The Sun, Malaysia
By Dr. Jayanthi Desan on 17 December 2015
THE OUTCOME of the global summit in Paris has been hailed as bold and historic, carving the direction for a landmark global climate action for years to come. The agreement cites "net zero emissions" at some point between 2050 and 2100. Experts have hailed the ambitious accord as "transformational" but what does it mean to businesses?
On the surface, there appears to be no real plan on how the highly-ambitious targets are to be achieved. Whether the Paris Accord is the change that it is touted to be, or plain naïve depends on how feasible the targets are.
What COP21 may stimulate is a slew of government investments and policies to catalyse clean technology which businesses will benefit.
Regardless of the accord, business leaders need to be clear that climate change impacts need to be managed and there are opportunities from solutions to climate change.
First movers will have distinct advantage but the focus will also be businesses that will innovate new solutions for change. It is these companies that will potentially be the torch-bearers of the next generation of climate leaders.
Innovation in sustainable business models
Disruptive business models will no longer be the domain of young start-ups. Established companies will be looking for ways to innovate through sustainability.
The recent winner of the Asia Corporate Excellence & Sustainability (ACES) Awards in Singapore, Bangchak Petroleum Public Company Limited is a subsidiary of state owned PTT. Locked in a fossil fuel business, Bangchak has established a renewable energy division and actively involved in solar energy.
Further, Bangchak also released its first green bond into the marketplace worth 3 billion baht (US$92 million) in March 2015. It will be interesting to see how Bangchak progresses as a leading player in the oil and gas industry with this mind-set.
Winner of the Community Care Company of the Year at the ACES Awards 2015, PT Hero Supermarket Tbk (Hero) was established in 1971 and was listed on the Indonesia Stock Exchange in 1989.
As the leading retail company in Indonesia, Hero operates six brands with more than 700 stores across Indonesia, as of November 2014. The Hero Group comprises Hero Supermarket, Guardian Healthy & Beauty Stores, Starmart Convenience Stores, Giant Ekstra, Giant Ekspres and Ikea.
Katata is Hero's flagship community programme which aids the local economy, by working with local farmers in their supply chain in providing fresh products for Giant (normal grade) and Hero Supermarket (premium grade).
Established in April 2015, this programme partners with local educational institutions and provides assistance such as sharing best practices in agricultural farming.
Products from Katata are labelled accordingly as part of the initiative to improve capabilities of farmers who are crucial to their supply chain. Hero is committed to reporting on the programme with scalable targets.
Bangchak and Hero are examples of traditional companies reinventing their businesses and supply chain to meet the demands of the changing economy.
Financing the haze
We end the year with clean air and blue skies, but for many months Southeast Asia was cloaked in smoky haze. Time called the annual fires and haze in Southeast Asia a "colossal failure of governance". While waiting for governments to wake up and take action, what can businesses do?
In September, Singaporean banks approved lending guidelines that essentially deny funds to companies linked to the haze from Indonesia.
The Association of Banks in Singapore spearheaded the guidelines to include greenhouse gas (GHG) emissions, deforestation, forest degradation and biodiversity loss among the criteria for granting loans. Singapore's biggest supermarket chain, NTUC Fairprice, also stopped selling products of suppliers who were suspected being involved in forest-burning.
Businesses need to take charge of the context. The economic price of the haze in terms of medical bills, agriculture and tourism has not been properly accounted for and if business leaders continue to suffer in silence, each one is in some way, complicit in financing the haze.
Governments, exchanges, and regulators are also working to drive responsible business practices. Mandatory and voluntary approaches often overlap but are creating a difference.
In 2015, The World Federation of Exchanges (WFE) released its Guidance & Recommendations which identifies material economic, social, and governance (ESG) metrics which exchanges may incorporate in their disclosure guidance to companies listed on the WFE.
Bursa Malaysia has been a leading exchange in Asia in this regard by pushing for mandatory economic, environmental and social (EES) disclosure.
In late October, Bursa launched the Bursa Sustainability Reporting Guide. The guide is issued pursuant to the amendments to the main listing requirements to require disclosure of material economic, environmental and social risks and opportunities in the annual report.
Bursa has reinforced the importance of sustainability by shifting the focus from corporate social responsibility (CSR) or social obligations, to material "EES risks and opportunities" or material sustainability matters.
In 2016, Malaysian companies with market capitalisation of RM2 billion and above must incorporate a comprehensive sustainability statement.
The requirement places sustainability at the heart of strategic decision making and disclosure as boards sign off on their sustainability statements.
Challenges remain as companies still need to improve the quality of their disclosure, especially in providing meaningful and specific reporting about material EES issues. Increased reporting too often leads to boilerplate disclosure or too much disclosure on issues that are not central.
Moving beyond gender diversity
TalentCorp has been spearheading many national initiatives towards a more inclusive workplace by emphasising diversity as a source of strength.
Already, listed companies are required to establish and disclose in their annual reports their diversity policies, covering gender, ethnicity and age for board and management.
Platforms like flexWorkLife.my aim to build a network of employers and talents to optimise work-life integration, while maximising work efficiency and enhancing employee engagement.
Employers can also apply online for tax incentive on training expenses incurred to retrain women who have returned to work after a career break.
Although gender continues to lead the workforce diversity conversation, stakeholders and companies are turning their focus to additional dimensions of inclusion such as race, ethnicity and sexual orientation.
Companies need to leap from merely disclosing employee data reflecting gender, racial and ethnic under-representation, to acknowledging the need to change, as well as put measures in place to institute change. As the consumer base is diverse, an inclusive approach is translated into product development as well as customer outreach.
In the last few years, there has been increasing momentum towards better reporting. Many businesses are responding to this challenge through integrated reporting (IR) which connects the relationship between financial and non-financial performance by including sustainability performance into a company's annual report.
Although Malaysian companies are at different stages and progressing at different speeds, the journey towards integration is expected to reinforce changes in an organisation's approach to value creation and management.
As organisations develop a better understanding of how they create value and begin changing the information they report internally and externally, measurement will be a significant focus area for many companies.
In 2016, as companies are pushed to link their economic, environmental and social impacts together, there will be more strategic decisions and effort to manage non-financial risks and staying competitive.