Setting the ESG

Agenda to Achieve
Sustainable
Long-term Value

Published : October 2021

Introduction
ESG is working its way up the agenda of Boards of Directors as a result
of the drive by investors across the globe to incorporate these aspects
in their decision-making process. In recent years, business operations
have changed radically – economically, socially and environmentally.
Climate change and growing inequalities are intensifying. The need for
sustainability information has grown in importance. Capital markets are
hungry for information linked to long-term value creation and demand
evidence-based, market-informed and transparent data in order to
deliver long-term value to shareholders and other stakeholders.

The momentum in the international landscape presents an opportunity

to the local professional accountants, be it at the C-Suite level or
finance function. The profession must be ready to navigate its way in
this creation of long-term value through the ESG agenda. In light of this,
professional accountants, as trusted advisers to businesses, are
expected to embrace the ESG agenda and be cognizant as to how to
achieve long-term value creation, including consideration of cost-benefit
perspectives, trade-off perspectives as well as the assessment of the
implications to businesses. Professional accountants are encouraged to
be agile in adapting to this enhanced role and shapes the local
sustainability landscape.

Page 1
 ESG propels long-term value creation
Long-term value creation across stakeholders
Beyond financial value, ESG promotes long-term value creation
through an integrated approach which also considers the non-
financial value contributed by people, customers and society to an
organization’s total long-term value creation.
Key measures include:
► Business strategy and transformation

► Performance improvement of systems, processes and tools

► Risk management and compliance

► Measurement, reporting and assurance

Why? How? What? Who?

Employees
People
value
Society value

Customer
value

Long-term
value
creation

Financial
value
Shareholders

Page 2
Building resilience and transforming through ESG
Achieving sustainable long term value

COVID-19 and climate change are We explored latest ESG insights in three areas:
accelerating the arrival of trends which have
already been on the CEO’s agenda1 since ► Recognizing changes to the ESG agenda
2017. These include digital transformation, What are the impacts of COVID-19 and
changes in consumer behavior, rising climate change on the new normal?
stakeholder capitalism and corporate focus Recognizing market and regulatory shifts,
on sustainability and long-term value. from rising stakeholder capitalism, digital
consumerism to increasing regulatory
In addressing these changes and attention on ESG adoption
challenges, some CEOs of larger companies
have been swift to re-model their
transformation strategies and actions to build ► Researching ESG surveys
resilience and prepare for a post-pandemic What are C-suite’s responses and
world, oriented to long-term value. Among approaches to organizational transformation,
their key actions include breaking down sustainability reporting and assessment of
organizational silos, increasing agility, ESG risks and opportunities in EY Global
improving innovations and leveraging data to and Malaysia surveys?
ramp up organizational performance.
► Responding with an ESG strategy
This publication attempts to share insights How CEOs are responding with ESG as the
into the “why, what and how” of setting the pivot strategy to build back better and at the
ESG agenda for organizations to achieve same time create long-term, sustainable
sustainable long-term value. value for a broader set of stakeholders

Setting the ESG agenda to achieve sustainable long-term value

The range of issues that are emerging in the ESG agenda include:

E S G
Environment Social Governance
Ecosystem Inclusiveness

► Climate change ► Labour relations ► Board

and carbon ► Diversity agenda independence and
emissions diversity
► Employee safety
► Energy and working ► Compensation
efficiency conditions policies Sustainable
► Pollution ► Human rights ► Business ethics long-term
► Use of natural and child labor ► Risk management value
resources ► Product safety and oversight
► Waste ► Community ► Cybersecurity
management engagement ► Compliance and
► Clean energy ► Supply chain legal
and technologies management ► Corruption, bribery
► Biodiversity and anti-money
laundering

