Where Values Meet Value: Exploring the Synergy Between ESG and Islamic Banking

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Introduction: Beyond Profits — Rethinking What Really Matters in Finance

Let’s face it — the world of business and finance isn’t what it used to be. For decades, the default yardstick for success was profitability. But today, a growing number of investors, regulators, and even consumers are asking bigger questions: What kind of impact is this company making? How does it treat people? Is it helping or hurting the planet?

This is where ESG — short for Environmental, Social, and Governance — enters the conversation. It’s more than a buzzword or reporting requirement. ESG is quickly becoming a central lens through which financial decisions are made. Banks, asset managers, and insurers are embedding ESG thinking into the very DNA of their strategies — not just because it’s trendy, but because it’s good risk management and good business.

Interestingly, many of the principles at the heart of ESG aren’t exactly new. In fact, Islamic finance has been championing ethical, responsible, and inclusive financial practices for centuries. Its values-based framework — grounded in fairness, transparency, and community wellbeing — aligns surprisingly well with the modern ESG agenda.

So, how do these two frameworks complement each other? And what happens when you bring them together in practice? Let’s dig in.

 

ESG and Islamic Banking: Different Origins, Shared Principles

While ESG might have gotten its official start in a 2004 UN Global Compact report, its essence has been influencing investment behavior for decades. The basic idea is simple: businesses shouldn’t just be financially successful — they should also do right by people and the planet.

• Environmental (E): How a company impacts natural ecosystems — think emissions, resource use, pollution, climate resilience.
• Social (S): How a company treats its employees, customers, and communities.
• Governance (G): How it’s managed — including leadership, accountability, transparency, and ethical practices.

Now, compare this with the core goals of Islamic finance. It operates under the principles of Maqasid al-Shari’ah, which are essentially the higher objectives of Islamic law. These include the protection of life, intellect, faith, family, and wealth — all geared toward a just and harmonious society. Islamic finance prohibits speculation, interest (riba), and investments in industries considered harmful (like gambling or alcohol). Instead, it promotes real economic activity and shared prosperity.

In short, both ESG and Islamic banking frameworks are rooted in accountability, stewardship, and long-term thinking. They're both about balancing profit with purpose.

 

Malaysia Leading the Way: Regulation Meets Innovation

Malaysia is a great example of how this ESG-Islamic finance crossover is playing out in real time. The country isn’t just talking the talk — it’s backing it with solid regulatory moves and financial innovation:

• Bursa Malaysia launched a Sustainability Framework as far back as 2015, nudging listed companies to improve ESG disclosures.
• The Securities Commission rolled out an SRI (Sustainable and Responsible Investment) Roadmap to guide the market.
• Bank Negara Malaysia now expects that by 2026, at least 50% of bank financing should be aligned with climate-friendly or transitional initiatives.

This kind of policy push has created a fertile ground for Islamic financial institutions to lead the way in ESG-aligned products — from sustainable sukuk to green Islamic funds.

 

Sukuk & ESG: Financing with a Conscience

Here’s where theory meets the real world. One of the most exciting meeting points between ESG and Islamic finance is the sukuk market. Sukuk, sometimes called Islamic bonds (though they’re a bit more complex than that), are Shari’ah-compliant financial instruments based on asset ownership and profit-sharing.

Because sukuk are grounded in real assets and ethical use of proceeds, they naturally lend themselves to sustainability-linked financing. In fact, Malaysia issued the world’s first green SRI sukuk back in 2017 — aimed at financing solar photovoltaic plants. Since then, we’ve seen a wave of ESG-themed sukuk from both corporate and sovereign issuers in Malaysia, Indonesia, and beyond.

These instruments are giving investors something powerful: the opportunity to generate returns while supporting clean energy, infrastructure, and community development — all within the ethical guardrails of Shari’ah.

 

Impact Investing: ESG and Islamic Finance Playing on the Same Team

Another space where ESG and Islamic banking make a great team? Impact investing — where financial returns go hand-in-hand with measurable social or environmental outcomes.

