THE notion of sustainability in corporate governance is to create long-term shared value in equitable proportions, beyond the singular objective of maximising shareholders’ value. It is a balancing act between the present and the future, the economy and the environment, the employer and the employee, and other opposing needs or interests.
Sustainability in the realm of corporate governance in Malaysia is not a new phenomenon. The Malaysian Code on Corporate Governance, published by the Securities Commission two decades ago, identified sustainability as an important pillar of corporate governance. Since then, a number of companies have been thrust into the spotlight for falling short of international standards or best practices on sustainability, with failures ranging from alleged use of forced labour, human rights abuses, and environmental destruction. There are more than a handful of companies that have breached existing laws, thereby attracting fines and jail terms for its directors.
Sustainability is an important consideration for investors and consumers alike. The business case for this progressive shift is based on empathy. A negative report or allegation could result in loss of investor confidence, consumer boycott, economic sanctions, lengthy and costly remedial actions, and reduction in share value.
How to up the sustainability game
Companies should be transparent about their environmental, social and economic sustainability efforts to promote accountability and bolster public confidence. For larger entities, this can be in the form of regular updates on the company’s sustainability initiatives in addition to their annual corporate governance reports. The intention is to internalise sustainability as a proactive form of corporate governance, instead of a reactive measure taken only when there are allegations or reports of a breach.
It is also important to keep abreast of current government policies and political sentiments.
Changes in the social, economic or political environment can result in a shift in stakeholder focus, particularly for high risk sectors which are labour, land or raw material-intensive. Staying at the forefront of sustainability developments and periodically assessing whether the company’s approach to sustainability continues to resonate with stakeholders allows companies to adjust business operations accordingly and lower the risk of being caught out by changes in sustainability requirements.
A sustainability culture should be inculcated across the board. Beyond the top-down setting of requirements and best practices, each employee must also be responsible for making business decisions with sustainability in mind. To this end, companies can consider incentivising their employees adoption of sustainability measures by including sustainability goals in their key performance index.
Companies can also adopt similar practices in the management of their supply chain, including workplace health and safety measures, waste disposal practices, and other relevant areas. Practical ways include incorporating corporate governance and sustainability measures into contractual provisions and procurement policies, and actively communicating these sustainability goals to their business associates.
Once the relevant policies are in place, periodical audits should be conducted on the adoption and proper implementation of these policies and practices. Any identified gaps should then be rectified. In instances where credibility or independence is required, audits by independent professionals should be considered.
If available, companies can also lean on their whistleblowing procedures to encourage transparency and compliance with these goals. An independent, robust and trustworthy process would encourage potential whistleblowers to come forward and, in turn, allow a company to identify and rectify any breaches before irreparable damage is done.
Another method which is gaining popularity among the larger corporates is to participate in accreditation efforts (eg: certifying products under Sirim’s ECO-Labelling Scheme or obtaining ISO 14001 Environmental Management Certification, collaborating with the Fair Labour Association to explore sustainable labour practices), committing to a sustainability pledge, and supporting various conservation initiatives.
Conclusion
While it may seem like an uphill task, the measures above are tangible action items that, if implemented effectively, can be a powerful tool to improve a company’s market positioning and secure a competitive edge for stakeholders, while protecting the company from the associated risks.
In this respect, it would be prudent to seek legal advice as there is no one-size-fits-all programme. Sustainability initiatives will need to be tailor-made to integrate seamlessly into a company’s corporate governance model based on its nature of business and desired outcomes.
This article was contributed by Tiew Kai Xiang of Christopher & Lee Ong.
Companies can adopt sustainability practices in the management of their supply chain, including workplace health and safety measures, waste disposal practices, and other relevant areas. – Picture for representation only. – REUTERSPIX
