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Driving ESG in Corporate Malaysia

A Conversation with Datuk Muhammad Umar Swift – CEO of Bursa Malaysia

For years, the stereotypical view is that the main focus of companies is on profit. However, in recent times, corporations are becoming increasingly aware of the importance of adding two extra Ps to their bottomline – namely People and Planet. This is in line with growing demands from stakeholders for organisations to be more aware of the impact they have on society and to incorporate environmental, social and governance (ESG) initiatives into their processes.

In Malaysia, one of the organisations leading the charge for this is Bursa Malaysia, which manages the Kuala Lumpur Stock Exchange (KLSE). In an exclusive interview, Bursa Malaysia CEO Datuk Muhmmad Umar Swift expounds on how the bourse has helped public listed companies in Malaysia enhance their ESG commitments.

Sustainability is one of the pillars of Bursa Malaysia’s Strategic Roadmap 2021 – 2023. Granted that Bursa Malaysia has already done a lot to drive ESG in corporate Malaysia,  what else is in the pipeline to meet the goals of the aforementioned pillar?

Sustainability forms an important pillar of Bursa Malaysia’s strategic direction. We constantly engage with various stakeholder groups to better understand how to enhance value for all. We are dedicated to “walk the talk” and to continuously expand our sustainability commitment and practices.

In 2010, we established a Corporate Sustainability Committee, which comprises members from the senior management team. The Committee periodically reviews Bursa Malaysia’s sustainability strategies and high-level goals, ensure appropriate alignment of sustainability with our business strategy and identification of sustainability risks and opportunities.

To support Bursa Malaysia’s Strategic Roadmap, we developed a dedicated 3-Year Sustainability Roadmap to guide our strategies and priorities beyond 2021 with the objective of integrating sustainability practices within the marketplace, our workplace and the wider community.

Moving the needle on the sustainability agenda for the capital market requires significant momentum from all ecosystem actors. We aim to continuously collaborate with various stakeholders in the capital market to drive a vibrant and attractive Sustainable & Responsible Investment (SRI) ecosystem.

Bursa Malaysia is actively diversifying and adding to its suite of ESG-related investment products to fulfil investor demands and enable forms of sustainable financing into the Malaysian landscape. We are leveraging the intellectual capital and expertise we have fostered over the years to develop attractive options for both our institutional and retail players.

Moving forward, we also plan to ramp up efforts to support the development of sustainability competencies across corporate directors and sustainability practitioners to become change agents to catalyse sustainable and responsible businesses.

Since 2015, Bursa Malaysia has been part of the UN Sustainable Stock Exchanges (SSE) Initiative and the World Federation Exchanges (WFE) Sustainability Working Group.

The former aims to provide a global platform for exploring how exchanges, in collaboration with investors, companies (issuers), regulators, policymakers and relevant international organIsations, can drive the sustainable finance agenda.

The latter comprises representatives from a diverse array of global stock exchanges with a mandate to build consensus on the purpose, practicality, and materiality of Environmental, Social, and Governance (ESG) data

Bursa Malaysia has made sustainability reporting mandatory for listing and for all listed to companies to have an annual sustainability report along with their annual reports.
How does Bursa Malaysia help companies ensure that their sustainability reports meet international benchmarks of quality?

Since the establishment of our Sustainability Reporting Framework in 2015, our focus has always been on enhancing both substance as well as the quality of PLCs’ sustainability-related disclosures, rather than just ensuring compliance (i.e. PLCs simply producing a narrative to satisfy our requirements).

Since many PLCs are embarking on their sustainability journey from a fairly nascent stage, Bursa Malaysia provides ample support to them in terms of enhancing their practices as well as on disclosure requirements.

We conduct an extensive range of advocacy programmes specifically tailored for our PLCs, from sustainability reporting workshops to more thematic areas such as climate change, anti-corruption, Greenhouse Gas (GHG) emissions measurements, etc. Other forms of support include comprehensive guidance via our Sustainability Reporting Guide and other related toolkits, as well as curated educational content on our BURSASUSTAIN site.