The Global Impact Investing Network (GIIN) defines impact investing with four characteristics: intentional impact, evidence-based design, performance management, and transparency. Sound familiar? That’s because Islamic finance is already doing a version of this, guided by principles of justice, tangible asset-backing, and social good.

Islamic finance avoids harmful industries, focuses on long-term partnerships, and insists on transparency — all of which align beautifully with ESG’s focus on responsible investing. Investors are increasingly applying ESG filters to understand the real-world outcomes of their investments — carbon emissions avoided, jobs created, communities served — and Islamic finance can add another layer of ethical rigor to that process.

 

Making It Work: Reporting, Trust, and Innovation

To make this synergy truly impactful, we need more than good intentions. Transparency, standardisation, and trust are key. That means:

• Clear disclosures on Shari’ah-compliant assets and ESG criteria.
• Robust ESG reporting standards, like those from the ISSB or the SC’s SRI Taxonomy.
• Third-party audits and consistent impact measurement to give investors confidence.

And of course, innovation plays a big role too. Fintech, blockchain, and digital platforms can help Islamic finance leapfrog into the ESG era — offering better traceability, smarter contracts, and more inclusive access to capital.

 

Conclusion: A Shared Future for Ethical Finance

At a time when the world is craving more responsible and inclusive financial models, the convergence of ESG and Islamic finance feels both natural and necessary.

Both frameworks remind us that finance isn’t just about numbers — it’s about values, communities, and the future of our planet. They push back against short-termism and encourage us to think long-term, act ethically, and invest in things that matter.

The rise of Shari’ah-compliant ESG products — from green sukuk to impact funds — isn’t just a passing trend. It’s part of a larger shift toward a more grounded, principled form of finance. And as more investors, regulators, and institutions embrace this intersection, we have a real shot at building a financial system that is not only profitable — but also just, sustainable, and truly meaningful.

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation 

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Measuring Social Impact: Key Approaches, Overcoming Challenges, and Best Practices

 

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The business and development landscape is undergoing a rapid transformation. Increasingly, companies are recognizing the importance of addressing pressing societal challenges—such as social justice, environmental sustainability, and community welfare—alongside their traditional business objectives. This paradigm shift has given rise to social enterprises and corporate initiatives specifically designed to leverage market-based solutions for tackling global social issues and generating lasting, positive social impact.

Organizations measure social impact to showcase their achievements while enhancing transparency, accountability, and credibility across their programs, projects, and initiatives. This process not only helps to demonstrate the effectiveness of their efforts but also fosters trust and legitimacy among stakeholders and the broader community.

While financial accounting benefits from established national and international standards for producing financial statements, the measurement and reporting of social impact—which spans ecological, social, and economic dimensions—lacks similar maturity and global consensus. This gap is largely due to the varying needs of diverse stakeholder groups and the inherent complexity of social impact programs, making it challenging to develop universally accepted frameworks.

 

Understanding Social Impact Measurement

Social impact refers to the broad and lasting effects—both social and cultural—that public or private actions have on human populations. These impacts shape how individuals live, work, interact, and adapt within the fabric of society. Whether driven by policy decisions, corporate initiatives, or community-based efforts, social impact encompasses the transformative changes that influence daily life and societal structures.

Social impact measurement is the structured and systematic process of evaluating how an organization’s activities affect society and the environment. Unlike traditional financial or business metrics, this process captures the tangible and intangible outcomes generated by development programs, social enterprises, and philanthropic initiatives.

When done effectively, social impact measurement serves as a powerful tool for informed decision-making and strategic resource allocation. It also fosters greater accountability, promotes transparency, and strengthens engagement with stakeholders by clearly demonstrating the value and relevance of an organization’s efforts in creating meaningful change.

