Firms Struggle To Meet ESG Standards Due To Capability, Capacity, And Investment Barriers

By NurulJannah Kamaruddin

KUALA LUMPUR, Feb 28 (Bernama) -- Malaysian firms face hurdles in meeting environmental, sustainable and governance (ESG) standards due to capability, capacity, and investment challenges, an expert said.

 PwC Malaysia’s sustainability and climate change leader Andrew Chan said capability is a significant factor because sustainability is still a relatively new field.

Evolving frameworks and standards under the ESG agenda require firms to adapt and develop the necessary expertise and resources.

“For instance, after addressing climate risks through existing frameworks such as the task force on climate-related financial disclosures and the International Financial Reporting Standards (IFRS) S2 climate-related disclosures, companies will also need to respond to nature-related risks and upcoming frameworks like the IFRS S3 and S4.

“Additionally, many sustainability professionals may not yet possess the skills required for detailed financial reporting, necessitating collaboration with financial reporting colleagues to meet requirement standards such as the National Sustainability Reporting Framework,” he told Bernama.

Another challenge, according to Chan, is capacity, as evidenced by the intensified sustainability agenda over the past five years.

He highlighted LinkedIn's Global Green Skills Report 2024 which showed that the global demand for workers with green skills, or green talent, is outpacing supply.

Between 2023 and 2024, demand for green talent rose by 11.6 per cent while supply grew only by 5.6 per cent.

“If the current trajectory continues, we will face a shortfall of nearly one-fifth (18.7 per cent) of the green talent required by 2030, leaving us without half the green talent that employers will need.

“While universities are responding to this demand, more efforts are needed to sustain the pipeline of talent for mid to senior roles,” he stressed.

Chan said investment is another barrier. Many organisations view sustainability primarily as a compliance-driven obligation rather than as strategic opportunities for value creation.

PwC Malaysia’s Corporate Directors Survey 2024 showed only 21 per cent of board directors perceive sustainability as an opportunity for value creation.

“This perception often results in relatively low budget allocations for sustainability initiatives.

“However, companies that are more mature in sustainability reporting invest in enterprise systems that integrate efforts across sustainability, finance and technology, allowing access to larger budgets and resources, enabling more comprehensive and effective sustainability data management and reporting,” he said.

While sustainability is on board agendas, companies may not be capturing its impact adequately as part of their bottom line, he said.

“Our corporate directors survey finds that only 14 per cent understand how their climate commitments influence capital allocation decisions. Just 27 per cent believe that climate change consideration is embedded into their value creation strategy. 

A challenge they face aligning sustainability with business strategy is the lack of control and visibility over their companies’ sustainability plans and data, he said.

“Many current ESG data systems lack the robustness and consistency needed for high-quality and timely analysis, often relying on manual or spreadsheet-based systems instead of integrated enterprise resource planning solutions,” Chan said.

He reckons that organisations that do not provide clear and timely updates on progress toward their sustainability goals risk being accused of greenwashing.

Therefore, the slower pace of backing up overall ESG targets with more specifics, including progress reporting, highlights the need for more robust board-level intervention.

Effective implementation and strategic planning in areas such as energy efficiency, management of scope 3 emissions from suppliers, and the impact of their net zero response on skills requirements are needed.

“Public listed company boards generally have a good understanding of the sustainability agenda and have overseen initial ESG goals and targets. But the pace of implementing these commitments has not been as consistent, especially in the Asia Pacific,” he said.

In terms of ESG disclosure targets, 85 per cent of Asia Pacific companies did so within a specific timeframe, a drop from 92 per cent from the previous year, based on PwC's Sustainability Counts 2024.

However, at the next level of detailed ESG responses, only 53 per cent disclosed their commitment to net zero, he added.

Chan said while the Malaysian Code on Corporate Governance and the World Economic Forum’s Principles for Effective Climate Governance are critical frameworks that guide board-level sustainability practices, there is still much to be done.

“As organisations navigate the complex landscape of sustainability standards, driven by regulatory requirements, customer expectations, finance provider requirements, and industry-specific demands, there remains a need for continuous improvement in sustainability practices, and deeper engagement to ensure meaningful progress,” he said.

The regulatory landscape further complicates sustainability integration for boards, particularly for multinational companies operating across different jurisdictions.

Regulations vary across territories. The European Union’s Carbon Border Adjustment Mechanism require boards to understand sustainability regulation impacts in current and planned operating jurisdictions.

-- BERNAMA