Global interest in sustainability and environmental, social and governance (ESG) has grown exponentially since 2019 with more reports, books and articles being published by a variety of sources.

Based on the Google Trends database, searches for “ESG” and “Sustainability” globally remained at the same level from 2004 to approximately 2019, indicating a niche interest. However, since 2019, mainstream interest in both topics has spiked exponentially.

Publications from expert sources, such as academic journals and industry reports, are readily available. Many demonstrate the correlation between sustainable practices and corporate performance. However, there is a lack of a Malaysia-centric reports, as these studies typically focus on developed markets.

To address this gap, the CEO Action Network (CAN) conducted the first Malaysian multi-stakeholder survey. The survey ran for a period of five months in the second half of 2022 and was led by four CAN members from diverse sectors: CIMB Bank Berhad, GHL Systems Berhad, IMPACTO Sendirian Berhad, and KSK Group Berhad, in partnership with Sunway University. In total, the survey garnered responses from over 1,000 individuals, representing a wide range of age groups and socioeconomic backgrounds, thereby adding to the robustness of the findings.

This report outlines the key findings from the survey and examines how evolving trends, increased regulation, and heightened consumer expectations, are changing the corporate sustainability landscape in Malaysia.

Stakeholders surveyed include:

●  605 individual consumers to gauge the demand for sustainable products.

●  8 large institutional investors to understand the supply of capital for sustainable businesses.

●  39 CAN members/businesses to understand business sustainable practices.

●  665 individual employees to understand how their local talent pool views sustainable businesses.

From the survey, we highlighted four key findings:

i)  Sustainability is overwhelmingly important to key stakeholders: consumers, employees, investors, and businesses, across all three ESG aspects.

ii)  Stakeholders are demanding sustainability from businesses. Key stakeholder groups go as far as penalising businesses that fail to meet ESG standards.

iii) Businesses see the need for sustainability and almost all have already benefited from their sustainability efforts.

iv)  Sustainability is already embedded in day-to-day business due to the demand for sustainability disclosures and reporting.

There is an undeniable trend towards demanding sustainability from businesses.
●  Consumers: 81 per cent of consumers prioritise sustainability as an important factor in their purchasing decisions.
●  Employees: 83 per cent of employees surveyed would consider changing jobs if businesses were not practising sustainability.
●  Investors: The majority of investors are actively influencing their investee companies towards more sustainable practices, including divesting from specific assets or sectors due to ESG concerns and risks.
●  Regulators: Regulators in Malaysia, such as Bank Negara Malaysia, Bursa Malaysia, and the Securities Commission, are taking bold strides to enforce sustainability practices through robust policies and frameworks, driving a transformative shift towards sustainable business practices in the country.

Consumers

Consumer preferences strongly favour purchasing goods from sustainable businesses 

Consumer behaviour is globally shifting towards environmentally and socially responsible products and services, driven by factors such as increased awareness of the impact of consumerism and the growing availability of sustainable options.

The trend is mirrored at home in Malaysia. When rating whether it is important for them to purchase products and services from an environmentally responsible company, 75 per cent of consumers rated ‘important’ to ‘very important’. This appears to be a relatively recent trend in Malaysia: 62 per cent of consumers surveyed said that they actively search for sustainable products and businesses at least half of the time, compared to just 37 per cent in 2019.

Sustainability has become one of the top three considerations for consumers when making purchases, surpassing brand name and product aesthetics in importance.

The top three priorities when buying a product are:
1. Quality: 94.7 per cent
2. Price: 84.4 per cent
3. Sustainability: 61.8 per cent

This strengthens that sustainability is no longer merely a nice-to-have feature, but a value proposition that can drive sales and increase customer loyalty. Businesses must prioritise sustainability and demonstrate their commitment through tangible actions and initiatives. 

Consumers’ considerations when looking for a sustainable product or business

77 per cent of surveyed consumers reported that they look for environmental certifications and recognitions at least 25 per cent of the time. These may include MyHIJAU MARK, Forest Stewardship Council (FSC) Certification for pulp and paper products, and GreenRE and Green Building Index (GBI) for real estate, which are endorsed by the government and specific to various industries. Consumers also judge a product and/or business based on external attributes, such as packaging, with almost 90 per cent of consumers avoiding products with excessive packaging.