Sources:
Note: ➢ How has adversity become the springboard to growth for CEOs?
¹ The CEO agenda was derived from the global EY CEO Imperative CEO Imperative Study, EY, March 2021
Study which surveys global CEOs among the Forbes Global 2000. ➢ Take 5: Remodeling strategies with ESG, EY, June 2021
➢ The ESG potential –how mutual fund boards can manage risks and
seize opportunities, EY, January 2021
Page 3
 Tracking ESG regulatory focus in Malaysia
In view of the changing ecosystem,
Malaysia’s regulators are increasing their
attention on ESG. Encourage adoption of
sustainability reporting
► The Securities Commission (SC) has standards
issued the Malaysian Code on
Corporate Governance (MCCG) 2021
which sets out new and enhanced
governance practices. Among them, it Mandatory Sustainability Bursa
Statement
prescribes the urgent need for boards Malaysia
and senior management to jointly
manage material ESG risks and Enhancing
opportunities, as well as set up the sustainability
company’s sustainability strategy, disclosures in
priorities and targets.
annual report
► Bank Negara Malaysia (BNM) has
also released the Climate Change and
Principle-based Taxonomy (CCPT)
2021. The CCPT is aimed at
encouraging the adoption of ESG
principles in financial institutions (FIs).

► Bursa Malaysia has issued the Listing

Requirements mandating all public-
listed companies (PLCs) to prepare a
sustainability statement in their annual
ESG
reports beginning 31 December 2016.
PLCs are encouraged to adopt either
the GRI Sustainability Reporting
Standards (GRI Standards), SASB
standards or the Task Force on Prohibited activities
Climate-related Financial Disclosures
(TCFD)’s recommendations in their FIs should finance economic activities
sustainability reporting. that are not illegal and do not
contravene environmental laws.

BNM
CCPT:
encourage the adoption of ESG Climate change mitigation
No significant harm to the principles in FIs
environment (complement the Value-based Reduce or prevent greenhouse
Intermediation Financing and gas (GHG) emissions
Take into account the impact of Investment Impact Assessment
economic activity and overall business Framework (VBIAF))
on the wider ecosystem

Remedial measures to
transition Climate change adaptation
Address the significant harm Increase resilience to withstand the
identified at economic activity level adverse impact of current and future
and/or the overall business level climate change

Sources:
► Climate Change and Principle-based Taxonomy, BNM, 30 April 2021
► Malaysian Code on Corporate Governance (2021 Revision) – Media Technical Briefing, SC, 27 April 2021
► Malaysian Code on Corporate Governance, SC, 28 April 2021
► Sustainability Reporting Guide (2nd Edition), Bursa Malaysia Securities Berhad, 2018
 Board to stay abreast with and
understand sustainability issues,
including climate-related risks relevant
to the company

Board and senior management take

responsibility for the governance of
sustainability
SC’s MCCG Reviews of performance in
addressing the company’s
2021 material sustainability risks and
opportunities
A designated person within Strengthening
management to provide dedicated oversight of
focus and strategically manage sustainability
sustainability
Sustainability strategies, priorities,
targets and performance are
communicated to external and internal
stakeholders.
guidelines and
regulatory focus

Malaysia’s Roadmap Towards

Zero Single-Use Plastics
2018-20301
e.g. banning plastic straws in eateries
(scope of roadmap may extend to other
single-use materials)

Ministry of
Housing and
Local
Government
Plastic waste
management
Ministry of Levy on importation of
Restricting plastic waste recyclable plastics
import by limiting the Environment
permits for importation of
plastic waste
and Water
Stricter Proposed amendment to the
environment laws Environmental Quality Act (EQA)
1974 to impose stiffer penalties, up
to RM15m and mandatory
imprisonment, for environment
polluters

Note:
1 The Malaysia’s Roadmap Towards Zero Single-Use Plastics 2018 – 2030 was published by the Ministry of Energy, Science, Technology, Environment and Climate Change

(MESTECC) in 2018.

