”.
“They believe in creative resilience, which means they create innovation engines within the company in such a way that they find ways to make money for the shareholder by addressing environmental and social challenges,” he said.
EPF announced the commitment last June.
Mandating steward leadership training?
It is very encouraging already to see EPF using their capital to influence the right decision, said Rajeev.
However, he said a small country like Malaysia and Singapore could mandate training and education around values and purpose-based leadership.
He said a small country could do it through various bodies, noting that “large countries find it very difficult to mandate such things”.
“You have a lot of funds in Malaysia namely the HRDF (Human Resources Development Fund) as well as the banking industry which has funds that are earmarked for talent development.
“Why not use that and why not mandate training and education on awareness of sustainability issues, both environmental and social?
“Why not mandate leadership training of a different kind, which is sustainability leadership or steward leadership as we call it?
“I think that is possible.”
According to Asia-Pacific Climate Leaders 2023 compiled by the Financial Times and data provider Statista, only two Malaysian companies – Sunway REIT and RHB Bank – made it into the list.
The list comprised 275 companies and was released in May 2023.