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MORE board directors and corporate governance leaders are taking steps to upskill themselves to be effective stewards on the environmental, social and governance (ESG) front.
As more Malaysian boards are seeking to elevate their board practices, an increasing number of companies are also incorporating independent searches in the board appointment process.
There are challenges to ensure financial performance and to keep up with enhanced requirements such as the latest rules on climate change.
But companies bravely soldier on as more boards and directors proactively seek improvement and upgrading in all aspects of ESG.
From January 2021 to April 2022, the Institute of Corporate Directors (ICDM) facilitated a total of 93 director education programmes which attracted 4,830 participants.
During the same period, the ICDM received 87 independent sourcing requests for board appointments, compared to 42 in 2020 and 2021, and successfully placed 12 directors in the first four months of 2022 alone.
A total of 15 companies, which is double the number from January 2020 to April 2021, have commissioned the ICDM to conduct external board and directors’ evaluations.
Among the most common challenges faced by most companies, is the capability to juggle between ESG and financial performance.
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In the absence of substantial innovation, according to research, the financial performance of companies declines as their ESG performance improves.
As such, topics on organisation-wide innovation and digitalisation will likely dominate boardroom discussions, said ICDM president and CEO Michele Kythe Lim.
There is also a need to shift the focus on ESG being a compliance matter to a forward-looking strategy for sustainable value creation.
ESG, when approached from the perspective of performance enhancement, will open doors to positive outcomes in business, help to attract investments, improve risk management as well as innovation and productivity.
Post-Covid, there has been an increased interest in climate change, biodiversity as well as issues on diversity, equity and inclusion among institutional investors.
The climate theme, especially, is aligned to the Transition Pathway Initiative (TPI) climate methodology which involves tougher scoring and the introduction of minimum score thresholds for constituent companies.
The TPI is a global initiative that assesses companies’ preparedness to transition into a low carbon economy.
Recently, a total of 10 companies had qualified for the FTSE4Good Bursa Malaysia (F4GBM) index despite being evaluated under enhanced requirements related to climate change.