Sustainability reporting in Malaysia: which framework to choose?

Bursa Malaysia has demonstrated a commitment to sustainability by asking listed companies to disclose a narrative statement of their material economic, environmental and social (EES) risks and opportunities in their annual reports.

Compliance with the initiative may sound easy to some companies, but it would in fact require a lot of thinking, internal alignment and possible organisational changes. The focus on materiality, governance and management - as suggested by Bursa Malaysia - encourages companies to bring investor relations and sustainability teams together and agree how sustainability supports the investment proposition. In my mind, this is the main advantage of the initiative.

To comply with the requirements, companies have to ask themselves the question: Which reporting framework allows them to best present the EES governance, strategy and performance? The answer to this question will impact the way you disclose information to investors and other stakeholders.


What does the Sustainability Reporting Guide say?

In its Guide to help companies report on sustainability, Bursa Malaysia suggests that companies “may also choose to move beyond the Guide and adopt a reporting approach in accordance with international sustainability reporting frameworks or guidelines…”.


What are the options?

We believe that companies have three options in terms of their sustainability reporting approach, each with their own advantages and disadvantages.

1.       Annual report with a narrative sustainability statement (no framework)

This is the most straightforward option. You can include a narrative sustainability statement (as a separate section) that would cover the required disclosures that depend on your market and capitalisation.  The advantage is that your sustainability information will get enough prominence and will be noticed by both internal and external users of the report.

Due to the stakeholder-focused definition of materiality in the Guide, some of your sustainability information (e.g. on community projects) may be important to wider stakeholders, but not necessarily investors.

2.       Annual report with a narrative sustainability statement (GRI Guidelines)

The proximity of the Guide and the GRI Guidelines in the definition of materiality drives us to a natural conclusion that Malaysian companies should adopt the latter as a reporting framework.

However, neither the GRI Guidelines, nor any other framework, can be applied to just to a statement in the report, which means The GRI Contents Index will have to refer to information elsewhere (other sections of the annual report, website, presentations, etc.). You may need to gather and publish additional information to be able to tick all the GRI boxes.

As an alternative, you can produce a standalone sustainability report in line with these guidelines and provide an extract of it in your annual report.

3.       Integrated report (<IR> Framework)

Integrating sustainability into the core elements of the annual report in line with the <IR> Framework will help you provide meaning information to investors in one document, as well as trigger integrated thinking within your organisation and demonstrate market leadership. To meet the needs of other stakeholders, you could publish additional information on your website. The disadvantage of this approach is that sustainability disclosures might not be visible enough in the annual report for unexperienced users.

To comply with Bursa Malaysia’s requirements, you can have a sustainability index referring to the provided disclosures in the integrated report and, if necessary, on the website.


How should you get ready?

Depending on the capitalisation, some companies have to comply with the requirements in 2017, while others in 2018 and 2019. Even if you have some time, you can run preparatory activities this year, such as:

  • Materiality analysis
  • Gap analysis in terms of policies, strategies and performance indicators to cover material EES risk and opportunities
  • Review of your governance structure

It is better to start earlier, as seeking internal agreement on sustainability will take time.  The sustainability reporting journey, if navigated correctly, can enhance your performance, build stakeholder trust and give you a competitive advantage.


Would you like to know more?

Contact Alex Annaev, Lead Sustainability Consultant, to hear more about how we can help you in your sustainability journey.


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My Say: Are you a good leader?

This article first appeared in Forum, The Edge Malaysia Weekly, on April 11 - April 17, 2016. Leadership obviously matters. Its importance varies with the context. But how do you determine effective leadership and identify leaders to emulate? The answer matters a great deal. There are many views and competing theories, much of which are grounded in dubious research.