 

Understanding and Applying Social Impact Measurement

Organizations adopt a variety of approaches to manage and measure social impact, each tailored to align with specific goals and priorities. These approaches often serve different purposes—ranging from crafting compelling narratives that communicate the impact of programs and initiatives, to building strong cases that justify the return on investment (ROI) for social and financial contributions. Whether focused on storytelling or case-building, effective measurement helps demonstrate value, drive strategic decisions, and strengthen stakeholder confidence.

 

  Key Approaches Commonly Used

Outcome Mapping is an approach that centers on identifying the desired outcomes of an intervention and understanding the roles of key stakeholders in achieving them. Rather than solely focusing on end results, it emphasizes the pathways of change—tracking shifts in behavior, attitudes, and relationships over time.

This method relies on both qualitative and quantitative data collection techniques, such as interviews, surveys, and focus group discussions (FGDs), to monitor progress and assess impact. Outcome Mapping is particularly useful for complex or adaptive programs where change is not always linear.

Inputs: What resources (e.g., time, funding, personnel) have been allocated to achieve the desired impact goals?

Activities: What specific actions or initiatives have been implemented to drive progress toward these goals?

Outputs: What are the immediate, tangible results or products produced from the activities?

Outcomes: What are the short-term, observable effects or changes resulting from the interventions?

 

Theory of Change (ToC) is a strategic framework that visually maps out how specific activities are expected to lead to desired outcomes and long-term impact. It helps stakeholders clearly understand the underlying assumptions, pathways of change, and causal linkages that drive progress. By making these connections explicit, ToC serves as a valuable tool for planning, implementation, and evaluation.

ToC also supports the identification of relevant indicators and measurement strategies that align with a project’s objectives, ensuring that progress can be effectively tracked and assessed over time.

Key questions addressed by a Theory of Change include:

• What impact does the program or project aim to achieve?
• What mechanisms or interventions will lead to that impact?
• How will we know when the desired impact has been achieved?

 

Social Return on Investment (SROI) is a framework for measuring and communicating the broader social, environmental, and economic value created by an intervention relative to the resources invested. It goes beyond traditional financial metrics by assigning monetary values—where possible—to inputs, outputs, outcomes, and long-term impacts. Through this process, SROI enables organizations to calculate a ratio that reflects the social value generated for every unit of investment (e.g., $1 invested yields $3 in social value). This comprehensive approach offers deeper insight into the true value of programs, helping to justify funding, improve decision-making, and strengthen stakeholder engagement by demonstrating the meaningful returns delivered beyond financial profit.

Randomized Controlled Trials (RCTs) are rigorous experimental designs used to assess the effectiveness of an intervention by randomly assigning participants into two groups: a treatment group that receives the intervention, and a control group that does not. This process of randomization minimizes selection bias and ensures that both groups are statistically comparable at the outset.

By measuring and comparing outcomes across these groups, RCTs enable precise causal inference, allowing researchers to attribute observed changes directly to the intervention. Often regarded as the gold standard for impact evaluation, RCTs provide robust, high-quality evidence that can inform policy, guide program design, and improve resource allocation. Their ability to isolate the true effects of an intervention from external factors makes them especially valuable in complex social and development contexts.

 

Common Challenges in Social Impact Measurement

Measuring social impact is a critical but complex process. While numerous frameworks and methodologies are available, each comes with its own limitations and must be adapted to the specific context of the organization and the social issue being addressed. Organizations often encounter a range of challenges in their efforts to assess social impact effectively. These challenges include:

1. Complexity of Social Issues
Social issues are inherently multifaceted and interdependent, making it difficult to isolate and measure the effects of a single intervention. The intersection of social, economic, cultural, and environmental factors often blurs the direct impact of programs, complicating efforts to draw clear causal connections.

2. Lack of Standardized Metrics
The absence of universally accepted metrics and indicators for social impact hampers consistency in measurement. Without standardization, it becomes difficult to compare results across organizations, sectors, or regions, and can lead to inconsistent reporting and limited benchmarking opportunities.

