Bursa Malaysia published its 2nd Sustainability Reporting Guide in 2018 to assist Malaysian PLCs in improving their sustainability-related disclosures. Since the introduction of Bursa Malaysia’s Sustainability Reporting Framework in 2015, many companies have demonstrated marked improvements in both sustainability practices and reporting. This article, the first part of a two-part series, aims to highlight specific areas of strengths identified in sustainability reporters in Malaysia and the wider region.
In Part 1 of this case studies series, we will look at two aspects:
- Sustainability Governance
- Materiality
Sustainability Governance
The governance of sustainability is about ensuring that there is appropriate direction, oversight and accountability for the implementation of an organisation’s sustainability strategy, as well as the management of goal-setting, reporting and other related processes.
How sustainability is positioned and governed within an organisation is key to its long-term performance and resilience. Organisations with strong governance of sustainability matters will be better positioned to manage sustainability risks and opportunities. This affects whether there are adequate resources, systems and processes in place for managing sustainability risks and opportunities, and ultimately whether the organisation is resilient in the long-term.
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Best Practice:
- Oversight: Overall accountability and oversight on sustainability matters should be at the highest-level of the organisation – i.e. the Board or within a Board Committee – where the strategic direction of the organisation is set.
- Strategic Management: After setting the tone from the top, the Board can then delegate the strategic management of sustainability matters to the C-suite or Board Committees, such as a Sustainability Committee.
- Execution: Day-to-day management of sustainability matters should be assigned to specific managers to handle responsibilities such as conducting materiality assessments, monitoring the implementation of sustainability policies and action plans, or preparing sustainability reports.
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Case Study 1: CIMB Bank
CIMB Bank – a regional bank – clearly articulated their sustainability governance model in its 2019
Sustainability Report. This includes an organisational chart which shows how sustainability is governed within the company, starting with Board of Directors and C-suite all the way down to the business units tasked with the execution of sustainability strategies:
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Pages 100-101, SR 2019, CIMB Bank
CIMB Bank also described the role each of the three key layers within the organisation play in driving sustainability:
- Oversight (or ‘Governance’): The first layer sets CIMB Group’s sustainability vision and strategies, champions sustainability in the company’s DNA and provides overall strategic guidance on the company’s sustainability framework. The Board has overall accountability right at the top, overseeing responsibilities of the Group CEO and Board Committees. CIMB Bank also has a designated Group Sustainability Council (GSC) – chaired by the Group CEO and represented by 18 senior members from key business and functional units across all key geographies – to provide specialist oversight on sustainability matters.
- Strategic Management (or ‘Support’): The second layer, i.e. the Group Sustainability department, along with the relevant business units and Sustainability heads from different regions, then takes the lead role to develop and implement the sustainability framework. Some of their key functions include embedding sustainability practices in the operations and processes of the bank (e.g. developing the Sustainable Financing Policy), stakeholder engagement and advocacy among employees on sustainability,
- Execution: Finally, the third layer consists of multidisciplinary project teams from various Business Units and Business Enablers which are pulled together to lead and execute sustainability projects. This is done with direction and support from the Group Sustainability Council and Group Sustainability department. This layer comprises of the Sustainability Champions Group, made up of more than 180 employees invested in pursuing the sustainability cause and act as a change agent network, as well as specialist groups such as the Sustainable Finance Working Group.
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Case Study 2: Dutch Shell
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For greater accountability in sustainability governance, some multinational companies link executive remuneration to sustainability KPIs. In Shell’s 2019 Sustainability Report, they stated that sustainable development continued to account for 20% of the oil giant’s Executive Scorecard, which helps to determine the annual bonuses awarded to their Executive Directors. The metrics had equal weighting between Shell’s safety (10%) and environmental (10%) performance.
Page 18, SR2019, Royal Dutch Shell
Targets are set each year by the Board’s Remuneration Committee, based on recommendations from the Safety, Environment and Sustainability Committee. The same annual bonus scorecard used for the
Executive Directors applies to the majority of Shell’s employees around the world.
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Materiality
Materiality is a principle used to identify the most significant economic, environmental and social risks and opportunities facing the organisation and its stakeholders. It is important for organisations to apply this principle, so they can focus on managing and reporting on the sustainability matters which have the greatest impact on the economy, the environment and people.
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Best Practice:
- When determining its material matters, organisations should take into account the risks and opportunities to both the organisation and its stakeholders. These should include consideration of wider impacts throughout their value chain.
- When conducting the materiality assessment, a robust process would include adopting steps such as:
- Desk research of external standards, media reports and peer benchmarking
- Internal engagement with colleagues and managers from across the organisation
- External engagement with stakeholders outside the organisation (e.g. customers, suppliers, investors, NGOs)
- Validation and approval by the Board
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Case Study 1: Salcon Berhad
In its 2019 Annual Report, Salcon – a leading water and wastewater engineering company in Malaysia – communicated the steps taken for its materiality assessment in a clear manner. This process was undertaken as part of their yearly materiality review, after the company’s first materiality assessment conducted in 2017.
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Details on both internal and external stakeholder engagement were provided on page 32.
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On page 34, it further elaborated on how the Sustainability Working Group prioritised the final list of material matters and the reasons for its decisions (for example, to better align with TCFD recommendations).
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Pages 32-34, AR2019, Salcon Berhad
The final list of 14 material matters, categorised into community, workplace, marketplace, environment, were presented clearly in a materiality matrix. Apart from easy readability for stakeholders, another benefit of using a materiality matrix is that it allows readers to see the remaining material matters which were not identified to be of ‘high’ priority for stakeholders and thus does not form the focus of the company’s sustainability approach.
Pages 35, AR2019, Salcon Berhad
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Case study 2: Case study 2: Golden Agri-Resources (GAR)
The palm oil giant further elaborated on its materiality assessment by demonstrating an understanding of where the impacts (actual or potential) of its material matters occur along its value chain. This enables GAR to demonstrate to its stakeholders that it has an understanding of where the risks lie, while helping the company to better focus its resources where it matters most.
For example, for this list of nine material matters highlighted in its 2019 Sustainability Report, it is clear that the most significant impacts for most material matters occur in the plantations, during the planting and harvesting of oil palm trees.
Pages 23, SR2019, Golden Agri-Resources
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In Part 2 of this series, we will take a deeper dive into measuring KPIs, setting targets and balanced reporting.