Sources:
► Malaysian Code on Corporate Governance (2021 Revision) – Media Technical Briefing, SC, 27 April 2021
► Malaysian Code on Corporate Governance, SC, 28 April 2021
► Climate Change and Principle-based Taxonomy, BNM, 30 April 2021
► Media releases
► EY research, Malaysia
 Research on ESG surveys

Future enterprises to be
“ESG-centric” DNA of the Future Enterprise
In the medium to long term, most Business models will
CEOs view ESG-centricity as a vital increasingly incorporate
component of the future enterprise. circular economy dimensions E 91%
over the next five years.
Strategic focus on environmental
factors can provide new business Companies will take
opportunities and also help identify significant new steps to take E S 80%
ESG risks. Business innovations from responsibility for the social
and environmental impacts of
green technologies and disruptions their operations.
from climate change can reshape and
impact existing business models. Putting humans at the center S 80%
of decision-making will be a
Placing people at the center of core leadership value driver.
decision-making is a core leadership
value driver and emotional quotient Adopting a global standard
(EQ) will become a key management for measuring and reporting G 80%
attribute. long-term value creation

Furthermore, increasing focus on the Empathy and soft skills will

adoption of new global standards for become key management
measuring and reporting long-term S 75%
capabilities.
value creation is driving ESG to
become the core DNA of the future Percentage of CEOs who agree with
enterprise. statements describing future enterprises
Governance
Environment

The impact of climate change, The value that businesses create The system by which all core
Social

including environmental risks and that potentially impacts investors, business activities are directed,
business opportunities, to reshape employees, customers and controlled and monitored as it is
an organization’s business model communities critical to create long-term value

Sources:
 How can today’s CEO bridge the gaps to realize tomorrow’s opportunities?, EY, March 2021
 Will there be a ‘next’ if corporate governance is focused on the ‘now’?, EY, February 2021
 How will ESG performance shape your future?, EY, July 2020

Page 6
 Research on ESG surveys

C-suite is serious CEOs reshaping transformation agenda to include ESG

about ESG
The EY Global 2021 CEO Prioritize stakeholder outcomes as part of
organization culture S 73%
Imperative Survey highlights that a
range of ESG factors are well- Embed sustainability or circular economy
embedded in the CEO’s agenda to into supply chain E 70%
drive sustainable long-term growth.
Consistent processes for all capital
investment decisions G 67%
More than half of CEOs surveyed
are focusing on social factors such Deeper customer insights for
as prioritizing long-term value for personalization S 66%
stakeholders, deeper customer
Upskill and reskill talent for new market
insights, upskilling talent and imperatives S 62%
investing in employees’ well-being
as their top transformation priorities. Leverage technology to increase efficiency
and visibility G 56%
Governance management actions Increase investment in employee well-
include the application of consistent being S 55%
processes for all capital investment
decisions, and the leveraging of Increase diversity of leadership profiles,
backgrounds and skills G 42%
technology to increase efficiency
and visibility. Increase importance of ESG factors in risk
assessment G 40%

Increase competency to identify climate

change risk E 26%

Percentage of CEOs who selected their

top two transformation priorities in the
next three years

Source:
How has adversity become the springboard to growth for CEOs? EY, March 2021

Page 7
 Research on ESG surveys

Higher adoption of Malaysia, still nascent in

global climate risk disclosures climate risk disclosures
The EY Global Climate Risk Disclosure The EY Climate Risk Disclosure
Barometer is a survey that provides a Barometer 2020 Malaysia survey
snapshot of the climate risk and revealed that most of the top 100 PLCs
opportunity disclosures by over 1,100 in Malaysia are still at a nascent stage
companies worldwide. of climate risk disclosures. While
Malaysian regulators have encouraged
The latest survey shows that PLCs are the adoption of the TCFD
taking steps to report and disclose their recommendations, the PLCs are
climate risks and opportunities based on generally adopting a “check-box”
the TCFD recommendations, with an approach to climate risk.
overall coverage1 score of 70% and
quality2 score of 42%. However, it is pertinent to note that over
three-fifths of the 100 PLCs surveyed
The key drivers of this trend are regulatory reported their commitment to the United
pressures, policies and compliance. Nation’s SDGs on Climate action, SDG
Policy-makers of key markets, including 133.
USA, EU, United Kingdom, Japan and
New Zealand, now view climate risk as Benchmarked against the TCFD
materially important to their economies recommendations, the survey
and have mandated climate risk highlighted that most PLCs lack
assessments and disclosures. As such, comprehensive climate risk disclosures,
more companies are paying closer with an overall coverage score of 34%
attention to their disclosures and aligning and quality score of 12% only.
their annual reports with the TCFD
recommendations.

