23 June 2024

ESG principles key to powering Madani’s journey towards progress


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By Dr Alena Zhdanava, Dr Dalilawati Zainal and Dr Norazlin Ab Aziz

Malaysia’s journey towards sustainable development has been recently linked to the integration of Environmental, Social, and Governance (ESG) initiatives, which are particularly significant in shaping the nation’s future.

At the heart of this commitment is the “Malaysia Madani” vision, introduced by Prime Minister Datuk Seri Anwar Ibrahim. Derived from the Arabic word for “civilized” or “urban, “Malaysia Madani” emphasizes the significance of social justice, inclusivity, economic equity, environmental sustainability, and good governance.

Thus, it is a holistic approach that aims to balance economic growth with social and environmental considerations, thereby ensuring a harmonious and sustainable future for the nation.

Considering that the “Malaysia Madani” vision serves as a guiding light for the country’s development and policies, ensuring that they resonate with the values of a modern, progressive, and civilized society, it can be stated that the principles of ESG go hand in hand with this vision.

Taking into account that they have become essential for addressing the complex challenges of the 21st century, by embracing the ESG principles, Malaysia is positioning itself as a forward-thinking nation that is committed to the well-being of its people and the planet.

Why would the adoption of ESG principles be significant for the sustainable development of the country? After all, there have been a number of steps taken over the decades in the direction of a more inclusive, environmentally cautious society.

Just to mention a few, in 1983 the Department of Environment was established, followed by introducing policies and regulations in the 1990-s aimed at controlling pollution, protecting natural resources, and promoting sustainable development. Further on, the Ninth Malaysia Plan (2006-2010) emphasised sustainable development and introduced measures to integrate environmental and social considerations into economic policies.

Next, in 2006, Bursa Malaysia required public listed companies (PLCs) to disclose their corporate social responsibility (CSR) practices in annual reports, and the Malaysian Code on Corporate Governance (MCCG) was introduced to enhance corporate governance practices among PLCs where it was further updated in 2021.

In 2015 Bursa Malaysia introduced the Sustainability Reporting Guide (SRG), making it mandatory for the public listed companies (PLCs) to disclose sustainability-related information,comprising economic, environmental and social dimensions of sustainability. It was eventually enhanced in 2022, this time reflecting the growing importance of ESG considerations in the country’s corporate landscape.

Small and medium enterprises (SMEs) can also track and report their ESG disclosures through the Simplified ESG Disclosure Guide (SEDG), which was introduced recently.

There has been commitment shown to the United Nations Sustainable Development Goals (SDGs) and the Paris Agreement on climate change in 2015. The twelfth Malaysia Plan (2021-2025) has set a clear direction towards “advancing sustainability” as its key theme. This plan outlines Malaysia’s aspirations to become a carbon-neutral country by 2050, positioning Malaysia among the earliest in the ASEAN region to support this climate action.

However, despite these developments, Malaysia still faces challenges related to ESG, such as deforestation, biodiversity loss, labor rights issues, to name a few. These challenges indicate that balancing economic growth with sustainability remains a key obstacle in the country. Consequently, ongoing efforts are needed to fully integrate ESG principles into business practices and policy making.

This is where it is worth pointing out that it is the public sector which plays a crucial role in shaping the sustainable development trajectory of Malaysia. The necessity of adopting ESG principles directly impacts the nation’s ability to achieve its “Malaysia Madani” vision and the broader sustainable development goals.

After all, by integrating environmental considerations into public policies and practices, a balance is struck between economic progress and the preservation of natural resources, ensuring long-term sustainability and resilience. This is the foundation of the first ESG principle, environmental.

In addition, by adopting ESG principles, public sector organizations can prioritize initiatives that address social inequalities, promote access to education and healthcare, and ensure that all Malaysians can participate in and benefit from the nation’s development.

This commitment to social inclusivity strengthens the social fabric and builds a more cohesive and equitable society, which is a reflection of the second principle of ESG, social. It is important to note that social inclusivity is a cornerstone of the “Malaysia Madani” vision, and the public sector has a significant role to play in realizing this goal.

The third pillar of the ESG framework is based on effective governance and accountability, which are critical components of the “Malaysia Madani” vision. The public sector’s adoption of ESG principles enhances transparency, reduces corruption, and promotes ethical conduct.

By adhering to high standards of governance, public sector organizations can build trust and confidence among citizens and investors, fostering a stable and conducive environment for sustainable development.

Integrating ESG principles in the public sector aligns Malaysia with global sustainability standards and commitments. As the world increasingly prioritizes sustainability, Malaysia’s adherence to ESG principles enhances its international reputation and competitiveness.

This alignment opens up opportunities for foreign investment, international collaboration, and access to global markets, all of which are vital for the nation’s.

As it can be seen, the adoption of ESG principles in the public sector is not just a necessity but a strategic imperative for Malaysia. It is fundamental to achieving the “Malaysia Madani” vision and ensuring that the nation’s development is sustainable, inclusive, and governed by high standards of integrity.

By prioritizing environmental sustainability, social inclusivity, and good governance, Malaysia is paving the way for a future that is not only prosperous but also sustainable and just.

Dr Alena is a Post-doctoral Fellow at the Faculty of Languages and Linguistics; Dr Dalilawati is a senior lecturer from the Department of Accounting, Faculty of Business and Economics; and Dr Norazlin is a senior lecturer from the Department of Finance, Faculty of Business and Economics, Universiti Malaya.