3. Long-Term Impact Considerations
Many social outcomes evolve over extended periods and may take years—or even decades—to fully materialize. This presents a challenge for organizations needing to demonstrate short-term progress, especially within funding or strategic planning cycles. Longitudinal evaluations, while valuable, can be resource-intensive and time-consuming.

4. Limited Comparability
Differences in organizational goals, methodologies, and target populations make it difficult to compare impact data across initiatives. These variations limit the ability to extract broader insights or identify best practices, and may hinder collaborative learning across the sector.

5. Attribution vs. Contribution
A persistent challenge lies in distinguishing whether observed outcomes can be directly attributed to a specific intervention, or whether they are influenced by external factors. Demonstrating attribution requires rigorous evaluation design, including the use of control groups or counterfactuals—approaches that may not always be feasible or ethical. Often, organizations must settle for demonstrating contribution rather than causality.

6. Data Quality and Availability
Reliable, high-quality data is the foundation of effective impact measurement. However, organizations may face challenges related to data availability, accessibility, and accuracy. Inadequate data collection tools, inconsistent methodologies, and biases in data reporting can undermine the credibility and utility of impact assessments.

7. Time and Resource Constraints
Comprehensive social impact evaluations demand significant investment in time, expertise, and financial resources. For many organizations—particularly smaller ones—limited budgets and capacity may necessitate compromises, such as narrowing the scope of evaluation or reducing the frequency of data collection.

8. Contextual Sensitivity
Social impact measurement must be attuned to the local context in which interventions are implemented. Failing to account for cultural, socio-economic, and political dynamics can result in misinterpretation of findings and ineffective decision-making. Tailoring impact measurement approaches to specific communities is essential to ensure relevance, accuracy, and cultural responsiveness.

 

To advance meaningful social impact measurement, organizations must recognize these challenges and address them through thoughtful strategy, capacity building, and collaboration. By doing so, they can improve the quality and credibility of their evaluations, make more informed decisions, and ultimately maximize their contributions to positive societal change.

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Best Practices for Social Impact Measurement

To effectively measure and amplify social impact, organizations must adopt a comprehensive, strategic, and adaptive approach. This extends beyond tracking key performance indicators—it requires meaningful stakeholder engagement, smart use of technology, rigorous data practices, and a firm commitment to ethical standards. Below are best practices that serve as a roadmap for organizations aiming to achieve measurable, sustainable, and impactful change.

 

1. Define Clear Objectives and Indicators

Start with a strong foundation by establishing well-defined, measurable objectives that align with your organization’s mission and values. Develop a suite of indicators that capture both quantitative and qualitative dimensions of impact—ranging from immediate outputs to intermediate outcomes and long-term effects. Regularly review and refine these indicators to ensure they remain aligned with evolving strategic goals and are responsive to changes in the operating context. Effective indicators should not only measure change but also inform decision-making.

 

2. Engage Stakeholders Throughout the Process

Stakeholder involvement is essential for ensuring that measurement efforts are inclusive, relevant, and credible. Engage key stakeholders—such as beneficiaries, community members, donors, partners, and staff—at every stage of the process. This includes co-creating measurement frameworks, participating in data collection, and contributing to the interpretation of results. Use participatory methods, such as workshops and feedback sessions, to ensure diverse perspectives are represented. This collaboration fosters trust, increases the legitimacy of findings, and ensures the impact assessment reflects what truly matters to those affected.

 

3. Develop a Deep Understanding of Your Data

A robust understanding of data sources, quality, and limitations is crucial. Develop a comprehensive data strategy that outlines how data will be collected, managed, analyzed, and interpreted. Clearly define roles, responsibilities, and protocols to ensure consistency and accuracy. Build internal capacity by training staff in data literacy and analysis. Employ data visualization tools to make complex findings accessible and actionable for diverse stakeholders. High-quality data is the backbone of credible and effective impact measurement.