Consumers surveyed have a broad definition of sustainable business practices. They expect sustainable businesses to address their environmental impact, treat their waste responsibly, actively reduce their greenhouse gas emissions, and have good labour practices.

In essence, businesses must do more than just claim themselves as sustainable; they must back their claims with relevant certifications and adhere to ESG best practices. While some actions may require substantial resources, businesses can start with less resource-intensive steps such as reducing packaging. This not only cuts production costs but also drives sales. It is crucial for businesses to support their sustainability claims with tangible actions and initiatives covering all aspects of ESG to earn consumer trust and loyalty. 

Consumers are willing to pay more for sustainable products and would go as far as boycotting brands that are environmentally or socially irresponsible

Customers are willing to pay more for sustainable products. More than half (52 per cent) are willing to pay 20 per cent or more for sustainable products, with 20 per cent of consumers willing to pay double the price.

Employees

Employees value the sustainability practices in their companies

Business operations have significant impacts on the environment and society. According to a Carbon Majors study, 100 active fossil fuel producers, including Shell, ExxonMobil, and Gazprom, have been responsible for 71 per cent of industrial greenhouse gas emissions since 1988. As employees become more aware of the impact of business activities, they are likely to demand more from their organisations and hold businesses accountable for driving sustainability efforts.

90 per cent of employees emphasise the importance of a company being responsible to the environment and local communities. Therefore, it is crucial for businesses to take the lead in implementing sustainable practices to gain and maintain the trust and loyalty of their stakeholders, including employees.

It is important that businesses maintain responsibility across all aspects of ESG. To be a sustainable employer, a company must not only adhere to good labour and board practices but also engage with the community, particularly those affected by its operations, and be mindful of its environmental footprint.

Employees feel that their companies are falling short in their efforts to support sustainable goals, as the majority of employees gave average or below-average scores when asked to rate their companies' initiatives related to the environment and social responsibility. Over 50 per cent of employees are dissatisfied with their company’s sustainability practices and believe that their companies do not allocate enough resources to achieve shared sustainability objectives. This presents a significant opportunity for businesses to improve.

To capitalise on this opportunity, businesses can start by implementing simple yet effective measures that can have a meaningful impact on sustainability without requiring extensive resources. Initiatives may include conducting energy audits, implementing recycling and waste management programmes, selecting sustainable suppliers, encouraging employee involvement in sustainability initiatives, and providing regular training and education.

Through such measures, businesses can demonstrate their commitment to sustainability, address employee concerns, and lay the foundation for more comprehensive and impactful sustainability practices. This can also boost employee morale, engagement, and pride in their organisation's sustainability journey.

Employees are looking to work for businesses that prioritise sustainability

It is crucial for companies to prioritise their sustainability practices in order to attract and retain talent. Today’s workforce seeks to align with organisations that share their personal values and contribute positively to the environment and society. When evaluating job opportunities, ethical business practices were ranked as the most important factor after remuneration, location, and flexibility.

Additionally, 83 per cent of employees would at least consider switching jobs if their current employer did not prioritise sustainability, which underscores the significance of sustainability in the workplace. This statistic emphasises the growing importance of sustainable practices in attracting and retaining the best talents. It highlights the urgent need for companies to implement sustainable practices to attract and retain top talent, as this is critical to their business success.

Employees view themselves as personally accountable for achieving their companies’ sustainability goals

A majority of employees surveyed feel a personal responsibility to play their part in achieving their company’s sustainability goals through participating in the company’s sustainability initiatives and training. 71 per cent have participated in their company’s sustainability initiatives, while more than 50 per cent have attended sustainability training and awareness sessions.

Furthermore, employees are eager to play a more active role and take up leadership positions in sustainability projects. Almost half of all employees surveyed seek sustainability-focused assignments and want them to be included in their performance assessments.

Companies have an opportunity to capitalise on this momentum to achieve shared sustainability goals. Engaging with employees through sustainability initiatives, for instance, can increase their sense of fulfilment at work and lead to improved talent retention.

In conclusion, with increased awareness of a company’s impact on the environment, employees increasingly value sustainable practices within companies. To maintain loyalty, businesses must lead in sustainability, addressing environmental and social responsibilities, and perceived shortfalls. Starting with simple yet effective initiatives, companies can showcase commitment, boost morale, and attract talent.

