The CEO Imperative: Advancing ESG to Establish a Sustainable Digital Economy

There is increasing regulatory and stakeholder demand for businesses to disclose non-financial metrics of their operations’ environmental and social impact. Organisations are urged to better manage these risks, progressing in a way that delivers both a decent rate of return and wider environmental and social benefits and greater accountability. There is also increasingly strong evidence of a connection between good corporate practices and financial performance - an ethics premium. According to Ethisphere's Ethics Index, the world's most ethical companies outperformed a comparable index of 24.6% from January 2017 to January 2022.

Firstly, what exactly is ESG?

Environment, social and governance - or ESG - refers to a set of criteria used to measure an organisation’s performance in areas such as carbon emissions, contributions to society and boardroom diversity. In addition to regulatory and stakeholder demands for disclosure of performance against these criteria, investors globally are increasingly using these - alongside traditional financial metrics - to evaluate potential investments. ESG rating also allows an organisation’s sustainability performance to be measured against industry peers.

Why is it important to Malaysia's digital economy?

Our Prime Minister has committed that Malaysia will become carbon neutral as early as 2050 and will take into account ESG principles in government decision-making. This requires a concerted, whole-of-nation effort and a high level of green commitment and investment to achieve our climate change goals and step up the country's competitiveness. 

Although the industry has an ostensibly clean business model, studies estimate that the global digital economy's share of Greenhouse Gas (GHG) emissions ranges from 1.8% to 2.8% and is rising, as is energy usage. However, to counterbalance this, studies also show that smart digital solutions have the potential to reduce global GHG emissions by up to 15% by 2030 across a variety of areas from agriculture to energy, manufacturing and transport.  

Further, the “Digital with a Purpose” report by the Global Enabling Sustainability Initiative (GeSI) suggests that digital tech solutions can positively contribute to 103 out of the 169 United Nations Sustainable Development Goals. Malaysia's expanding digital economy, which targets to contribute at least 25.5% of GDP by 2025, reflects these global trends and clearly has a critical role in the nation's shift to more sustainable economic practices on both fronts.

Why should digital companies embrace ESG?
I firmly believe that a strong sustainability profile will give Malaysian businesses a competitive edge in the global digital marketplace.

Undoubtedly, ESG factors have a greater influence on digital companies, from customer behaviour to investor and stakeholder expectations to reporting requirements.  Many exemplary companies already exist in the industry that is fully committed to ESG and sustainability, such as Astro, Axiata, Digi, Media Prima and TM, to name a few. However, many businesses still have a limited understanding of the positive impact of embracing sustainability on corporate performance and are hesitant to commit.