Malaysian companies must be equipped to meet Environment, Social and Governance (ESG) standards to secure their place in global supply chains. “Globally, many governments are dealing with ESG and sustainability issues through regulations. What this means is that not only must the financial system keep in step with global trends and work with their clients quickly to prepare them for this additional level of scrutiny, but companies here in Malaysia and around the world also need to be ready to meet higher ESG compliance standards to secure their place in global supply chains,” says Promod Dass, Deputy Group CEO, RAM Holdings Berhad, and CEO, RAM Solutions Sdn Bhd.
He said this in an article titled “Right Standards for Environment, Social and Governance Performance” featured in a compilation in the “ESG: A Global Perspective, Local Opportunity and Challenge” publication of the Financial Institutions Directors’ Education (FIDE) Forum.
Dass highlights some of the major global ESG regulatory changes taking place that include the European Union’s Carbon Border Adjustment Mechanism, The Sustainable Finance Disclosure Regulation, the UK Sustainability Disclosure Requirements, and the German Supply Chain Due Diligence Act (German LkSG).
Collectively, some of these regulations would enhance transparency in the sustainable investment market. Their purpose is to prevent misleading environmental claims (also known as “greenwashing”) about investment products and to increase the flow of investment into sustainable products to accelerate the transition to a low-carbon economy.
The German LkSG is not limited to German companies. While having been enacted by the German government, the Act intends to expose human rights abuses in global supply chains by requiring all companies selling goods or products in the German market to implement a due diligence mechanism. Companies that fail to comply with or submit the required documentation risk facing fines and sanctions. These include fines of up to 2% of annual turnover for larger companies and exclusion from public contracts for up to three years, which can cause damage to reputation and trust.
“Malaysia’s regulators, through the Joint Committee on Climate Change together with financial and capital market participants, have been preparing for these global ESG trends since September 2019, which has led to awareness and changes in business approaches. It is now time for Malaysian corporates to transform and position themselves well in this ESG-centred world,” Dass added.