Banks are also aligning finance with sustainability goals

A significant shift is occurring within the banking sector towards adopting ESG risk management approaches, particularly for sectors that are environmentally or socially sensitive.

According to a 2021 survey by PwC on Malaysian banks:

●  21 per cent have embedded all three key ESG-related frameworks*.
●  71 per cent say they have considered climate change risks.
●  More than 90 per cent have assigned a department to operationalise ESG.

The banking sector’s ESG focus is supported by BNM’s Financial Sector Blueprint, which aims for at least 50 per cent of new financing and investment to be green or transitioning to green by 2026. This blueprint is expected to result in a smaller pool of capital being available for non-green activities, thereby potentially driving differentiated financing costs for green versus brown activities.

Given this landscape, businesses seeking financing will increasingly need to align with ESG criteria to secure funding and remain competitive in the market.

*Climate Change and Principle-based Taxonomy (CCPT), Value-based Intermediation Assessment Framework (VBIAF), Task Force on Climate-related Financial Disclosures (TCFD)

Regulators

Regulatory pressure further drives sustainability adoption

Regulators in Malaysia are strongly compelling businesses to adopt sustainability practices, signalling a shift towards sustainable and responsible business practices in the country. Some key regulators include:

1. Bank Negara Malaysia (BNM)

The Financial Sector Blueprint for 2022-2026, delineating BNM's development priorities for this period, prominently features sustainability as one of its five key strategic thrusts. As part of this focus, BNM has issued several policy documents on responsible financing, requiring financial institutions to integrate ESG considerations in their lending and investment activities. BNM has also introduced specific guides to further assist financial institutions in their sustainability journey:

i)    Value-based Intermediation Financing and Investment Impact Assessment Framework (VBIAF) aims to facilitate the implementation of an impact-based risk management system for assessing the financing and investment activities of Islamic financial institutions in line with their respective VBI commitments.

ii)    Climate Change Principles-Based Taxonomy (CCPT) serves as a classification system for economic activities contributing to climate change mitigation and adaptation.

2. Bursa Malaysia

Since 2015, Bursa Malaysia has mandated Sustainable Reporting Requirements for publicly listed companies, with revisions strengthening the requirements over the years. The latest revision was announced in 2022, which includes the following enhanced reporting requirements:

i)  Common sustainability matters and indicators deemed material for all listed issuers.

ii)  Climate change-related disclosures aligned with the Task Force on Climate-Related Financial Disclosures (TCFD).

iii)  Enhanced quantitative information, including at least three years' data for each reported indicator and corresponding targets.

iv)   A statement on whether the Sustainability Statement has been internally reviewed or independently assured.

3. Securities Commission Malaysia (SC)

The SC introduced Social and Responsible Investing (SRI) Roadmap in 2018, which outlines a series of initiatives to encourage the integration of ESG factors in investment decision-making processes. In 2021, the SC issued an update to the Malaysian Code of Corporate Governance (MCCG) focused on, among others, board policies and practices on the selection and nomination of processes/criteria for directors, and role of the board and senior management in addressing sustainability risks and opportunities of the company. Regulators have also imposed fines and requirements to enforce ESG compliance. For instance, the SC has mandated listed companies to disclose their ESG practices through their annual reports, with failure to do so resulting in penalties or fines.

Balancing pressure with incentives

To alleviate the regulatory burden, regulators are actively supporting businesses in their transition efforts. One notable initiative in this regard is the Green Technology Tax Incentive, introduced in 2014. This programme offers two distinct incentives to industry players. Companies seeking to acquire eligible green technology assets listed in the MyHIJAU Directory or those engaged in qualifying green technology projects for business or internal use can apply for the Green Investment Tax Allowance (GITA). Meanwhile, the Green Income Tax Exemption (GITE) is accessible to qualifying green technology service providers that are listed in the MyHIJAU Directory.

To increase financial support for projects aimed at mitigating or offsetting their greenhouse gas (GHG) emissions, Bursa Malaysia has developed Malaysia's own voluntary carbon market exchange. The inaugural auction took place on March 16, 2023. This move aligns with regional efforts and is crucial to keeping the country competitive and up to date in sustainability practices.

