ESG is Reshaping the Financial Services Industry, Companies Need to Keep Up
When ESG stops being a checkbox exercise and starts shaping your credit decisions, you know the tide has turned. In Southeast Asia, particularly Malaysia, the financial sector is waking up to the reality that ESG (Environmental, Social, and Governance) is getting more attention from government, worldwide organisations, and of course, big investors. Malaysia’s Bank Negara climate risk frameworks, the rise of green sukuk, and growing investor scrutiny all point in one direction: if your financial institution still treats ESG as a sideline topic, your company could lose an opportunity.
Is ESG the same as sustainable finance? Where do audits fit in? And how are banks actually scored on ESG?
ESG vs Sustainable Finance: What’s the Difference?
First, let’s clear a common misconception.
ESG is a framework. It’s a way for banks, asset managers, and insurers to assess risk and opportunity based on environmental, social, and governance criteria. It informs how a financial institution operates, what it invests in, and how it manages exposure—from carbon footprints to board accountability.
Sustainable finance, on the other hand, refers to financial products and services that are structured to support sustainability outcomes. It’s the tangible result: green bonds, sustainability-linked loans, ESG-driven equity portfolios.
Put another way: ESG is the lens; sustainable finance is the output.
Take an ESG-linked loan, for example. A bank may offer a manufacturer a lower interest rate if they meet emissions reduction targets. The terms of the loan are informed by ESG metrics—carbon intensity, supply chain traceability, employee welfare—and the product itself is a sustainable finance instrument.
Related Post: 3 Critical Factors To Mind When Integrating ESG Principles
ESG in the Banking and Financial Sector
Globally, regulators are moving from encouragement to enforcement.
The European Union’s Sustainable Finance Disclosure Regulation (SFDR), the ISSB’s reporting standards, and the Net-Zero Banking Alliance are reshaping what “responsible finance” looks like. ESG is no longer about being perceived as green—it’s about being legally and financially accountable for ESG outcomes.
In Malaysia, this shift is gradually taking form.
Bank Negara Malaysia (BNM) introduced its Climate Change and Principle-based Taxonomy (CCPT) and issued the Guidance Document on Climate Risk Management and Scenario Analysis. Islamic financial institutions are aligning with Value-based Intermediation (VBI) principles, with ESG integration becoming a pillar of Shariah-compliant banking.
Meanwhile, the Securities Commission of Malaysia supports the ASEAN Green Bond Standards and requires public-listed companies to submit sustainability disclosures.
These are not theoretical frameworks. Today, they are shaping real financial decisions.
Related Post: Six Major ESG Frameworks You Need to Know: Which One is Right For You?
ESG Metrics and Scores in Finance: What Matters and Why?
Here’s where ESG becomes measurable.
ESG metrics are raw data points: GHG emissions, board gender diversity, exposure to deforestation-linked industries, employee turnover rates, etc.
ESG scores are aggregated evaluations produced by agencies like MSCI, Sustainalytics, or Refinitiv, combining those metrics using proprietary methodologies.
In the financial sector, ESG is measured through a variety of methods, each serving a different purpose:
ESG Ratings:
These evaluate ESG performance across key areas such as carbon emissions, executive compensation, and diversity.
ESG Indexes:
Used as benchmarks for ESG investing, and help design ESG-based financial products.
ESG Integration:
The practice of incorporating ESG data directly into financial analysis using specialised models.
Impact Investing:
Prioritising investments that deliver measurable social and environmental benefits alongside financial returns.
These tools are used in underwriting, investment screening, client profiling, and risk scoring. A poor ESG score can trigger red flags among investors or regulators, while strong ESG performance can lead to lower funding costs and better deal terms.
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Why ESG Is Becoming More Important in Financial Services
So why is ESG now a cornerstone of strategic planning in finance?
- Investor Demand: Investors increasingly want products that align with their values. Financial firms using ESG criteria are well-positioned to attract this capital.
- Risk Management: ESG helps identify and mitigate risks such as climate exposure, social unrest, or governance failures—risks that can destroy value.