 

4. Use a Mixed-Methods Approach

A blend of quantitative and qualitative methods provides a well-rounded view of impact. Quantitative data offers measurable insights into reach, scale, and effectiveness, while qualitative methods—such as interviews, focus groups, and case studies—uncover rich, contextualized narratives about how and why change occurs. Triangulate data from multiple sources to enhance validity and reduce bias. This integrated approach offers a deeper, more nuanced understanding of both outcomes and lived experiences.

 

5. Foster a Culture of Learning and Adaptation

Social impact measurement should be more than an accountability exercise—it should drive learning and improvement. Create feedback loops that allow your organization to reflect on findings, identify what’s working (and what isn’t), and adapt strategies accordingly. Encourage an internal culture that values learning from both success and failure. By continuously applying insights from data, organizations become more agile, resilient, and responsive to the communities they serve.

 

6. Leverage Technology for Greater Efficiency

Embrace digital tools to streamline data collection, storage, analysis, and reporting. Mobile survey platforms, cloud-based databases, and real-time dashboards can dramatically improve accuracy, timeliness, and scalability. Advanced analytics and data visualization tools can turn raw data into actionable insights. By integrating technology thoughtfully, organizations can enhance both the efficiency and effectiveness of their impact measurement systems.

 

7. Prioritize Ethical Integrity

Ethical considerations must underpin all aspects of impact measurement. Ensure that data collection processes prioritize informed consent, confidentiality, and the dignity of participants. Adopt robust data protection and privacy protocols to safeguard sensitive information. Be transparent with communities about how data will be used and respect their right to participate—or not—on their own terms. Ethical engagement builds trust and minimizes the risk of harm.

 

8. Commit to Transparent Reporting

Transparency builds credibility. Share findings openly with stakeholders in a format that is accessible and easy to understand. Use clear language, visuals, and storytelling to communicate both successes and challenges. Disclose methodologies, limitations, and areas for improvement. Transparent reporting not only reinforces accountability but also contributes to sector-wide learning and innovation.

 

9. Collaborate to Strengthen the Field

No organization operates in isolation. Partnering with academic institutions, research organizations, and peer networks can unlock new expertise, resources, and approaches. Collaborations can also facilitate the development of shared standards, metrics, and benchmarks, enhancing the overall consistency and quality of impact measurement across sectors. Working together accelerates collective learning and drives systemic change.

 

By following these best practices, organizations can build more effective, inclusive, and credible systems for social impact measurement—ensuring their efforts lead to real, lasting, and transformative change.

  

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation 

 

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Unlocking the Power of ‘S’ in ESG: How Companies Can Drive Real Social Impact

 

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Introduction

As environmental, social, and governance (ESG) investing continues to soar—projected to rise 84% to $34 trillion by 2026, according to PwC—so too do the questions surrounding the true impact and value of ESG strategies, particularly from consumers, private companies and even political figures.

Yet, ESG-focused investors and companies remain steadfast. " Belying questions of whether financial and ESG performance might conflict, nine of 10 asset managers surveyed believe that integrating ESG into their investment strategy will improve overall returns " PwC reports.

The Business Roundtable, representing 250 of the top U.S. CEOs, echoes this sentiment. “Companies should serve not only their shareholders, but also deliver value to their customers, invest in employees, deal fairly with suppliers, and support the communities in which they operate,” its Purpose of a Corporation states.

However, the "S" in ESG, representing a company's social responsibility, remains unfairly scrutinised, as its measurement and value are often subjective. Unlike the "E," which is quantifiable through carbon emissions, energy consumption, and waste output, amongst others —and guided by the International Financial Stability Board's standardised climate-related reporting frameworks. The "G" is generally regulated by strict reporting standards enforced by the regulators and other authorities.

