By Phang Oy Cheng, Head of Sustainability Advisory, KPMG in Malaysia
Climate change has been recognized worldwide as presenting significant risks to the global economy and financial system. There is a growing pressure for companies to factor environmental, social and governance (ESG) concerns into their financial and business decisions while also measuring and reporting their impact and dependency on nature.
Initiatives such as the Taskforce on Climate-Related Financial Disclosures (TCFD) was established in response to this growing acknowledgement and has gathered widespread and rapidly growing international support since it was first established.
In Malaysia, leading companies have already begun the process of incorporating ESG into their processes and committing to a net zero future. However, majority of companies with net zero commitments have yet to publish their progress to date, and many public listed Malaysian corporations are still struggling to implement these requirements.
Here are some areas for companies starting out on their net zero journey to consider:
- Reporting should align and keep pace with the development of the business itself. Even the world’s largest 250 companies are on a journey and don’t get everything right straight away. For those starting with reporting, our advice would be to take a business lens and let the reporting follow from that. Don’t be too concerned about ‘ticking all the boxes.’ The TCFD recommendations are not intended as a box-ticking exercise, but as a framework to inform business and investment decisions alike.
- The disclosure landscape is evolving rapidly and the pressure to disclose is growing. The policy and regulatory tide in an increasing number of jurisdictions is turning towards mandatory climate risk disclosure and 2050 net zero targets. Companies that have not yet started out on their climate risk disclosure and net zero planning should begin without delay.
- Be careful about misreading the recommendations of the TCFD as flexible and easy to meet. Serious implementation of them requires genuine and ongoing commitment not only from the leadership but right across the business, and the appropriate resources to be made available. A light touch approach will not provide financial stakeholders with the decision-useful information they need and could result in substantial risk management issues if the company fails to fully understand and act on the impacts of climate change on its business.
It can take a large company two years of preparation or more before it is ready to publicly disclose its climate risk information. The process can be time consuming and complex, especially for companies doing it for the first time. However, corporate experience is growing and innovative, and new ways of analyzing climate risks and improved data are emerging. We are confident that more and deeper disclosures are on the way, as well as a ratcheting-up of both volume and quality of information being disclosed.
