When the air turns grey and hazy, ESG must mean accountability

 

THE haze is back, and with it comes a familiar Malaysian routine: grey skies, masks, school closures and anxious checks of the Air Pollution Index.

This time, however, the scale has been difficult to ignore. An emergency was declared in Serian, Sarawak, on Sept 4 after the API reached 519.

Although it was lifted three days later as conditions improved, the haze linked to forest and land fires in Indonesia’s Kalimantan region continued affecting air quality.

The crisis is also escalating within Indonesia. As of Sept 9, more than 113,000 people had suffered respiratory illnesses linked to the fires, while over 12.5 million people across seven provinces had been exposed to smoke and haze, according to Reuters.

Yet beyond the immediate questions of air quality and public health lies a larger one: Who should be accountable when environmental harm crosses corporate and national boundaries?

This is where the haze becomes more than an environmental crisis. It is also a test of environmental, social and governance (ESG) commitments.

The corporate dimension

(Image: AFP)

Extreme heat and drought associated with the current El Niño have intensified Indonesia’s fire season, but weather is not the whole story.

Reuters reported on Aug 31 that Indonesian authorities were inspecting 19 companies after fires were detected within their concession areas, covering about 11,047 hectares. Satellite imagery also identified 42 companies considered at high risk of fire.

On Sept 4, Indonesia’s Ministry of Forestry announced administrative sanctions against five forestry concession holders in West Kalimantan following suspected forest and land fires within their concession areas.

These developments do not prove that companies caused every fire. But they raise a broader governance question: What responsibility does a company have for preventing environmental harm within the land, operations and supply chains under its influence?

That question matters increasingly as businesses promote their ESG credentials.

ESG is more than emissions

The haze shows why ESG cannot be reduced to carbon targets.

The environmental costs are obvious: forest and peatland fires, greenhouse gas emissions, biodiversity loss and severe air pollution.

The social costs are equally significant. Children miss school. Outdoor workers breathe unhealthy air. Businesses are disrupted, while vulnerable groups face greater health risks.

Then comes the often-overlooked “G”: governance.

Who oversees environmental risks? What information reaches the board? Are zero-burning commitments supported by real controls? Are contractors monitored? And when those controls fail, who is accountable?

The haze is therefore not merely an environmental problem. It is also a governance and risk-management problem.

Reporting is not responsibility

This is an important lesson for companies operating in both Indonesia and Malaysia.

Malaysia’s Securities Commission has already encouraged boards to integrate sustainability risks into governance and enterprise risk management, while the National Sustainability Reporting Framework is introducing more consistent disclosure standards.

These are welcome developments. But the haze reminds us that ESG should ultimately be judged by corporate behaviour, not by polished sustainability reports.

Boards should be asking difficult questions: Where are our greatest environmental exposures? What is happening within our concessions and supply chains? Are contractors complying? How quickly are incidents escalated?

Technology makes these questions harder to avoid. Satellite monitoring and geospatial data can now identify hotspots with remarkable speed. In such an environment, “we did not know” is becoming a less convincing defence.

Accountability cannot stop at the company gate

Modern companies rarely operate in isolation. Their activities extend across subsidiaries, contractors, suppliers and complex commodity supply chains.

Responsibility should therefore not automatically end at the parent company’s legal boundary.

The same principle applies to financiers. Banks, asset managers and institutional investors increasingly make ESG commitments of their own.

Where they finance land-intensive businesses, environmental due diligence should examine fire-prevention systems, historical hotspots, concession management and compliance.

In other words, accountability increasingly follows a chain: land, concession, company, board, supply chain, financier and regulator.

Beyond disclosure

(Image: Pexels/Christopher Hiew)

Regulators also have an important role.

Better sustainability disclosure is necessary, but disclosure alone does not create accountability. Claims about zero burning, responsible sourcing or environmental stewardship need credible evidence behind them.

Malaysia’s proposed sustainability assurance framework reflects this reality by recognising that external assurance can strengthen the reliability of sustainability disclosures and reduce greenwashing risks.

At the regional level, ASEAN has become increasingly capable of monitoring hotspots and transboundary smoke.

The next step should be strengthening the connection between environmental information and accountability by making it easier to trace hotspots through concession ownership, corporate structures, supply chains and financing.

Singapore’s Transboundary Haze Pollution Act 2014 offers one regional example of extending legal accountability across borders. Malaysia need not simply copy that model, but recurring haze makes the conversation increasingly difficult to postpone.

Eventually the skies will clear. Rain will fall, winds will shift and blue skies will return.

The danger is that our concern will disappear with them.

Good governance is not measured by what organisations promise when conditions are favourable. It is measured by how responsibly they act, and how willingly they accept accountability, when the air turns grey.

The author, Assoc Prof Dr Noor Adwa Sulaiman is an Associate Professor at the Department of Accounting, Faculty of Business and Economics, Universiti Malaya.

The views expressed are solely of the author and do not necessarily reflect those of  MMKtT.

- Focus Malaysia.