But when it comes to social impact, the lack of clear reporting standards for the "S" gives companies greater flexibility in how they report their contributions to society. While this freedom allows for creative approaches, it also leaves companies vulnerable to criticism for making unsubstantiated claims or focusing more on brand image than real change. As a result, they risk losing the trust of both employees and consumers when their actions fail to live up to their values.

Companies can significantly strengthen the "S" in their ESG strategies through five transformative actions:

1.       Clearly define your purpose and impact through your business

Every company has the power to drive a more equitable society by leveraging the products and services they already offer. Telco companies are closing the broadband access divide. Banks and property developers are addressing the homeownership gap. Healthcare is delivering essential medical services to vulnerable communities in need.

Tech companies that support food banks are doing valuable work. However, an even more powerful approach is to address the root cause by helping individuals secure tech jobs through training. By empowering people with the skills for higher-paying, more stable careers, we can reduce reliance on food banks and create lasting economic mobility.

  

2.       Understand and focus on the metrics

Peter Drucker's timeless principle, "What gets measured, gets managed," has stood for over 70 years. In today's data-driven world, the ability to collect and analyze information to guide business operations and assess outcomes is not only more accessible but also expected.

However, measuring social good remains a challenging endeavor, making it difficult to manage. Nonetheless, it is achievable when companies take a structured approach—clearly defining objectives, setting goals, tracking progress, and reporting on their social impact commitments.

For example, it’s not just about the amount of corporate funding allocated; rather, it’s about the measurable societal impact—specifically, the people and communities that are positively affected. This becomes more manageable when nonprofit organizations embrace return-on-investment (ROI) principles and offer transparency in their results, enabling donor companies to meet their own ROI expectations.

 

3.       Begin with your internal foundation – social impact starts with your people

Establish clear and measurable DEI objectives, along with employee engagement metrics, particularly for historically marginalized and underrepresented groups. It is crucial to remain steadfast in pursuing DEI initiatives, even amidst economic fluctuations.

Additionally, integrate Environmental, Social, and Governance (ESG) efforts with corporate social responsibility (CSR) functions, corporate giving, and employee volunteer programs. Too often, these areas operate in silos, work at cross purposes, send conflicting messages, and waste valuable resources. Leverage employee passion for your mission by offering volunteer and giving opportunities that reinforce your ESG objectives, while setting ambitious, measurable goals.

While the social value of DEI is widely discussed, the business case is often overlooked. However, some organizations such as Wall Street increasingly seeks partnerships with women- and minority-owned banks, not solely for DEI purposes, but to enhance their ability to raise capital. This shift highlights the growing recognition of the business benefits DEI can provide.

  

4. Reach out and connect

Identify, engage, and prioritize partnerships with corporate partners, vendors, and supply chain providers to collaboratively achieve social good objectives, creating a powerful force-multiplier effect. Leverage your purchasing power to encourage others to join in these efforts.

When companies focus on social-good initiatives aimed at closing gender or racial disparities, they simultaneously open new market opportunities. While the social benefits are often emphasized, the business advantages are frequently overlooked.

For example, a leading financial institution actively seeks business with minority securities dealers, not merely to advance DEI objectives, but to tap into, serve, and capitalize on previously underserved markets.

 

4.       Extend partnerships

Nonprofits are uniquely positioned to help you achieve measurable social goals. As frontline agents of social good, they are deeply attuned to the immediate and evolving needs of communities.

While donating to large national and global nonprofits is a reliable approach, supporting local community-based organizations—who are closer to the ground and better informed about what works—can significantly amplify the impact of your social investment.

Additionally, consider contributing to the development and strengthening of a community nonprofit’s operational infrastructure. By providing "unrestricted" funds, you empower these organizations to allocate resources where they are most needed, allowing expert leaders to decide how best to use your generosity.

 

Conclusion

By refining the "S" in ESG with a strategic business mindset, you can help demonstrate that social good is not only a moral imperative but also a sound business practice, one that benefits both investors and the broader public.

