As our world grapples with the challenges posed by the climate crisis, governments, organisations, and industries are called upon to have higher levels of transparency on climate disclosures. Frameworks such as the Task Force for Climate Related Financial Disclosures (TCFD) has emerged to guide companies on this journey. To spur adoption of better climate disclosures, the local regulatory stock exchange Bursa Malaysia has through its Enhanced Sustainability Reporting Framework mandated publicly listed companies to align their reporting to TCFD by 2024. Yet, in Malaysia, climate disclosures made by publicly listed companies seem to fall short of expectations and bring into question whether many will be able to meet the requirement set by the regulatory stock exchange. Recent findings revealed that less than 30% of the Top 100 listed companies have adopted fully the requirements of the TCFD based on a readiness index measured across its four elements covering strategy, governance, risk management as well as metrics and targets. Zooming more specifically into the property and construction sector which is responsible for 40% of global emissions revealed that only less than 20% of Malaysian companies within this sector has met the minimum requirements that has been set forth.
This does not come as a shock as a closer examination reveals several troubling factors including the lack of transparency on climate disclosures, inadequate harmonization of reporting standards (although this is starting to change through the introduction of the International Sustainability Standards Board or ISSB), and a concerning lack of commitment towards addressing the pressing issue of climate change.
While some progress has been made in recent years, the overall transparency regarding climate disclosures among Malaysian publicly listed companies remains dismal where companies provide only high-level information, often confined to general statements about "environmental awareness" and "sustainability efforts." Genuine transparency requires a more detailed account of a company's carbon footprint, emissions reduction targets, and the strategies in place to achieve them. The absence of specific figures and detailed plans raises questions about the actual impact these companies are making towards reducing their carbon footprint.
Inadequacy of current climate reporting standards is another key challenge not just in terms of the measurement method that is proposed (degree of uncertainty in capturing accurate carbon performance i.e. how do you compare companies if the baseline measured changes over time or between absolute versus intensity figures) but also the increasing number of reporting frameworks and requirements specifically on climate disclosures that have grown and emerged over time. Malaysian companies typically lack a standardized approach in climate reporting, largely contributed by the growth in these emerging carbon tools. As an example, TCFD aside, there are also other reporting frameworks set by agencies or bodies such as the Carbon Disclosure Project (CDP) as demanded by clients, sectoral specific disclosures – Partnership for Carbon Accounting Financials (PCAF) for companies in the financial sector; Green Building Index (GBI) for the property and building sector, specific climate disclosure requirements by other financiers and regulators for example the Climate Change Principles Taxonomy (CCPT) governed by the Joint Committee of Climate Change overseen by the Central Bank of Malaysia. Flaws have been pointed out across some of these tools. Critiques have argued that for some of these tools there is insufficient reasoning behind some of the criteria and weightings attached, does not sufficiently account for uncertainty analysis which may affect the level of accuracy of such reporting and how most of these tools focus on lagging indicators as opposed to forward looking indicators. These bring to light the trustworthiness of such tools where trillions of dollars are invested based on the outcomes of these tools. The Socially Responsible Investment (SRI) market is estimated to be more than $17 trillion in assets under management.
A further analysis of climate disclosures reveals a conspicuous lack of ambitious emission reduction goals among Malaysian companies. While leading global corporations are setting net-zero emission targets and aligning their strategies with the Paris Agreement's goals, Malaysian companies often fall short in this aspect. The absence of clear, measurable targets and timelines raises doubts about their commitment to achieving substantial and much needed environmental change. The lack of regulatory enforcement and consequences further exacerbates the climate disclosure problem. In the absence of robust enforcement mechanisms, companies may lack the incentive to provide accurate and comprehensive disclosures. This lack of accountability not only hinders the progress towards addressing climate change but also erodes investor confidence and prevents the allocation of resources towards genuinely sustainable endeavors.
The critical examination of climate disclosures by Malaysian companies paints a less than desired picture. Despite the global urgency surrounding climate change, the absence of standardized reporting frameworks, coupled with the lack of accountability and ambitious emission reduction targets, perpetuates a culture of inadequate disclosures and may be seen by other parties as greenwashing. For Malaysian companies to make significant strides in combating climate change, it is imperative for regulators, investors, and stakeholders to demand greater transparency, accountability, and concrete action from these companies. Without a collective effort to hold these corporations accountable, the path to a sustainable future remains uncertain.
Posted 08 Nov 2023