Overall, we believe that a good sustainability report is one that is transparent, factual and comprehensive, covering PLCs’ key sustainability strategies, practices and commitments.

Regardless of the reporting framework(s) a PLC chooses to subscribe to – be it Bursa Malaysia’s sustainability reporting framework or some other reputable international ones – what stakeholders want to see is simple.

They want to see sustainability strategies – namely what material sustainability matters does a company prioritise and why?

They want to seehow a company manages these critical issues. These include, where does their sustainability governance lie, who in the company is looking at sustainability matters, what are the quantitative outcomes of these processes and initiatives – disclose.

They want to see companies set ambitious targets, disclose them and show progress in achieving them. WE know this isn’t easy. Being a PLC ourselves, Bursa Malaysia is also improving in this aspect over time.

It is worth noting that our framework revolves around the above so that key capital market stakeholders such as both institutional and retail investors, financial institutions, employees, civil society organisations and so on, can undertake their assessments of a PLC’s performance along these dimensions. This forms the basis for said stakeholders to engage with PLCs to push for further improvements. It is also through this process and feedback loop that PLCs can improve on their sustainability reporting – regardless of the framework adopted.

Since 2017, the Exchange has undertaken an annual Sustainability Disclosure Review exercise. Samples of PLCs’ sustainability reports are assessed and feedback given, to affect the improvements needed. We are heartened to observe good progress in the overall quality of disclosures over time.

The Sustainability Disclosure Review (SDR) exercise in 2020 revealed that, out of 300 listed companies surveyed, average compliance levels stood at 93% which is excellent. However, average quality score was only 68%. What is Bursa Malaysia doing to encourage listed companies to improve that?

The 2020 Sustainability Disclosure Review exercise covered 300 listed issuers across different market capitalisations. Now, bear in mind that the Exchange has 900-plus listed issuers with varying maturities in their sustainability reporting journey. Some companies are further ahead, while some are still growing on their sustainability journey. This variation is naturally reflected in their quality of reporting as well.

Now, there is this notion that only large, well-funded companies with access to international sustainability experts and management consultants can produce better sustainability reports – this is not true. To prove to everyone that it is doable, Bursa Malaysia did away with consultants for our 2020 Sustainability Report.

We believe that the quality of reporting is very much related to the quality of sustainability practices embedded in a company – and that the quality of disclosures will improve as practices mature.

Take for instance, a company that intends to manage climate change – and is attempting to put together a plan to manage their greenhouse gas emissions. In the first year – they’d likely spend some time measuring their base emission levels and looking at activities across their operations that are generating emissions. The following year – they’d be in a position to start implementing initiatives and measuring and reporting on their performance. In a few years, they would presumably have developed enough understanding to set challenging targets – and to hold themselves accountable to these targets.

Similarly, we see the quality of sustainability reporting improve with time. As companies mature in their sustainability practices, they are then able to provide better disclosures. If key stakeholders feel that companies are slacking or should be reporting better – they should utilise their collective authority in engaging these companies – and we at Bursa Malaysia, work to facilitate these conversations.

On the part of the Exchange, we will continue to organise sustainability reporting workshops, in addition to thematic workshops such as climate change and anti-corruption. We also plan to conduct human rights workshops in the coming months. These are complementary programmes we craft for our listed issuers. We strongly encourage PLCs and related professionals to register and participate.

Of course, at the end of the day, the first priority for companies is the bottom-line, and it is important to demonstrate that being ESG compliant is not only good for the company’s reputation but also for their balance sheets. How is Bursa Malaysia sending out that message?

Bursa Malaysia is, and continues to be, a strong thought leader in championing sustainability. We are convinced that sustainability is no longer a nice-to-have, but a must-have. Providers of finance and capital are already greening their portfolios – with institutional shareholders such as EPF and BlackRock being critical in their investee’s management of material sustainability matters. Ripples in supply chain management have also reached Malaysian companies, with sanctions imposed for lapses in human rights practices. These incidences have been widely reported, both in the local and international media, and have affected the bottom line of prominent Malaysian PLCs.