- Regulation: Regulatory frameworks around ESG disclosures and climate risk are tightening. Proactive adoption ensures compliance and avoids penalties.
- Reputation and Branding: Demonstrating real ESG performance builds trust among clients, employees, and regulators.
Beyond compliance, ESG opens the door to opportunity. The financial sector is no longer just reacting—it’s helping shape a new kind of economy where value is measured beyond profit.
Finding the ESG-Based Funding
This is where ESG gets real. These ESG implementation efforts in financial landscape points out to the rise of Green Sustainability-Linked finance.
Green finance involves loans and bonds used exclusively for climate-friendly projects. This include renewable energy, sustainable agriculture, and low-carbon transport.
Sustainability-linked loans (SLLs), however, are more flexible. They tie loan terms to a borrower’s achievement of ESG targets. Miss a target? Your interest rate might increase. Meet it? You get rewarded.
Malaysia has made tangible progress here. The Green Technology Financing Scheme (GTFS) has funded over RM3 billion in projects. Meanwhile, Green sukuk have been issued to finance everything from solar farms to green buildings. The ASEAN member countries are adopting the ASEAN Sustainability Bond Standards, supporting cross-border green finance flows.
ESG Auditing and Disclosure – From Policy to Practice
An ESG audit assesses whether a financial institution’s stated ESG practices match what’s actually happening—both in-house and across their portfolios.
There are two kinds of audits:
Internal audits
This ESG audit is done by ESG committees or risk departments.
External audits
This ESG audit performed by third-party verification bodies like PwC, DNV, or local ESG specialists, like Elite Asia.
In Malaysia, this practice is gaining ground, especially as climate-related disclosures aligned with TCFD (Task Force on Climate-related Financial Disclosures) and ISSB become expected—not optional. And for banks, disclosures aren’t just about regulatory compliance. They’re increasingly demanded by clients, shareholders, and talent who want proof—not promises—on sustainability.
ESG Opportunities for Financial Institutions
ESG isn’t just about reducing risk. It’s about enabling value creation, long-term trust, and institutional relevance. The economy is moving away from extractive, legacy systems. Financial institutions have an opportunity to shape the transition. They could engage in impact-driven investment or form cross-sector partnerships to address social and environmental challenges. In the future, strengthening ESG values in their financial practices will empower governance leaders to help communities and clients navigate the future of work.
Implementation Roadmap – How Financial Institutions Can Engage with ESG
So how do you actually get started?
- Governance structure: Appoint an ESG officer or committee. Embed ESG into board-level discussions and risk oversight.
- ESG data and technology: Use tools like Bloomberg ESG data, SASB standards, or local ESG analytics providers to build materiality maps and reporting dashboards.
- Client-facing innovation:
- Offer ESG advisory services.
- Create green finance products.
- Publish annual impact reports.
- Tailor offerings for SMEs and Islamic finance clients seeking to improve their ESG footprint.
Remember: ESG isn’t one-size-fits-all. It must be localised to your business model, stakeholder expectations, and regulatory environment—especially in Malaysia, where Islamic finance, biodiversity, and social equity take on regionally specific meanings.
Partnering with Experts to Accelerate ESG Readiness
In a financial system increasingly shaped by climate risk, regulatory pressure, and stakeholder activism, ESG is a boardroom agenda. For financial institutions in Malaysia and across ASEAN, the message is clear: adopt ESG now, or risk being left out of capital flows, partnerships, and regulatory leeway tomorrow.
The question isn’t whether ESG belongs in finance. The question is whether your institution will lead or follow.
Elite Asia works closely with financial institutions across Asia to support ESG communication, regulatory alignment, and multilingual reporting. Whether you’re preparing a sustainability report, launching a green finance initiative, or seeking to align with TCFD or ISSB standards in multiple languages, our ESG specialists will help you to ensure that your message is precise, compliant, and credible.
Sustainability in finance starts with clarity—and we’re here to help.
