Joy and pain of learning ESG

 

 I thought I was a fast learner until I stumbled upon environmental, social and governance (ESG) issues.

The learning process feels like a roller coaster ride due to the complex nature of ESG metrics, which most practitioners can relate to.

How I wish that learning ESG was as easy as ABCs. Except for the mouthful of buzzwords such as SASB, GRI, IFRS, SBTi etc - ESG is nothing like ABCs!

If you are hearing this for the first time, ESG covers a set of criteria for assessing an organisation’s business practices and performance on various sustainability and ethical issues.  

What does ESG mean to you?

To understand ESG, you should first ask this question, “what does ESG mean to you?” Different people have different interpretations of it.

Some people think ESG is equal to corporate social responsibility (CSR) as both share common ground in promoting good and responsible business practices to improve society in some way. But they are quite different.

Think of it this way, CSR is a company’s do-good efforts to fulfil the corporation’s values via various activities, including volunteerism and philanthropy, which may or may not be quantified by a business.

Air Selangor conducting a CSR programme in Shah Alam in February 2022

Meanwhile, ESG is a performance measuring tool that quantifies a company’s sustainability progress. Examples of its metrics include diversity percentages and greenhouse gas emissions.

Sustainability combines CSR and ESG practices, covering both qualitative and quantitative approaches. It is often linked to financial performance and business valuation.

What is inside ESG?

To create an ESG report, you must know which frameworks to use as each framework comes with different metrics and reporting requirements.

With dozens of frameworks in use across various industries, it can be daunting to select one of relevance.

As you compare the frameworks and standards, you will also notice parts that align as overlap among these frameworks and standards is quite common.

For instance, the Carbon Disclosure Project (CDP), a framework specific to climate-related issues, is highly aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) and picking CDP will satisfy all the TCFD requirements at the same time.

Now that TCFD has been taken over by the International Financial Reporting Standards (IFRS), companies applying the IFRS, which caters for finance-related disclosures, will meet the TCFD requirements. This showed how sustainability reporting frameworks can be streamlined and simplified.

Meanwhile, Science-Based Targets (SBTi) provide a roadmap for companies to future-proof growth by creating a clear pathway on emissions reduction targets and the amount of time taken to reach the targets.

Given that each industry and sector deplete the earth’s resources differently, there is some disclosure flexibility within different reporting frameworks based on an organisation’s target industry and market.

Depending on what industry your company belongs to, you can determine which ESG issues matter most to your company’s business. Identifying key stakeholders that are important to your business is also crucial in crafting your company’s ESG report.

For instance, the Global Reporting Initiative (GRI) has independent standards for the coal industry and petrochemical companies. Likewise, the Global Real Estate Sustainability Benchmark (GRESB) applies to a finite scope of covering the infrastructure space.

Some larger organisations may even use several frameworks to cover the entire scope of their sustainability initiatives to comply with multiple guidelines.

Who needs to comply?

ESG reporting has been made mandatory for all publicly listed companies in Malaysia since 2016 but non-listed small and medium enterprises (SMEs) may receive disclosure requests for such information from investors or other stakeholders too.

The evaluation of a company’s ESG performance is usually done by ratings agencies such as the FTSE4GoodBursaMalaysia (F4GBM) Index.

Companies with high ESG ratings show a dedication to sustainability and social responsibility. It also helps the companies to compare their performance against their peers.

While the ratings may be useful, only larger listed companies are rated for now due to investor interest.

Is ESG worth it?

Frankly speaking, ESG reporting can be boring work. Instead of taking this task as a chore, we can find ways to make the process more enjoyable. This can be writing an article about the joy and pain of learning ESG or joining an ESG support group.

Nevertheless, ESG is a fast-growing field that is constantly shaping new standards and regulations. You can always start with something and learn along the way as things change.

Write your own ESG story today. It may benefit your company in ways you could never imagine! - Mkini

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CHONG YEN MEE is a climate change analyst by training and enjoys writing doomsday stories that make people act.

The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.