ESG reporting gains ground while social disclosures lag behind

Focus Malaysia

2 days ago

Letter to Editor
PUBLIC-LISTED companies are now required to include sustainability statements in their annual reports.
This means they must share how they're handling risks and opportunities related to environmental, social, and governance (ESG) issues.
While these reports are mandatory, there's no one-size-fits-all template for how companies should report their ESG efforts.
A company doing well on environmental goals might not be performing as strongly in social areas, and that's fine. Each company needs to set its own priorities based on its business.
Non-financial reporting namely CSR, ESG, Integrated, Biodiversity reports etc. has grown significantly and contributing to the nation's economic development.
Though not profit-driven, these reports can indirectly enhance returns on investment. As a result, more companies are now publishing standalone sustainability reports to showcase their initiatives.
Still, many businesses are holding back. Due to limited understanding of ESG payoff over the time, many business players remain hesitant.
Yet globally, ESG reporting is gaining ground. Investors expect companies to be open and honest about how they handle environmental and social challenges.
But in practice, most ESG reports still lean heavily on environmental issues especially in high impact industries like oil, gas, steel etc, where the environmental scrutiny is more intense.
Sustainability reporting is on the rise, driven partly by mandatory requirements in some regions.
However, many companies limit their reports to legally required material issues, often providing a narrow view of their overall performance in Environmental, Social, and Governance (ESG) areas.
This leaves stakeholders with an incomplete picture of how well a company is managing its broader sustainability commitments, said Shaogi Chuah, a sustainability consultant.
Disclosures on the social side, are advancing at slower pace. Issues around human resources, employment practices, and workplace culture have come under the spotlight.
The 'S' pillar is becoming a key way to measure a company's values and internal culture, though there's still room for growth.
The recent allegations of forced labour practices involving Malaysian glove manufacturers have intensified scrutiny on the 'S' in ESG, highlights the urgency for stronger social disclosures and ethical labour practices within corporate sustainability frameworks.
In March 2025, the Malaysian glove manufacturer YTY Group announced an investigation into its supplier, Mediceram, following claims of chronic forced labour practices affecting nearly 200 Bangladeshi migrant workers, including wage fraud, passport retention, and terrible housing circumstances.
Shaogi added that this situation highlights the complexity of social sustainability.
While child labour is universally discouraged, understanding its root causes such as poverty and limited access to education is essential to craft solutions that balances economic necessity with ethical standards.
Such nuanced challenges require companies and policymakers to adopt a more inclusive approach to social reporting, considering both the immediate and systemic factors at play.
Despite these hurdles, advancements in social sustainability reporting are fostering better practices.
Transparency in workplace standards and community engagement efforts is increasingly seen as a competitive advantage, influencing consumer choices and investor confidence.
Research shows that companies do better in ESG efforts and overall performance when their board of directors have more independent members.
More independent voices mean more oversight, accountability, and pressure on management to do the right thing, not just in the short term, but for long-term growth.
This aligns perfectly with the Malaysian Code on Corporate Governance (MCCG 2021), which encourages a more inclusive composition of board members.
One of the notable updates is the use of a two-tier voting process when reappointing independent directors who have served for more than nine years.
This approach helps ensure that long-serving directors continue to bring independent and unbiased judgment to the board.
The MCCG 2021 also discourages the appointment of active politicians as board members, supporting a more neutral and professional governance structure in line with global best practices.
According to the SC Corporate Governance Monitor 2024, as of 1 October 2024, 67% of public listed companies (PLCs) have at least 50% independent non-executive directors.
This represents 673 companies, an increase from 659 companies in 2022. Having independent directors means the board can make decisions without external interference.
This independence helps ensure the company remains fair, transparent, and focused on its long-term goals.
However, it's important to note that board independence alone is not a panacea. Businesses also need strong internal governance and risk management to effectively execute ESG strategies and boost financial returns. —June 10, 2025
Dr Jeya Santhini Appannan and Dr Suhaily Shahimi are Senior Lecturers at the Faculty of Business and Economics, Universiti Malaya.
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
Main image: Lythouse