‘Important to shift talks towards mandatory ESG reporting’

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Currently, Bursa Malaysia has a list of disclosure considerations in the Bursa Malaysia Sustainability Reporting Guide for Environmental & Social data indicators, but not all companies appear to disclose the same set of indicators. — Bernama photo

KUCHING: It is crucial to shift the conversation from voluntary to mandatory Environmental, Social and Governance (ESG) reporting, the research arm of Kenanga Investment Bank Bhd (Kenanga Research) said in its view on ESG scoring.

According to Kenanga Research, data gaps as well as the standardisation of reported data by companies, and the accessibility of quick comparable data are some of the key factors limiting meaningful ESG comparisons for investors.

“Currently, Bursa Malaysia has a list of disclosure considerations in the Bursa Malaysia Sustainability Reporting Guide for Environmental & Social data indicators, but not all companies appear to disclose the same set of indicators,” the research arm said in its special report yesterday.

“However, we expect reporting requirements to become more enforced and uniformed over the next few years as local public listed companies (PLCs) get a better grip of meaningful reporting based on material matters.

“Meanwhile, organisations such as the United Nations-supported Principles for Responsible Investment (UN PRI) are already making it mandatory for its signatories to report on climate indicators by 2020 versus voluntary reporting in 2019, and we believe more governing bodies will soon follow suit.”

Kenanga Research highlighted that more advanced ESG economies like the UK has made it mandatory for all listed companies to report on carbon emissions, human rights and diversity in the Directors Report, while the European Union makes it mandatory for all listed companies with more than 500 employees to disclose environmental, social and anti-corruption issues.

“Another example would be France’s Article 173 of France’s Energy Transition for Green Growth Law in 2016 requiring investors to outline how they incorporate ESG criteria into investment decisions.

“This measure fosters engagement and integration from both sides and pushes for consistency, standardisation and recognition in reporting, making it is easier for investors in these regions to incorporate ESG factors into equities valuation and modelling.”

The research arm believed Malaysia has to work along a similar path by making reporting requirements more stringent going forward to enable more standardised reporting.

However, while ESG disclosure is important, Kenanga Research also highlighted that disclosure alone is not enough.

“Ideally, as investors continue to place increased importance on ESG principals, reporting and disclosures, we hope that companies will not be merely rewarded for good disclosure but for their efforts to improve on ESG scores for each review period.

“Similar to financial data comparisons, investors should be able to track a company’s progress on a fixed set of material ESG data, and be able to award valuations for marked improvements or deterioration over the years, or even on a quarterly basis.”