In conclusion, businesses today find themselves at the intersection of multiple stakeholder pressures, all converging towards a common goal: the adoption of sustainable practices. From customers and employees to investors and regulators, the call for sustainable and responsible business conduct is resounding.

Embracing ESG not only aligns with societal values and expectations, but also opens doors to opportunities for innovation, growth, and long-term resilience. To thrive in this evolving landscape, companies must heed these signals and embark on a journey toward sustainable, ethical, and profitable business practices.

There is a compelling business case for sustainability, leading to gains in business value.

●  The primary driver for companies adopting sustainability is the pursuit of increased business value.
●  Almost all companies have realised or anticipate business value gains from their sustainability initiatives, spanning various sectors.
●   While businesses of all types benefit from sustainability investments, non-listed companies have demonstrated greater gains in business growth compared to their listed counterparts.
●   Even modest investments in sustainable initiatives yield returns for companies.

The top 5 reasons for embarking on sustainability are:
1. Business value gains
2. Enhanced brand reputation
3. Mitigation/Avoidance of risk
4. Regulatory compliance
5. Investors’ requirements

In brief, Malaysian businesses are embracing sustainability for concrete gains, especially in business value. This applies universally to listed and non-listed companies, as key areas like decarbonisation boost reputation and efficiency. Positive responses from various sectors highlight the effectiveness of sustainability in generating business value. Commitment over time correlates with lasting gains, fostering benefits from reputation to cost savings. Notably, even modest investments yield returns, challenging the belief that significant spending is essential.

Sustainability has already become an integral part of everyday business operations.

●  Sustainability commitment spans all business sizes: A majority of small-cap, SMEs, and unlisted companies, exceeding 50 per cent in our survey, are actively establishing, measuring, and publicly disclosing their sustainability objectives.

●  Growing investments in sustainability: Businesses are allocating a significant portion of their sustainability budgets, with over 10 per cent dedicated to innovating products that promote sustainability.

●  Embracing global reporting standards: A substantial 77 per cent of companies have incorporated the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) into their sustainability reporting, aligning with international reporting standards.

●  A holistic approach to impact: Businesses are extending their focus beyond internal operations to assess their impact across the entire value chain. More than half of the surveyed companies have conducted comprehensive human rights risk assessments throughout their value chain.

Businesses are increasing spending on sustainability

All surveyed companies dedicate a portion of its budget to sustainability expenses. Among the various industries examined, enterprises heavily investing an average of 25 per cent of their budget primarily operate in energy and manufacturing sector. This inclination could be attributed to several factors. For instance, industries facing more risk, such as the energy industry, might encounter greater impetus to shift towards a low-carbon economy, prompting increased spending on sustainability efforts.

Companies predominantly direct their sustainability spending toward enhancing operational sustainability. This entails adopting renewable energy sources to power their premises and employing energy-efficient lighting solutions. Moreover, a substantial portion of companies' sustainability budget—exceeding 10 per cent—is allocated to innovating their product lines.

Businesses are future-proofing their employees with sustainability training

Providing sustainability training to employees is paramount in fostering a resilient and forward-thinking organisational culture. Companies equipped with a workforce educated in sustainability gain a competitive edge. Such training not only ensures compliance with changing regulations but also cultivates a workforce capable of innovating eco-friendly practices, reducing operational costs, and enhancing brand reputation. Businesses understand this and have prioritised sustainability-related training and awareness programmes for their employees. In fact, almost a quarter of companies focus their sustainability expenditure on training their employees.

Sustainability training demands meticulous planning to ensure optimal participation rates. Designing accessible, interactive, and contextually relevant training modules proves most engaging for employees. This is exemplified by the remarkable 71 per cent attendance rate in training sessions. The effectiveness of any training regimen hinges on the inclusion of feedback sessions, during which businesses attentively consider the requisites and apprehensions of their employees, along with the pertinence of the training content. Moreover, companies are demonstrating a commitment to transparency by openly communicating their objectives, advancements, and forthcoming strategies. This multifaceted approach not only enhances the training's impact but also nurtures a culture of collaboration and shared purpose within the organisation.

Businesses are demonstrating credibility through sustainability certifications

To build credibility with consumers and gain a competitive advantage, businesses are obtaining sustainability certifications and recognition through relevant schemes.