Significant gaps in Malaysia’s PLCs climate risk

disclosures
Global overall score Malaysia PLCs overall score
Quality1 Coverage2 Quality1 Coverage2
42% 70% 12% 34%

45% 9% Quality
Governance 71% 22% Coverage

38% 7%
Strategy 24%
65%

Risk 41% 11%

management 68% 41%

Metrics and 18%

45%
targets 75% 45%

Note:
1. Quality = companies were rated (out of 5) on the basis of the quality of disclosures and if they met all the requirements of the TCFD
2. Coverage = companies were scored on the basis of the percentage of the 11 TCFD recommendations addressed by them
3. SDG 13 includes stepping up disclosures on climate-related risks in governance, strategy and risk management.

Sources:
► Climate risk disclosure barometer 2020 Malaysia, EY, December 2020
► If climate disclosures are improving, why isn’t decarbonization accelerating? Global Climate Risk Disclosure Barometer, EY, June 2021

Page 8
 How to measure long-term value?

Key questions the board and senior management team can raise in strategic
discussions on ESG and sustainability and drive the provision of long-term value:

Board CEO CFO

What can we do to Is the current How does
drive commitment to business model able integration of ESG
deliver long-term to create positive into corporate
value to value for all strategy enhance
stakeholders? stakeholders? financial
performance?

COO CSO CRO

How can we operate How can How can we help
more efficiently sustainability achieve corporate
considering strategies create resilience to
resources across competitive challenges caused
our operations? advantage? by environmental
and social risks?

Source:
Why moving ESG up this decade’s business sustainability agenda is key, EY, March 2021

Page 9
 How can boards drive sustainable and inclusive growth?

Boards, in their oversight role, are integral in driving strategic discussions with
management on ESG risks to ensure organizations are aligned to goals that
generate long-term sustainability.

Five areas where boards can step up their governance

Board dynamics, including

Attributes skills, diversity, values and
understanding of sustainable
issues

1
Authenticity Risk
Transparent and authentic 5 2 Strengthen risk
reporting disclosures on
governance
progress against long-term
and oversight
value goals and KPIs,
showing clear accountability
for the achievement of KPIs Reward
4 3
Remuneration schemes to
incentivize focus on long-
term value and the central
Defining key role of ESG-driven metrics
Engagement stakeholders and
building an end-
to-end
engagement
strategy that
includes a
feedback loop

Source:
Will there be a ‘next’ if corporate governance is focused on the ‘now’?, EY, March 2021

Page 10
 What are the mandatory and voluntary
regulations on ESG practices?
Regulators are encouraging companies to adopt ESG
management practices.

2015 – 2019
Targets to achieve Sustainable Development Agenda by 2030

Mandatory
Global Malaysia
► Institutions for Occupational ► Bursa Malaysia's mandatory disclosure of
Retirement Provision (IORP II) ESG sustainability statement by PLCs
criteria in investment decisions ► The Malaysian Anti-Corruption
Commission (MACC) Act is amended to
introduce corporate liability for corruption
offences (applies to Malaysian
commercial organizations).
Voluntary
Malaysia
► Malaysia adopts the 2030 Agenda for ► BNM issues the VBIAF Guidance
Sustainable Development. Document to facilitate impact-based risk
management for assessing financing and
► SC launches the Sustainable and
investment activities of Islamic financial
Responsible Investment (SRI) institutions that integrate VBI
roadmap. commitments.

Taskforce/Committee

Malaysia
► SC forms the Malaysian Green ► SC and BNM form the Joint Committee
Financing Taskforce (MGFT) to on Climate Change (JC3) to pursue
provide recommendations and action collaborative actions to build climate
plans on how to accelerate the growth resilience in the financial sector.
of green financing.

