One of the intended outcomes of the Malaysian Code of Corporate Governance (“𝐌𝐂𝐂𝐆”) is for companies to address sustainability risks and opportunities in an integrated and strategic manner to support their long-term strategy and success.

To achieve the intended outcome, the MCCG sets out the practices which companies are expected to adopt (“𝐏𝐫𝐚𝐜𝐭𝐢𝐜𝐞𝐬”) as follows:

1. The board and management are responsible for the governance of sustainability in the companies including setting the companies’ sustainability strategies, priorities and targets.

2. The board should take into account sustainability considerations when exercising its duties.

3. Senior management should drive strategic management of material sustainability matters.

4. The board should ensure that the companies’ sustainability strategies, priorities, targets and performance against these targets are communicated to the stakeholders of the companies.

5. The board should take appropriate action to stay abreast with and understand the sustainability issues relevant to the companies and their business, including climate-related risks and opportunities.

6. Performance evaluations of the board and senior management include a review of their performance in addressing the companies’ material sustainability risks and opportunities.

The MCCG also encourages all companies to go a step further by having the board of directors of the companies to identify a designated person within management, to manage sustainability strategically in the operations of the companies.

What does ESG mean from compliance perspective?

In the context of environmental, social and governance (“𝐄𝐒𝐆”), one of the principles of the MCCG (“𝐏𝐫𝐢𝐧𝐜𝐢𝐩𝐥𝐞𝐬”) is to establish effective board leadership which could integrate sustainability considerations into corporate strategy. The board of directors should take a holistic view of the business of the companies to address material ESG risks and opportunities in order to create resilient companies.

The Bursa Malaysia Listing Requirements require board of directors of public listed companies (“𝐏𝐋𝐂”) to provide an overview statement of the application of the Principles set out in the MCCG, in the PLCs’ annual reports.

PLCs must also disclose the application of each Practice set out in the MCCG during the financial year, to Bursa Malaysia in Corporate Governance Reports and announce the same together with the announcement of their annual reports.

The Listing Requirements require PLCs which do not apply any Practice in the MCCG to explain the non-application, and disclose the alternative practice adopted and how such alternative practice achieves the intended outcomes as set out in the MCCG. If a PLC fails to do so, it is in breach of the Listing Requirements.

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This post was first posted on Linkedin on 14 March 2022.