We believe that these developments will continue apace, and PLCs would be wise to respond appropriately – they must up the game in managing their sustainability risks, or they will see themselves losing out.

As a PLC and regulator, we collaborate and engage with stakeholders on several multi-stakeholder platforms, such as the Joint Committee on Climate Change (JC3), SC’s Corporate Governance Council, Institutional Investors Council, CEO Action Network, the 30% Club Malaysia, UN’s Sustainable Stock Exchanges, UN Global Compact Network Malaysia Brunei (UNGCMYB), to name a few. We leverage these relationships to facilitate conversations between businesses, investors and fellow regulators to move the sustainability agenda forward. We believe in collective action – and moving the market together.

To increase awareness and build capacity, our stakeholders can leverage on BURSASUSTAIN, our online learning platform for information on sustainability, corporate governance and responsible investing. The platform also provides relevant sustainability resources and toolkits, articles, case studies, commentaries and short learning courses. We recently launched a dedicated column on BURSASUSTAIN, where I share my personal thoughts and opinions on emerging sustainability issues. 

Earlier this year, our Chairman, Tan Sri Abdul Wahid Omar, also shared his thoughts and vision for the Malaysian capital market in an inaugural open letter to Chairpersons of all PLCs on our Exchange. He stressed the importance of long-term resilient strategies as the country recovers from the COVID-19 pandemic, with a strong reminder that social inclusivity and environmental sustainability should focus on building back better collectively for corporate Malaysia. This open letter is available on BURSASUSTAIN and moving forward, will be an annual open letter from Bursa Malaysia to encourage PLCs to raise the level of their sustainability practices.

Where does Bursa Malaysia stand at the moment when it comes to being ESG compliant both within its own organisation and also in encouraging listed companies to be so? What do you see to be the key strengths and in what areas can and is Bursa learning from others?

We are committed to improving our sustainability management practices and the quality of disclosures. We constantly benchmark ourselves with peer exchanges worldwide, as well as against various reporting guidelines and frameworks and ESG-index requirements to identify opportunities to step up our ambitions and efforts.

We have been included as a constituent of the FTSE4Good Bursa Malaysia Index since its introduction in 2014. Both indices (F4GBM and F4GBM Shariah) are consistent with the global ESG model that FTSE has developed, and draw strongly from leading global disclosure frameworks such as the Global Reporting Initiative (GRI) and Carbon Disclosure Project (CDP). Last year, we were honoured to be included into the Bloomberg Gender-Equality Index 2020, which recognises companies committed to advancing gender equality in the workplace and communities.   

Among our key strengths is that as a frontline regulator and market operator, we work with a wide spectrum of stakeholders in the capital market. We strive to ensure we are inclusive in developing our sustainability strategies.

Inputs from stakeholders are critical in developing our sustainability strategies to ensure we design appropriate programmes, measures and initiatives that create value. As an exchange with a wide group of stakeholders, we have the opportunity to create multiplier impacts from our sustainability efforts and initiatives.

We also use platforms such as the UN Sustainability Stock Exchanges (SSE) and the World Federation of Exchanges (WFE) to learn from our peer exchanges. Through this collaborative platform, we share best practices and implementation challenges unique to the exchanges’ operating environment. Further, this also enables the exchange community to drive convergence in sustainability simultaneously.

For example, Bursa Malaysia was a member of the SSE Climate Disclosure Advisory Group. Through this advisory group, stock exchanges worked together to ensure a globally consistent approach to incorporate recommendations from the Financial Stability Board (FSB) Task Force on Climate-Related Financial Disclosures (TCFD) and published a Model Guidance on Climate Disclosure for exchanges.

