In October last year, Bursa Malaysia launched its Sustainability Reporting Guide and Toolkits in conjunction with amendments to its Main Listing Requirements.It requires listed companies to include sustainability reporting in their annual reports.
Companies must disclose any material economic,environmental and social risks, as well as opportunities arising from their operations. The move emphasises that businesses must be aware of the impact of these factors in areas in which they operate, as well as their social obligations.
This year, Focus Malaysia introduced a Best Sustainability Reporting category for its Best Under Billion Awards 2016. It found that while several companies with market capitalisation of under RM1 bil had taken the initiative, many were generally still some way from making notable progress.
Stephanie Jacob speaks to Kasturi Nathan, KPMG Malaysia's advisory partner in charge of governance and sustainability, on the importance of sustainability reporting and how it benefits companies.
Q. This year, FocusM introduced a new Best Sustainability Reporting award. Why is it important for companies to include such reporting?
Environment, social and governanceissues have an increasing impact on companies' ability to operate and generate profit. Sustainability reporting recognises that shareholders and stakeholders have a valid interest to understand how these issues are being managed and their impact on the value and sustainability of a company's business.
Corporate reporting that embraces transparency, accountability and integrity across the company's operations, in the context of the environment in which it operates, particularly how it relates to the economy and society, better demonstrates the company's business value and stewardship.
Q. How does sustainability reporting differ from corporate social responsibility(CSR)?
CSR was issued as part of Bursa's Listing Requirements in 2007. Whilst the intentions may have been broader, however,the disclosures by listed issuers to date seem to focus on their social efforts. Such efforts were often found to be outside the companies' business operations, with clearly no link nor connections to how their businesses were operating.
I suppose it was never made clear that the CSR disclosure must relate to a company's operation. Therefore, companies undertook social responsibilityand engaged in philanthropy related activities with little or no impact on how their businesses addressed the society in which they operated, What was missing was the responsibility and disclosure on how they managed their material economic, environment and social (EES)risks and opportunities in the context oftheir operations.
In October last year, Bursa amended the listing requirements on sustainability reporting, which mandates that listed issuers produce a "Sustainability statement", which clearly represents the listed issuers' management of material EES risks and opportunities in a narrative form, and in the manner prescribed in Practice Note 9. Listed issuers must comply progressively beginning on or after Dec 31, 2016 - Dec 31, 2018, depending on the companies's market capitalisation.
Q. Do you believe companies understand what is required of them but see compliance as too tedious, or they don't understand what is required of them?
Depending on their maturity, companies are beginning to appreciate the necessity to measure and report beyond their financial. Although companies with mid-to-small market capitalisation are still in the process of appreciating the need for such disclosures, I believe with the right advocacy programmes and the increasing impact on ecosystem .decline, population growth and pressure on natural resources, companies will begin to recognise the need to change the way they operate. Businesses that are quick to anticipate these changes and turn them to their advantage are best positioned for growth.
Companies should not merely respond to the systemic, environmental or societal changes, but develop a forward looking strategy to achieve sustainable growth and performance improvement.
Companies must think beyong compliance. It is increasingly clear that the state of the world affects the way businesses operate.
Companies must begin to identify and manage enterprise risks and capitalise on opportunities to innovate, increase revenue and lower costs. This in turn elevates their profile, helps ensure future competitiveness and enhances employee and stakeholder/ shareholder engagement with the companies.
Q. What are the biggest hurdles in getting more companies in the RM1 bil market capitalisation range to be prepared for the mandatory sustainability reporting?
The companies' initial reaction was to see this as a compliance cost. However, as we embrace globalisation and choose to exist in a competitive environment, it is only natural that companies identity, measure and report on the non financial conditions/ matters which are material in the conduct of their operations and performance for long-term sustainable growth.
I would say it takes bold leaders or entrepreneurs to turn the concept of compliance to sustainability reporting into meaningful results. The bold and the innovative are beginning to recognise that what is good for the earth will also be good for long-term shareholder value. In fact, companies must begin to understand that the answer to the way they do business is increasingly demanded by consumers, suppliers and investors. So companies need to recognise that there are opportunities to profit from trends that last beyond their next quarter's results.
Q. How should companies begin and prepare to provide high quality sustainable reporting?
I strongly advise companies to begin with awareness sessions and training programmes. They must appreciate there is a need for a mind-set shift, and the culture, processes and systems must change to adapt. The true value of sustainability reporting lies in a company's ability to successfully put into action the programmes and initiatives outlined in its strategy.
Companies must begin to understand the entrenched benefits of sustainability reporting. Leading businesses involves incorporating sustainable initiatives to help manage the impact of material matters to their bottomline or profit margins. Companies' bottomline or profit margins rely on resources which will become more costly and difficult to obtain, resulting from the increasing strain on infrastructure, natural resources, the web of legislation and fiscal instruments, urbanisation and population growth.
As we progress, companies should begin to embrace the concept of integrated thinking and reporting. Integrated reporting will provide companies a greater innovation to corporate reporting, which will improve the quality of information on how they tailor their business model and strategy to respond to risks and opportunities. And this will in turn act as a force for financial stability and sustainabilitv.
Q. How can regulators such as Bursa help companies comply with the sustainability reporting rules?
The listing requirements that mandatelisted issuers to report on sustainability were released along with a Sustainability Reporting Guide and Six Sustainability Reporting Toolkits. These are the practical handles issued by Bursa to help companies embrace this new form of reporting.
Apart from this, since January, Bursa has been running a series of advocacy programmes, and have partnered with several sustainability service providers to build awareness and advocate training sessions for listed issuer directors, sustainability practitioners and C-level executives such as CEO,chief financial officer and chief sustainability officer.
Q. On BUBA 2016, what are KPMG's observations when validating the criteria and deciding on the winners?
It it important to build credibility across the criteria and assessment of winners. The assessment criteria are evaluated to ensure the right parameters are considered and in the context of the company's business operations. One of the key considerations deployed across the criteria is the analysis and interpretation of the company's results and demonstation of its true value to shareholders and stakeholders.
The winners have qualified across balance meaningful and comparable results and achievements, and in the context of compliance to the law, their reputation and within the environment and society in which they operate.