THERE is increasing regulatory and stakeholder demand for businesses to disclose non-financial metrics of the environmental and social impact of their operations.
Organisations are now urged to better manage these risks, progressing in a way that delivers a decent rate of return as well as wider environmental and social benefits and greater accountability.
There is strong evidence of a connection between good corporate practices and financial performance — an ethics premium.
According to Ethisphere's Ethics Index, the world's most ethical companies outperformed a comparable index of companies by 24.6 per cent from January 2017 to January this year.
With heightening expectations around environmental, social and governance (ESG) issues, let us address six questions frequently asked about sustainability reporting.
Firstly, ESG refers to a set of criteria used to measure an organisation's performance in a range of areas, such as carbon emissions, contributions to society and boardroom diversity.
In addition to regulatory and stakeholder demands for disclosure of performance against these criteria, investors globally are increasingly using these, alongside traditional financial metrics, to evaluate potential investments. An ESG rating allows an organisation's sustainability performance to be measured against industry peers.
Secondly, the importance of sustainability disclosure both for companies' continuous improvement and stakeholder decision-making.
It is crucial to provide insights into organisations' sustainability initiatives as increasing pressure from stakeholders is compelling businesses to prove their ESG effectiveness, accountability and transparency through disclosures.
Engaging with targeted stakeholders and obtaining meaningful feedback on businesses' sustainability performance and reporting processes help to meet their expectations.
A holistic approach, incorporating triple-bottom-line, i.e. people, planet and profit considerations, will also serve as a sound business model that supports continuity and competitiveness in the long term.
Thirdly, our government has committed to achieving net-zero as early as 2050 and to take into account ESG principles in government decision-making.
This requires a concerted, whole-of-nation effort and a high level of green commitment and investment to ensure that we achieve our climate change goals and step up the country's competitiveness.
Studies estimate that the global digital economy's share of greenhouse gas (GHG) emissions ranges from 1.8 to 2.8 per cent and is rising, as is energy use.
To counterbalance this, studies also show that smart digital solutions have the potential to reduce global GHG emissions by up to 15 per cent by 2030, from agriculture to energy, manufacturing and transport.
Furthermore, the "Digital with a Purpose" report by the Global Enabling Sustainability Initiative suggests that digital tech solutions can positively contribute to 103 out of the 169 United Nations Sustainable Development Goals.
Malaysia's expanding digital economy, targeted to account for 25.5 per cent of gross domestic product by 2025, reflects these global trends and has a critical role to play in the nation's shift to more sustainable economic practices.
Fourthly, a strong sustainability profile will give businesses a competitive edge in the global digital marketplace.
Without a doubt, ESG factors are having a greater influence on digital companies, from customer behaviour to investor and stakeholder expectations, to reporting requirements.
Clearly, a number of exemplar companies already exist and are committed to ESG and sustainability, such as Astro, Axiata, Digi, Media Prima and TM.
However, many businesses still have a limited understanding of the positive impact of embracing sustainability on corporate performance and are hesitant to commit.
An organisation that is aiming to make sustainability its core value and part of its corporate strategy should consider:
What are the issues that we need to focus on and why; how do we create appropriate goals and develop a road map to implement them; what new strategies can we develop for better stakeholder value; and how do we accurately disclose our sustainability impact to create trust?
So, what help can the Malaysia Digital Economy Corporation (MDEC) offer? I pledge that we will play our part fully.
The most significant contribution MDEC can make is by raising awareness of sustainability issues across the digital economy and helping companies to take that important first step to commit to ESG practices.
MDEC is working with several like-minded partners on solutions to address this, which will include pledges to deliver concrete action to reduce climate impact. I will be making an announcement about this soon.
The writer is CEO of the Malaysia Digital Economy Corporation (MDEC)