Sources:
• The ESG potential – how mutual fund boards can manage risks and seize opportunities, EY, January 2021
• Climate Risk Disclosure Barometer 2020 Malaysia, EY, December 2020
• EY research, Malaysia

Page 12
 Carbon
Neutral
2020 - 2025 by
2050
Mandatory

Global Malaysia
► Full implementation of EU ► Malaysia’s commitment to
Action Plan reducing 45% GHG
► Mandatory TCFD disclosure emissions intensity by 20301
in the UK

Voluntary
Malaysia
► SC issues the revised MCCG ► The Ministry of Environment
2021 which incorporates ESG and Water (KASA) launches
areas of focus. Environmental Sustainability
in Malaysia 2020 – 2030
► SC plans to release public
roadmap
consultation paper on
Sustainable Responsible ► Capital Markets Malaysia
Investment (SRI) Taxonomy. (CMM) launches the
Malaysian Sustainable
► BNM launches Climate Change
Finance Initiative (MSFI).
and Principle-based Taxonomy.
Taskforce/Committee
Malaysia
► The Government forms the Malaysian Climate Change Action
Council (MyCAC) to set climate change policies and actions in
Malaysia.

Note:
1 This GHG reduction comprises 35% on an unconditional basis and a further 10% conditional upon receipt of climate finance,

technology transfer and capacity-building from developed countries. Malaysia signed and ratified the Paris Agreement in 2016.

Page 13
 TCFD, GRI and SASB for ESG disclosures

Core elements of
In June 2017, the UK recommended
Financial Stability Board climate-related Disclose the
financial disclosures organization’s
released a framework governance around
known as the TCFD for climate-related risks
companies to develop and opportunities
more effective climate- Governance
related disclosures
through their existing Disclose the actual
reporting processes. Strategy and potential impacts
of climate-related
The TCFD risks and
recommendations provide Risk opportunities on the
a reporting framework management organization’s
aimed at improving business, strategy
investors’ understanding and financial
planning
of the impact of climate Metrics
risks on different sectors and targets
and companies.

Disclose the Disclose the metrics

processes used by and targets used to
the organization to assess and manage
identify, assess and relevant climate-
manage climate- related risks and
related risks opportunities

Source:
• Implementing the recommendations of the TCFD, TCFD, June 2017

Page 15
 In 2016, GRI developed the GRI These standards can guide
Standards to represent global organizations in developing their
best practices for reporting sustainability reporting based on
economic, social and the reporting principles, focusing
environmental impacts. on material topics.

Overview of the set of GRI Standards

Universal standards Topic-specific standards

Select from these to report

specific disclosures for
each material topic

General
disclosures Economic
GRI 102 GRI 200
To report contextual
information about an
Foundation organization
Environmental
GRI 101 GRI 300
Management
Approach
Starting point for
using the GRI GRI 103
Standards Social
To report the
management GRI 400
approach for each
material topic

Source:
• Consolidated set of GRI Sustainability Reporting Standards 2020, GRI, 19 May 2020

Page 16
 SASB standards for sustainability accounting
The SASB Conceptual Framework consists of the basic concepts, principles,
definitions and objectives that guide the SASB in setting standards for
sustainability accounting and provides an overview of sustainability accounting to
SASB’s external stakeholders.

SASB’s Conceptual Framework

Objectives
►Financially Material
►Decision-Useful
►Cost-Effective

The SASB Standards

Topic Metric
characteristics characteristics
► Financially impactful ► Representationally faithful
► Of interest to users ► Complete
► Prevalent ► Comparable
► Actionable ► Neutral
► Verifiable
► Aligned
► Understandable

Fundamental Tenets of SASB’s Approach

► Evidence-Based ► Market-Informed ► Industry-Specific ► Transparent

Note:
The SASB Conceptual Framework is in the process of being revised and has undergone a public comment period. The Conceptual
Framework exposure draft was made available for public comment from 28 August 2020 – 31 December 2020.

Source:
SASB Conceptual Framework Exposure Draft, SASB, August 2020. Information retrieved from SASB’s official website on 29 June
2021.

Page 17
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