DBS Bank (Malaysia)

From operational perspective, the complexity and uncertainty of the ESG landscape, with various stakeholders, issues and regulatory bodies involved, make it challenging for companies to understand and navigate the requirements.

Given the confusions and challenges, does ESG actually create a positive impact? Or it is nothing but a greenwashing?

That being said, we cannot deny that ESG is now a must-have. In the future, a company that fails to meet ESG requirements will have to accept great burdens to achieve financing. Listed companies which face tighter ESG restrictions may even be subject to regulatory penalties.

However, let’s not overkill, as there is a need to ensure that ESG requirements are not overstretched to compromise companies’ healthy operations as well as profit growth.

One has to admit that ESG is associated with a cost—usually a high one. The question is who will pay for this cost? The end user. Therefore, say, if all companies get an AAA in ESG rating, their production costs will shoot up. They will then raise their prices to offset these costs.

Even if costs are transferred to customers, the ESG journey is never a smooth sailing for producers or companies either. When a company’s profitability was too humble to support any major transformation, it could have been better to just shut down. So, the reality is— almost all companies (except those with substantial financial resources) will continue to operate under pressure from increasingly high ESG requirements and operational costs.

I personally believe that adhering to ESG is an inevitable choice as the business world evolves, but it is by no means a one-size-fit-all solution. Senior leaders or management have a critical role to play in driving ESG agenda based on the unique situation of each of their organizations.

At country level, when talks about green transition, China, which has always been an advocate, participant and promoter of global sustainable development, was less discussed.

One of its significant deliveries is their successful afforestation program. For the last four decades, in the inner Mongolian, Northwestern China, afforestation efforts have transformed a barren, dusty landscape into a pine forest. China aims to raise its overall forest coverage rate to 24.1 percent by the end of 2025.

In addition, China spent more than twice as much on its green transition in 2023 than any other country and this investment has made it a global powerhouse in clean energy production.

The Chinese government has consistently integrated ESG-related measures into its regulatory system to guide corporate behaviour toward more sustainable practices.

ESG isn’t about ticking a box, but a core strategy that companies need to genuinely implement. Investors, lenders and rating agencies expect greater visibility of a broader range of non-financial metrics to better understand diverse social and environmental risks.

Like China, governments’ ambitious, top-down commitments backed by new regulations are crucial to bring ESG maturity to reaching new heights.

Also, the need for greater transparency in ESG disclosures is a global challenge and China’s efforts can provide valuable lessons.

Here in Malaysia, although ESG compliance isn’t fully mandatory for all companies, it has becoming increasingly important especially for listed companies, whereby ESG reporting is a must, with requirements becoming more stringent. Our Central Bank (BNM) expects half of new financing by banks to be aligned with green climate policies by 2026.

An ancient truism maintains that with great power comes great responsibility. It is undeniable that big corporations and advanced countries have unparalleled advantage in terms of both power and

resources to drive change so that the society at large is better positioned for the long term and better prepared for uncertainty.

The successful implementation of ESG will not be something achievable overnight. We must be prepared for a long and daunting journey.