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31 January 2025 Posted by Elite Asia Marketing ESG No Comments

How to Get a Good ESG Rating for Listed Companies in Malaysia

What drives investors to choose one company over another as the market become even more competitive?  Increasingly, the answer lies in your Environmental, Social, and Governance (ESG) rating. The ESG ratings are designed to offer insight into how corporations interact with stakeholders—whether that’s employees, customers, suppliers, or the communities and environment they affect. 

By sifting through large volumes of data, ESG ratings provide market participants like investors, analysts, and corporate managers with a clearer picture of a company’s sustainability performance and associated risks. Investors rely on this information to guide decisions, while corporations use ESG ratings as third-party feedback to refine their sustainability initiatives.

Yet, what exactly do ESG ratings measure? Some believe ESG quality reflects a company’s positive impact on stakeholders, such as improving labour conditions or reducing environmental harm—what many think of as “doing good.” Others argue that ESG scores focus on mitigating risks that could harm long-term performance. Regardless of the approach, ESG ratings have become a fragmented but crucial industry, with various agencies like MSCI, FTSE Russell, and S&P Global using different methodologies to evaluate performance. For listed companies in Malaysia, understanding and improving these ratings is not just a strategic advantage but a necessity.

What is an ESG Rating and Why Does it Matter?

Defining ESG Ratings

At their core, ESG ratings assess how effectively a company manages risks and opportunities related to environmental, social, and governance factors. Agencies like FTSE Russell, MSCI, and S&P Global calculate these ratings based on various criteria:

  • Environmental: Carbon emissions, energy efficiency, and waste management.
  • Social: Labour practices, employee welfare, and community engagement.
  • Governance: Board diversity, anti-corruption measures, and transparency.

In Malaysia, ESG efforts are closely linked to the FTSE4Good Bursa Malaysia (F4GBM) Index, a collaboration between Bursa Malaysia and FTSE Russell. This index provides an ESG rating framework specifically for Malaysian companies, encouraging transparency, identifying high-performing companies, and supporting the move toward a sustainable economy.

What Does a Good ESG Rating Look Like?

A good ESG rating reflects a company’s strong risk management, ethical governance, and alignment with sustainability goals. For example, MSCI rates companies on a scale from AAA (leader) to CCC (laggard), while FTSE Russell categorises them into risk levels. A favourable ESG rating signals that a company is committed to sustainable practices, making it more attractive to ESG-conscious investors.

Why ESG Ratings Matter for Malaysian Companies

ESG ratings are more than just a score—they’re a measure of a company’s operational risks. A poor ESG rating could indicate that certain elements, such as environmental compliance or governance, are poorly managed, potentially leading to reputational damage or operational disruptions. Conversely, companies with strong ESG ratings enjoy enhanced reputations, increased investor confidence, and easier compliance with regulations such as Bursa Malaysia’s Sustainability Reporting Guide and Simplified ESG Disclosure Guide (SEDG).

Also Read

Rising ESG Investing Trends and Opportunities in Malaysia

ESG Rating for Listed Companies in Malaysia

ESG Regulations in Malaysia

Malaysia’s financial ecosystem actively promotes ESG integration. The FTSE4Good Bursa Malaysia Index stands out as a key tool for assessing the ESG performance of public-listed companies (PLCs). Companies included in the index benefit from increased visibility and enhanced investor appeal, aligning with global standards while contributing to a sustainable economy.

Bursa Malaysia’s Sustainability Reporting Guide encourages companies to adopt robust ESG practices, referencing frameworks such as the Global Reporting Initiative (GRI) and FTSE Russell’s ESG ratings. These frameworks provide PLCs with the tools to enhance disclosures, improve performance, and benchmark against their peers.

How ESG Ratings Drive Changes

Beyond attracting investors, ESG ratings encourage a culture of continuous improvement. Companies can use these ratings to identify weaknesses, prioritise corrective actions, and better position themselves in the market. Sustainability reports also play a critical role, as rating agencies rely on these documents to evaluate a company’s efforts and commitments.

Steps to Improve Your ESG Rating

Improving your ESG rating is a structured process that requires focused effort across multiple dimensions:

1. Conduct an ESG Gap Analysis

  • Assess your current performance against recognised ESG benchmarks to identify gaps in areas like emissions, workplace diversity, or governance.
  • Compare your metrics with peers to understand where you stand and where improvement is needed.
  • Engage ESG consultants to pinpoint actionable steps for closing these gaps effectively.

2. Enhance Sustainability Practices

  • Introduce energy-saving measures, such as upgrading to renewable energy sources or using efficient lighting and equipment.
  • Implement waste reduction programmes, including recycling and sustainable packaging initiatives.
  • Set measurable goals for carbon neutrality and regularly report progress to stakeholders.

3. Strengthen Social Responsibility

  • Invest in employee development, including training programmes and mental health support.
  • Ensure fair labour practices across your supply chain, particularly if operating in sectors with higher risks of exploitation.
  • Build strong relationships with local communities through charitable contributions and impactful social projects.

4. Improve Governance Structures

  • Promote board diversity by including members from varied genders, ethnicities, and professional backgrounds.
  • Develop anti-corruption policies supported by regular audits and transparent reporting.
  • Establish whistleblower policies to encourage accountability and ethical behaviour.

5. Align with Recognised Frameworks

  • Adopt global standards like GRI, SASB, or TCFD to structure your ESG disclosures.
  • Follow FTSE Russell’s methodology to align with Bursa Malaysia’s sustainability guidelines.
  • Consistent alignment with these frameworks ensures transparency and improves your standing with rating agencies.

6. Monitor and Report Progress

  • Regularly track ESG metrics to measure improvement and identify new risks.
  • Publish detailed sustainability reports showcasing achievements, commitments, and areas for growth.
  • Engage stakeholders by demonstrating your company’s accountability and progress over time.

7. Collaborate with ESG Experts

  • Partner with sustainability consultants to gain insights on global trends and local regulatory compliance.
  • Seek third-party verification for your ESG disclosures to build credibility with investors and agencies.

Also Read

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The Benefits of Having a Good ESG Rating for Malaysian Companies

Steps to Improve Your ESG Score

Enhanced Investor Appeal

Investors increasingly prioritise companies with strong ESG performance. A good rating helps position your company as a reliable, forward-thinking investment.

Improved Reputation

High ESG ratings build trust with stakeholders, customers, and regulators, positioning your company as a leader in corporate responsibility.

Operational Efficiency

Sustainability efforts, such as energy efficiency and waste reduction, often result in cost savings and streamlined operations.

Long-Term Resilience

Strong ESG practices equip companies to navigate future challenges, from climate change to regulatory shifts, ensuring sustained growth.

Beyond ESG Ratings: It’s More Than Just a Score

As Malaysia’s business environment continues to evolve, a strong ESG rating will help your company move forward in a meaningful way. Companies with robust ESG practices attract investors, align with regulatory frameworks, and build resilience against future challenges.

By leveraging tools like the FTSE4Good Bursa Malaysia Index and adopting recognised sustainability frameworks, your company can improve its ESG performance and strengthen its competitive edge. Want to start your ESG journey? Partner with Elite Asia’s ESG consultants today and take the first step toward building a sustainable, successful future for your business.

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