 

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation 

 

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Challenges in ESG Reporting

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Sustainability Reporting – what challenges to expect

 

Sustainability Reporting is now common and we are seeing companies have progressed in their reporting maturity over a short period of time.

Generally, the purpose of Sustainability Reporting is to demonstrate performance as well as for companies to build reputation as a ‘Sustainable Company”.

Before companies get excited to be self-labeled as ‘Sustainable’, there is a key factor that companies need to govern and manage to ensure a Sustainability Report is able to meet its purpose and objective.

                                                

DATA

Data demonstrates performance. This is how companies can build reputation through transforming data and presenting it through success and aspiring stories. To derive this, it starts by establishing a robust data collection and management governance and procedure.  This can be a complicated and tedious process.

These includes the following:

·         Identify WHAT needs to be collected

·         Identify WHO to be involved in the process

·         Identify WHERE to obtain the information

·         Identify HOW to effectively collect and manage data from end to end

 

Ideally, the aim is to establish a robust and credible data management standard operating procedures (SOPs).

 

Identify WHAT needs to be collected

The data required to be reported would depend on the reporting framework or standards chosen as well as the outcome of the materiality assessment, but this may not be ideal in application as different metrics have different reporting boundaries, which represent the description of where an impact occurs arising from an organisation’s operational activities or relationships with other entities.  It is crucial for reporters to take the effort to understand the reporting boundary of any given issue. For instance, office building energy use, specifically energy consumption for heating and electricity can be either Scope 1 or Scope 2 GHG emissions depending on whether the energy used is provided that own company or purchased from an external provider or source. In the case of heating, there may be on-site combustion at own premises or offices or other facilities, in which case the emissions from fuel use for heating would belong under Scope 1 emissions. If, however heating is provided by an external provider then the emissions from the purchased heat would be reported under Scope 2.

               

Reporters should also consider the possibility that not all the data collected is necessary to be disclosed as it is. To take the same example as above on the GHG emission, regardless of whether the said emission is Scope 1 or Scope 2, the data is just considered as ‘activity data’ which would need to be further multiplied with the relevant emission factor for the purpose of reporting.

 

 Identify WHO to be involved in the process

Much of the data required for ESG reporting is likely already available within the organisation. However, since this data may not be part of a formal collection process, it is needed to identify the data managers responsible for it. Begin by interviewing those data managers who are likely to have some of the information needed for ESG reporting. When discussing data requirements, provide a clear overview of the expectations and alignment with regulatory requirements and reporting standards, as administrative staff may know other relevant data owners and can help identify additional data managers. This step is particularly crucial if organisation has multiple facilities, buildings and assets. The more complex the organisation is, the more data managers needed to be involved in the reporting process.

 

Identify WHERE to obtain the information

Once have identified all the data managers, it’s essential to map the business processes from which they gather the data. For certain data points, such as Social data from HR, the source will be clear. However, it’s important to document the location of all data sources to ensure consistency and continuity.

It's crucial to document all data sources to ensure that personnel changes don’t disrupt the continuity of ESG reporting. Disruptions caused by staff turnover in ESG reporting are a common issue for companies, often because data source documentation wasn't performed during the initial report creation. When the data manager familiar with the relevant data sources for a particular ESG issue leaves, reporting for that issue can come to a standstill.

 

Identify HOW to effectively collect and manage data from end to end

Documentation requires efforts and time, but it is worth and critical that you do this for each indicator to be reported:

• Is the data or information sourced from internal or external?
• Is the data sourced from single data point or to be consolidated from multiple business sources?

• Who is the current data manager or do they partially own data with other data managers?

 

By keeping an up-to-date document detailing how each indicator is reported, you can ensure the continuity of your reporting process. While this may seem like an obvious step, it's often overlooked by first-time reporters, as its importance becomes clear only when it’s time to prepare the next report a year later. When preparing your first report, always keep in mind that this will be an ongoing, annual process moving forward.

  

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation  

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Sustainable Procurement: Is it worth pursuing?