Simplification is the ultimate sophistication, said Leonardo da Vinci. The massive leadership industry is anything but simple. Part of the complexity is due to the thinly disguised self-interest of those in the leadership business. Every self-proclaimed guru or author typically, with no significant leadership experience, seek to define effective leadership in a manner that plays to their particular solution or orientation. An effective leader undoubtedly has to be able to create impact. But what type of impact? One simple way is to look at the two domains in which most leaders operate — external and internal to the organisation.

External impact relates to financial results, market share, customer experience, share price performance and the like. The standard modus operandi is to study these externals and to attribute the outcome to the leader under question.

It is generally observed that when things go well, leaders are quick to take credit. The favourable tail winds are conveniently ignored but they matter greatly. This ignores the myriad macro reasons that influence performance, which often makes most of the difference. Correlation gets confused for causality. This process of identifying effective leaders is riddled with flaws.

The next near-death leap of faith is to retrofit reasons for a leader’s success, which are opaque at best. A rosecoloured walk down memory lane by the leader or researcher often completes the backstory where a narrative is created to explain the underlying factors for success.

In all this supposedly rigorous research, vital question go unasked. Were there other leaders who had the same attributes and were not successful? This is never addressed, which is a big flaw. Can the so-called lessons gleaned from so-called effective leaders be replicated? The promise is that they can. But it is a promise that is impossible to verify.

Internal impact rarely gets much attention but is a much better reflection of effective leadership. And the impact that matters most is on people. For all the talk about leadership, the other side of coin is followership, which is rarely discussed.

What exactly is followership? It is whether people in the organisation want to willingly work for a leader. Will they follow the leader to another organisation, all things being the same? Gauging followership is relatively simple since you can ask some direct questions and get unambiguous answers. One organisation I know uses followership as a critical determinant for promotions. This organisation has motivated employees with little internal politics and is a consistent leader in its field. Another organisation I am very familiar with is dominated by politics and upward management and an excessive reliance on external impact to place individuals in leadership roles.

Leaders have mastered the art of taking credit for tail winds. Employees suffocate under the hypocrisy and double talk. More than half the executive leadership would fail the test of followership miserably.

What creates followership? It is more than just being popular or likeable. It is more than having motivated or engaged employees, which often depends upon wider company factors rather than the leader alone. People in an organisation will want to follow you if you combine smarts with fairness, trust, genuine caring and helping individuals succeed professionally, to name a few.

If a leader plays politics, treats people disrespectfully, is self- centred, hypocritical and the like, most employees will not want to work for such a leader. It is remarkable how many individuals who are in leadership positions do not meet the test of followership.

Another issue that is replete with fairy tales is how one ascends to a leadership role. When interviewed or asked to share their experiences, many leaders either suffer from self-delusion or amnesia regarding what got them to the top. Rewriting history is a common pastime. Forgotten is the mentor on the board, luck, connections, skill at internal politics and the like.

Recently, a CEO I know was giving career guidance to his employees and emphasised the need to be modest, to focus on their jobs and to let their good work speak for itself. Remarkably, he seemed to have forgotten the selfpromotion he engaged in over a long period of time. Researchers, authors and leadership gurus never uncover these inconvenient facts since it interferes with the predetermined narrative. Since skill is generally a given, selection often depends upon superficial factors of perception. But if you asked followers, the real story would be easily revealed.

As a US politician once said, “Every politician wants you to believe he was born in a log cabin that he built himself.” It is simply not true. All leaders have blemishes and often skeletons in their closet, which is a reality and should not be a surprise.

The real issue is the attempt to portray leaders as personifications of perfection. Looking primarily through the lens of external impact to identify effective leaders can be perilous. A far better way to identify leaders to promote and emulate is to check their followership score. This simple measure is the ultimate sophistication.

Sanjeev Nanavati is a senior adviser to the Asian banking practice of a leading global management consulting firm and a Big 4 accounting firm as well as an adviser to the chairman of a public listed company. Until recently, he was the longest-serving CEO of Citibank in Malaysia. This article was first published in Singapore’s The Business Times.