Increasing need for ESG competencies in boardrooms

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There is an urgent need for board members of Malaysian public-listed companies to improve environmental, social and governance (ESG) competencies as the lack of attention to ESG issues is increasingly drawing the ire of global corporations, asset managers, and financial institutions.

In the past two years, a number of listed and non-listed Malaysian companies in the glove manufacturing, plantation and electronics manufacturing service (EMS) sectors have hogged the limelight for alleged ESG issues, and this has proved to be costly to their financial performance as their products suffered bans in certain markets and clients cut ties.

According to research Institute of Corporate Directors Malaysia (ICDM) which conducted in collaboration with Russell Reynolds Associates and Bursa Malaysia in the third quarter of 2020, ESG expertise is amongst the most needed but least present competencies on Malaysian boards.

ICDM president and CEO Michele Kythe Lim said sustainability and ESG matters will continue to gain traction, and it must be a matter of priority for boards and companies.

“If a company chooses to ignore ESG, they may risk going obsolete. ESG adoption is not only an expectation of the regulators, shareholders and other stakeholder groups are also increasingly holding companies accountable on ESG considerations,” she told StarESG.

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Lim pointed out that having strong ESG competencies on the board is crucial in a company’s journey towards sustainability as the board possesses an immense influence on a company’s mindset and behaviours when dealing with ESG.

However, she noted that it is not just about creating the right ESG strategies, but also building the right culture to ensure ESG strategies are carried out effectively.

“Boards and senior management must be prepared to make the hard yet critical decision to shift their business model and direction – this needs to be internalised at all levels and integrated seamlessly into the core business and culture. Companies need to look at ESG and sustainability holistically and as corporate risks which need to be proactively addressed and managed,” explained Lim.

She highlighted that ICDM is on a mission to support board directors in broadening their mindset and expanding their skill sets to effectively address risks associated with ESG issues, and to find a balance between business growth and social sustainability and take on the role as stewards of that balance.

“As the business ecosystem continues to evolve, it is imperative for a paradigm shift to a progressive, sustainability-driven governance model for a more resilient business – and setting up the right ESG policies and procedures will be that first step to the right direction,” said Lim.

Regarding the key ESG targets and steps for Malaysian boards to commit to, Lim pointed out that ESG is more than just fulfilling regulatory requirements, rather it is to be driven by company values. It should be a proactive exercise done with the objective to establish and guide long-term sustainability and success.“There is also recognition that greater capacity building is needed to drive effective internalisation of ESG principles in their companies,” she said.