Environment, Social & Governance Malaysia
We believe in Profit + Social Impact! With the ESG Criteria in place the businesses do both and more.
ESG, or Environmental Social and Governance, is the corporate movement towards the adoption of industry standards that holistically account for the impacts of business operations.
It is a step beyond the corporate social responsibility (CSR) initiatives that have become popular for businesses since the turn of the century.
ESG represents a more tangible approach to showing accountability to stakeholders, including shareholders and the broader society.
We help corporates bridge the gap to connect with the right projects and make the intended impact.
What is ESG?
ESG stands for Environmental, Social, and Governance. It is a framework used by investors and companies to assess the sustainability and ethical impact of a company’s operations and investments.
The three core areas of ESG can be summarized as:
- Environmental factors refer to a company’s impact on the natural environment, such as their carbon emissions, energy consumption, waste management, and resource conservation.
- Social factors relate to a company’s impact on people and society, including their treatment of employees, customer privacy, human rights and community relations.
- Governance factors focus on the company’s management structure, accountability, transparency and ethical behavior.
The core thing is to measure the impact and make sure that true impact is made to the communities, stakeholders and the environment.
This is done by clearly making the ESG criteria. These are used to evaluate investments and assess the potential risks and opportunities associated with a particular investment or company. ESG considerations have become increasingly important to investors who want to invest in companies that are making a positive impact on society and the environment while managing risks effectively.
Corporations are increasingly being expected to adopt ESG practices and standards to demonstrate their commitment towards sustainable social impact. It grants them a competitive advantage compared to other businesses in coming up with forward-thinking solutions to address sustainability-based risks in their operations. Sustainability, while it has many definitions, generally speaks to the need to ensure current needs are met without sacrificing the needs of the future.
“Corporations are increasingly being expected to adopt ESG practices and standards to demonstrate their commitment towards sustainable social impact. It grants them a competitive advantage compared to other businesses in coming up with forward-thinking solutions to address sustainability-based risks in their operations.
The economic aspect of ESG doesn’t mean its financial performance, but rather the economic impacts of the organization on external actors and internally, such as adhering to proper labor practices and ensuring upliftment of disenfranchised. The environmental aspect of ESG refers to the impacts on living and non-living components of the overall natural ecosystem. The social aspect of ESG relates to impact on social systems, including nearby communities who are affected by the organization activities.
How to measure ESG?
ESG in Malaysia is a newly expanding sector, and as a global corporate movement is still in its early stages and therefore internationally accepted standards have yet to be universally formalised.
Most of the ESG measurements and indexing occur at the national level as directed by formal regulatory bodies or through self-reporting by organisations to the relevant stakeholders. Investors may look to frame ESG within a risk and return framework to understand how diverting resources to address externalities of the organisation may provide dividends from profits from gaining more socially-conscious customers.
One of the challenges to ensure proper metrics for ESG are developed is to not get stuck in a pure KPI mode. In this case, the emphasis is disproportionately put on input measurements, such as filling quotas for employment, rather than measuring processes/outcomes and impact that results from leadership decisions by the organisation. Companies now are developing their own matrices to catalogue the ongoing impact numbers.
At times, the measurements used can fail to capture the full scope of the actual impact, such as when carbon emissions saved by a company are discussed as a raw number without conveying the actual impact on biodiversity and local habitats in this process. Data that is truly reflective of actual impact requires expertise with on-the-ground sustainability actors rather than simply deriving numbers from financial managers who may not be qualified in this reporting.
Meaning of ESG vs CSR
As ESG is still an evolving space, there can be frequent confusion for those in the corporate space to merely conflate it with traditional CSR strategies. This would be a mistake as both speak to entirely different frameworks and it is important to understand the fundamental difference between the two.
CSR emerged in the post-2000s era as an effective form of managing brand and demonstrating outreach to more socially cognizant stakeholders, including buyers, investors and partners, through strategies such as volunteer engagement, reduction in carbon footprint and sponsorship of particular charitable programs.
Studies show that a significant section, from one fourth to one third, of the buying public take into account the reputation of the company or product related to their social mission. CSR then is a reputational enhancement method that yields results based on the clear impact that can be conveyed through activities the company engages in. Showing a responsible supply chain and labor practice are also important tactics that companies have recently used for their CSR programs.
CSR connects to the values and goals of the company but falls short of systemic reevaluation of the company’s operations compared to adoption of an ESG framework.
ESG sustainability is quickly replacing CSR as the go-to approach towards demonstrating an ongoing commitment towards higher objectives for an organization. CSR is more of a general framework allowing for loose application of social contributions by an organization.
Another key distinction is that CSR employs more of qualitative measurements and metrics to gauge social impact, whereas ESG targets more specific measurable indicators that hold the organization to account for the value invested in and the outcomes connected to the investment.
This is not to dismiss the usefulness of CSR altogether. If your organization is pursuing a CSR program in Malaysia, it can definitely offer a source of empowerment for the staff involved and by engagement with the community, it can boost their motivation and dedication towards the wider organization vision. As a short-term tool, such tactics can be used by a CSR company in Malaysia to generate hype and buzz that the company may be lacking. At the moment, CSR and ESG can be complementary approaches and do not necessarily conflict with each other as driven by corporate communication and other departments within your company.
As the pandemic has heightened the awareness of sustainability, CSR and ESG can be incorporated in a broader organizational direction that can create a lasting impact in a more socially conscious ecosystem.
What ESG programs does Urban Hijau offer?
Urban Hijau, as a sustainability-based social enterprise, offers a range of impactful and interesting programs to the corporate sector interested to invest in their ESG strategy. The focus of all of our programs is to ensure ongoing social impact that reflects a genuine commitment on behalf of the collaborating organization. These include the following areas:
- Sustainability Consultancy: We work hand-in-hand with businesses to audit their office or operational food waste practices and provide advisory on methods to reduce food and energy waste
- Community outreach: Through corporate sponsorship, we provide direct food aid and capacity-building to the most vulnerable sectors of Malaysian society to meet their food security concerns
- Boosting Biodiversity: Urban Hijau works with businesses who wish to invest in expanding local biodiversity knowledge and engage in reforestation of endangered habitats
- Eco Team Training: Urban Hijau provides regular training of staff members of organisation on methods to save food waste, develop compost or engage in urban farming to ensure positive environmental impact as well employee well-being
ESG in Malaysia is an expanding space and will seek a rapid level of formalisation in the upcoming years. Urban Hijau remains committed to the expansion and formalisation of ESG practices within the business community in Malaysia and looks forward to working with interested companies in this regard.
For further information, connect with us here.