PETALING JAYA: While environmental, social and governance (ESG) concerns are likely to raise business and start-up costs, such higher costs should be offset by higher demand for sustainable products as well as reduced ESG risks.

       According to Sunway University professor of Economics Dr Yeah Kim Leng, (pic) while profits remain a primary focus from an individual firm’s perspective, it is no longer tenable to ignore the social and environmental costs.

       This is given that many consumers, purchasers, financiers and investors are demanding for all parties involved in the exchange or contract to meet the prescribed ESG or sustainability criteria and standards.

       Yeah told StarBiz that “more so for businesses, governments in the industrialised countries such as the United States and the European Union are barring imports and sanctioning firms found to have engaged in unsustainable environmental practices or human rights abuses as experienced by several Malaysian palm oil and glove manufacturers”.

       He pointed out that firms are expected to incur high start-up and production costs arising from the use of technologies and processes that are energy-efficient, less polluting and with a lower carbon footprint.

       Bursa Malaysia chairman Tan Sri Abdul Wahid Omar (pic) last Thursday was reported as saying that companies that choose to ignore sustainability or ESG considerations in their business will not be sustainable, as “they will be deprived of both equity and debt financing to fund their projects”.

       However, the higher costs could be offset by higher demand for sustainable products and reduced ESG risks in other business functions such as obtaining debt financing or finding investors that are only interested in companies that are ESG risk-free, added Yeah.

       From a global perspective, he noted that a key driver of ESG is the adoption of the United Nations Sustainable Development Goals (SDGs) as the development “blueprint to achieve a better and more sustainable future for all”.

       “The development framework succeeded the Millenium Development Goals that ended in 2015. With a comprehensive set of 17 goals with six to eight targets each, the indicators and measures provide a means to evaluate a country’s progress in achieving the SDGs,” noted Yeah.

       The ESG framework measures the sustainability performance at the corporate level.

       The close relationship between the ESG measures and the SDG indicators enables the company-level sustainability metrics to be related directly to the SDG goals and targets.

       “With 194 countries including China and the US having ratified the 2016 Paris Agreement, the implementation of greenhouse gas emissions mitigation and adaptation and sustainable finance is gathering momentum.

       “Firms in a globalised world therefore ignore at their own peril not only from a business survival perspective, but more importantly their responsibility and response to the call to action in the global fight against an existential threat to the planet due to global warming,” said Yeah.

       “In line with the popular management maxim ‘what gets measured gets done’, ESG is a tool that can be harnessed to transform the corporate and business sector to meeting the country’s SDGs,” he added.

       Yeah also said that as ESG standards and criteria are being developed for various sectors of the economy, these taxonomies and criteria are being used by investors and financiers especially the banking community to commit to “socially responsible investing” and “socially responsible financing”.

       “Firms deemed to be ESG-at-risk are therefore excluded from these investing and financing opportunities. Their products if not produced in line with sustainability principles and practices, likewise, face the risk of being excluded from markets that only permit those which are ESG-compliant.”

       He added that the demand risk is therefore high as consumers and purchasers avoid unsustainable produced products. Investors, on the other hand, avoid assets that potentially could be “stranded” due to the shift away from assets facing ESG risks.

       Yeah also commended Bursa Malaysia’s early embrace of the sustainability agenda since 2015, which has enabled the local corporate sector, particularly the leading listed companies, to have a head-start in embracing sustainability principles and practices.

       Bursa Malaysia chairman Tan Sri Abdul Wahid Omar (pic) last Thursday was reported as saying that companies that choose to ignore sustainability or ESG considerations in their business will not be sustainable, as “they will be deprived of both equity and debt financing to fund their projects”.

       “They have to pay higher insurance premium to underwrite some of their risks and will have difficulty to recruit the human capital talent necessary to drive their business. Nor will they be able to sell their products or be part of the global supply chain as customers become more discerning in buying only sustainable products in the future,” Wahid added.

       He noted that Bursa Malaysia as a strong proponent of sustainability, strives to provide an environment that encourages sustainable practices among market participants. “We do this through ongoing guidance, advocacy and engagements within the marketplace, alongside our role as a frontline regulator and market operator,” he said.