Are Malaysian firms allocating enough budget for sustainability?

Sustainability has become one of the key topics of discussion and concern among businesses and consumers these days. However, 45% of Malaysian companies do not have a budget allocated for their sustainability initiatives, according to the Malaysia Businesses Sustainability Pulse Report 2022 which surveyed 261 respondents from corporates and SMEs across various sectors.

More surprisingly, within the group of corporates, 95% of companies did not allocate any budget for sustainability. Additionally, 48% of the respondents have no allocations for developing sustainability-related competencies within their workforce. However, 98% of SMEs claimed to be investing in sustainability-related competencies which could be due to them broad-basing the "sustainability" term, the report said.

Aside from investment, having sustainability leadership within the company is important too. The majority of companies (75%) have offices of the CEOs or MDs leading sustainability and a similar number also have their boards committed to driving sustainability. However, only about 27% of companies have a chief sustainability director or officer to lead internal sustainability initiatives.

Although having a large number of "Office of other functional heads" organising sustainability indicates that this area seems to be taken into consideration across the board at a group level, not having a dedicated sustainability department or leadership might limit actions to operational practices or result in certain plans not being strategic.

Are companies setting KPIs for ESG?

Most of the respondents that do set such KPIs are corporates, while only 12% of SMEs have done so. Overall, the main objective of gathering ESG-related information is to help companies pursue their sustainability goals (69%), support internal management decisions (66%), meet regulatory requirements (54%), and fulfill their responsibilities/accountability towards other stakeholders (52%).

Meanwhile, respondents said that good sustainability performance reflects the talent and expertise of the personnel working in the company. According to the report, better sustainability performance is considered a good indicator of intellectual capital in the company. At the same time, respondents overall also expect that an improved sustainability performance can lead to improved long-term value for the company.

This corroborates a separate global study by Forrester Consulting and Johnson Controls which said that companies that invest in sustainability will win stakeholder trust and gain a competitive advantage. 

What can Malaysian firms do to accelerate their sustainability ambitions?

1. Drivers of corporate sustainability

As regulators, policymakers and customers are viewed as the main influencing stakeholder groups in driving corporate sustainability, they need to be constantly updated on the market demand and consumer behaviour towards sustainability products and pricing.

Malaysian financial institutions need to focus on better informing the business community, i.e. the corporates and SMEs borrow on the available green financing options in the market. This comes as one-third of the companies surveyed said that sustainable finance is not relevant to them.

2. Readiness to adopt ESG practices

While many companies are considering adopting ESG practices, the study found that many still need more understanding regarding the various ESG practices. Hence, there is a need to bridge the knowledge gap through awareness building and competency development programmes.

3. Organisational leadership, culture, and competencies

Although sustainability practices are currently mainly led at the executive level, more than 50% of the respondents said it is being led at various functional levels. According to the report, this may indicate the lack of an integrated, strategic approach toward corporate sustainability. Hence, decision-makers need to consider restructuring their organisation to deliver their strategic corporate sustainability commitments successfully.

4. Measurement of sustainability practices

Businesses need to develop a stronger alignment between their performance measurement systems and sustainability strategy. More effort is required to increase the quantification and informativeness for measures of sustainability/ESG performance.

Related articles:
Study: Sustainability investment gives firms competitive advantage
Study: A whopping 86% of consumers now value travel sustainability
Study: Consumers just aren't buying your sustainability claims
Spilling the tea: 4 ways Nestle communicates sustainability through its content