We continuously benchmark our sustainability value creation activities with our peer exchanges to ensure we keep abreast with the sustainability developments in the exchange community. We are amongst the few exchanges in the world that issue annual sustainability reports, incorporate ESG reporting as a listing rule, documented guidance on ESG reporting, developed ESG-related indices, provided ESG-related training and established an SME-focused listing platform.

Sustainability is a dynamic and continuously evolving landscape. Thus, we are continually enhancing our management practices and quality of disclosures, to be in line with stakeholder expectations and emerging best practices.

As an exchange, we hope to set the tone by walking the talk on sustainability. We are committed to investing in the necessary resources and internal capacity building to undertake more complex projects and initiatives to strengthen our sustainability credentials.

Some areas for our further learning and development include integrating green and sustainability-focused taxonomies effectively to support the development of ESG-themed investment products.

We are also building strong enablers to support the SRI ecosystem, by creating demand for SRI products, aligning investment products with investor requirements and expectations for sustainability, creating an enabling environment to facilitate the use of ESG data to support investment decision-making, and raising awareness and capacities to develop a mature and vibrant marketplace for SRI products.

You are also an Advisor to the United Nations Global Compact Network Malaysia and Brunei (UNGCMYB), can you tell us more about your role in that respect and how does it synergise with your responsibilities as Bursa Malaysia CEO? 

The UN Global Compact is widely recognised as the largest voluntary corporate movement globally in driving sustainability. It encourages companies to align business strategies and operations across the Ten Principles of human rights, labour, environment and anti-corruption.

Both Bursa Malaysia and UNGCMYB share similar aspirations in driving sustainability through thought-leadership and capacity building to accelerate the sustainability agenda. As the Exchange, we are committed to working with all stakeholders in driving the transition towards a sustainable, climate-resilient and inclusive future.

We are also collaborating with UNGCMYB to develop a Corporate Sustainability Practitioner Competency Framework to raise the professional standards of corporate sustainability practitioners in Malaysia, which will enable them to serve as change agents for a responsible and successful business.

This framework is essential in helping future professionals identify the necessary competencies and skills to respond to the sustainability challenges in our evolving environment. This will be made available on BURSASUSTAIN, our online learning platform for sustainability, corporate governance and responsible investment that all our stakeholders can access.

It is important to have leaders driving the way for ESG, and you are definitely one such person who is doing that in your capacity as Bursa Malaysia CEO. What is your vision for the country in terms of transforming Malaysia into an ESG conscious nation?

We are now entering an important decade of action to combat climate change. The decisions we make today as a society will have lasting effects on our future. The COVID-19 pandemic has been the perfect example to demonstrate the interconnectedness between nature and society, as well as the need for multilateral and collective efforts in overcoming a global challenge. Thus, we must embrace business strategies that protect the environment and prevent the climate crisis looming in the background.

As the momentum on climate action picks up worldwide, the transition towards a low carbon and climate-resilient future can unlock tremendous opportunities for Malaysia. It can create new jobs, support economic development, boost our export advantage and improve the attractiveness of the investment landscape.

There are three priorities to consider that will help shape a more resilient future coming out of this pandemic.

Firstly, we must invest in human capital development to foster internal competencies to operationalise sustainability issues. Given the cross-cutting nature of sustainability, the benefits will outweigh the cost.

Second, we need to focus on continuous networking, learning and communication with stakeholder groups and peers on key sustainability issues. For instance, to support the transition towards electric, emission-free vehicles, we need the entire ecosystem of government, companies, consumers, regulators, intermediaries to effect change and work toward common goals.

Finally, we must move away from a box-ticking, compliance approach towards utilising sustainability as a driver for value creation. This requires a paradigm shift from short-termism to long-term systems thinking. This will ultimately unlock a new set of practices and behaviour that can influence core values and beliefs essential for sustainability and continuity.

As we build back better from the pandemic, we must look towards increasing economic inclusion across all facets of the society, especially for communities that currently face barriers in accessing resources, services and capital. Only with all parties working together as a collective nation, can Malaysia become more ESG-conscious.



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