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To prosper over time, corporates are increasingly expected to deliver financial performance and demonstrate that they do so responsibly, benefitting a broader set of stakeholders, including employees, customers and the communities that are impacted by their activities. This shift has centred on considerations of governance, people, planet and prosperity – all of which are recognised as critical pillars for transition to a resilient and sustainable future1. This is particularly relevant, in light of the targets set by many markets to move towards net-zero emissions.
Board leadership will continue to be critical to promote responsible business practices, drive long-term value creation for stakeholders and respond to stakeholder expectations on sustainability commitments. Having an effective board hinges on factors such as independence, diversity and skills-mix – areas that the SC will continue to focus on. Capacity for ESG leadership among boards and senior management must also be strengthened to ensure corporates are able to respond to sustainability issues in an integrated and strategic manner. This includes reliable and timely sustainability disclosures. As the significance of sustainable reporting increases, auditors are expected to play a key role in the verification of these sustainable reports to provide credibility to their clients’ sustainability efforts. In this respect, auditors may need to strengthen their knowledge and capabilities in the area of sustainability to keep up with the needs of the market.
In April 2021, the MCCG was updated to introduce best practices and further guidance on, among others, board policies and practices on the selection, nomination and appointment of directors, as well as further guidance for areas identified by the SC’s CG Monitor report that see relatively low levels of adoption. The updated MCCG also focuses on the role of board and senior management in addressing sustainability risks and opportunities of the company, which will set the stage for ESG leadership in corporate Malaysia.
Financial intermediaries too play a part in promoting responsible businesses through their role in mobilising capital. As SRI becomes mainstream, investors will increasingly expect asset managers or fund managers to consider the ESG risks within their portfolio and to actively manage such risks. As outlined in Chapter 3, regulatory considerations and supervisory focus will prioritise transparency through disclosures and investor education, in particular to ensure governance over ESG integration in investments and management of material climate-related risks such as greenwashing risks.
Promoting responsible business will in fact require a whole-of-society approach. As such, the SC will continue to work closely with key stakeholders, including the members of the CG Council, with a targeted focus on driving greater, more visible and impactful stewardship by institutional investors.
4.1.2 INCULCATING GREATER SELF-REGULATION
While a vigorous enforcement program is essential to fulfil the SC’s mission in maintaining investor confidence in the capital market, the SC recognises that this alone is not enough to prevent misconduct in the capital market. Despite numerous pre-emptive actions taken by the SC over the years, enforcement remains a `post occurrence’ action after a violation has occurred or was detected by authorities.
To achieve more optimal compliance with rules and earlier detection of regulatory breaches, there is a need to encourage regulated entities to self-report and self-rectify. Self-reporting and self-rectification is critical in mitigating the impact of a misconduct as well as containing and minimising losses to investors.
Measuring Stakeholder Capitalism: Towards Common Metrics and Consistent Reporting of Sustainable Value Creation, World
1
Economic Forum, September 2020.
CAPITAL MARKET MASTERPLAN 3
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