One such recognition scheme that is gaining business participation is the MyHIJAU Mark. It consolidates various regional and international green certifications, allowing companies to validate that their products or services meet local and international environmental standards on just one platform. As of 2023, the MyHIJAU Mark has over 13,204 registered products and services from 697 participating companies including CAN members such as Nestle, Sime Darby, Eco Worlds and CIMB among others. This number is expected to grow. Other certifications increasingly sought by companies are ISO 14001 and B Lab, which cover environmental or social criteria.

Sector-specific certifications also exist, such as MPSO and RSPO for sustainable palm oil production, and GBI certification for sustainable property development and buildings.

Businesses are strengthening their sustainability reporting disclosures

Sustainability reporting, while not necessarily a new global phenomenon, is gaining momentum alongside corporate governance and corporate accountability in Malaysia. This can be attributed to an array of factors such as push from stakeholders locally and abroad, tightening regulations, improved standards, and increasing awareness of the returns from quality disclosures.

Globally, sustainability reporting began as early as 1990s, with improvements in guidance and thus the quality of reporting occurring over time. Some global standards commonly used by companies worldwide are the GRI, B Lab, and the more recent ISSB IFRS S1 and S2 standards. Participation in these globally accepted standards grants companies an edge with investors who rely on disclosures as per these standards in making investment decisions.

To increase and maintain the competitive edge of companies in Malaysia, Bursa Malaysia has, since 2016, mandated PLCs to publish a sustainability report. Subsequently, Bursa published reporting requirements, timelines, and guidance documents to improve reporting quality. While mainly focused on PLCs, smaller companies have begun making sustainability disclosures. In fact, through the CAN Collective Commitments, CAN members of all sizes commit to varying degrees of sustainability disclosures.

74 per cent of surveyed companies have disclosed their material sustainability risks, while 77 per cent have embraced the TCFD recommendations in their sustainability reporting. Of the members who have recently unveiled their inaugural comprehensive TCFD-compliant reports, only 33 per cent belong to the large-cap category, highlighting that companies of all sizes are actively producing quality sustainability disclosures. These numbers are set to grow following increased demands from stakeholders, including regulators and investors.

Businesses are setting sustainability-based targets and accompanying roadmaps to achieve them

In response to a global call for businesses to play a part in the transition to a more sustainable planet, businesses are setting sustainability-based targets. Whether it's reducing carbon emissions, minimising waste, or enhancing supply chain transparency, companies are setting sustainability goals to align with global initiatives like the UN SDGs. These targets not only serve as a moral imperative, or in some instances a legal requirement, but also present significant opportunities for innovation, cost reduction, and long-term resilience.

In Malaysia, businesses must be net zero by 2050 in line with the country’s aspirations. While these requirements and national aspirations move businesses towards setting sustainability-related targets, businesses are going above and beyond what is nationally required. 20 per cent of CAN members commit to adopt the UN Guiding Principles on Business and Human Rights within three years of joining the network – far above what is required nationally.

While meeting sustainability targets is important, companies must also have the right accompanying roadmaps in place. Almost three-quarters of companies surveyed have developed roadmaps to accompany their carbon reduction targets. By publishing their roadmaps, companies demonstrate transparency and build trust and credibility with their stakeholders, who may hold them accountable to these roadmaps.

The value of sustainable practices by businesses is abundantly clear to all stakeholders. There is an undeniable trend in Malaysia where stakeholders, across the board, are increasingly demanding sustainability from businesses – a trend that can no longer be disregarded.

Businesses themselves recognise the imperative of sustainability, and nearly all of them have reaped tangible benefits from their sustainability endeavours.

An escalating number of Malaysian businesses have already seamlessly integrated sustainability into their everyday operations, resulting in tangible business value. Therefore, the time for action is now. Sustainability is no longer a mere luxury but a vital ingredient for future-proofing businesses. In summary, businesses that fail to prioritise sustainability risk falling behind in today's rapidly evolving landscape.

Companies cannot operate in isolation; collaborative efforts through partnerships are essential for advancing sustainability initiatives. All surveyed CAN members have reported significant benefits from the partnerships formed within the network, primarily in the areas of shared learning and skill development, delivering comprehensive solutions, and collectively driving actions to accelerate progress on sustainability goals. As businesses strategise their future endeavours, the inclusion of plans to harness the benefits of partnerships is of paramount importance.