 

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Introduction

In recent years, with issues such as COVID-19 and with the current volatile market, the resilience of supply chain is deemed more critical than ever. Companies have started to integrate Sustainability into its operations but the focus now is to ensure it is expanded across its value chain or in other words; procurement.

 

Sourcing from suppliers that are sustainable, may help companies to mitigate risks arising from supply disruptions due to environmental events or regulatory changes. Moreover, companies that mitigate social and environmental issues across the value chain will help to mitigate reputational risks.

 

It easier said than done

Integrating Sustainability across the value chain requires a lot of collaborative approach and sound governance and processes – and this is also complex as companies are dealing with shortages in tools, data and internal capabilities. This is backed by the findings from a study by McKinsey. According to this study, one of the exercises indicates that, 70% of the sample informed that their companies is not aware of where Scope 3 emissions were generated in their value chain. Apart from that, 90% of the sample highlighted that they face difficulty in identifying the right actions to move the needle on ESG topics. Also, in terms of target setting, almost 75% highlighted that they face issues in this area.

 

The SMEs are the backbone of the economy – globally they represent up to 90% of businesses. The SMEs are also facing the scrutiny and pressure from all angles to adopt sustainable practices and operations. This is due to their supply chain ecosystem that includes large corporations that are setting higher ESG standards and requirements.

 

Logically, implementing sustainability is always a good cause for any organisation, regardless of their size. While larger corporations have been able to progressively integrate ESG into their business, many SMEs struggle in their journey to do the same, due to a lack of technical skills, knowledge and capital.

 

 Is it worth it?

Not only sustainable procurement results in good reputation for the company, but it can also have a positive impact on the company’s relations with its stakeholders, especially the customers and investors. These two stakeholder groups are now more focus than ever to scrutinise ESG considerations integrated across companies’ supply chain and will support those companies that have a clear and practical sustainable procurement plan and monitoring. Customers and investors would also be more likely to do business (over a longer period of time) with companies which have lower exposure towards non-ESG compliant suppliers.

 

Current and potential employees are also looking into how serious companies are towards sustainable procurement, especially those that value environmental and social responsibility. Employees nowadays do not want to be affiliated with companies with poor sustainability practices in its procurement process and management. Additionally, employees would also expect companies they are working for to also have a sound and robust sustainable procurement strategy and plan.

 

Sustainable procurement is not all just about environmental and social benefits, but can also have potential economic value. Companies with good sustainable procurement practices will have competitive edge, and can reduce costs, improve efficiency, and gain a competitive advantage over their peers in the same sector.

 

On top of that, sustainable procurement would also improve supplier relations as well as business continuity. Early adoption and transition in sustainable practices ahead of mandatory regulations or imposed by specific jurisdictions, can benefit organisations in securing and building networks of quality and sustainable suppliers as part of its value chain.

 

Conclusion

Sustainable procurement is expected to be a norm moving forward. We are seeing more pressure from sustainable companies to embed Sustainability across its business operations. Engagement with suppliers on Sustainability are seen to be intensified and more and more suppliers are also on the look out to obtain relevant certifications, tools and resources towards being more sustainable. More or less, both organisations and suppliers are aware that sustainable procurement will bring economic benefits and would remain relevant and competitive in the market over the long term.

 

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation 

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Net Zero Commitment – Is Malaysia in the lead?

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Introduction

A few years ago, Malaysia was under the radar due to human rights issues. However, things are starting to change – with strong adherence to global standards as part of the country’s approach to address the ‘Social’ aspect particularly in dealing with labour standards. It is anticipated that Malaysia is setting its path on the right track under the ‘Social’ aspect particularly with the aim in reducing reliance towards foreign labour from enhanced digitalization and automation, moving forward. 

Now that we have some assurance that the ‘Social’ aspect is heading twards the right direction, the next question is – how about the ‘Environmental’ aspect?

Climate Ambitions

‘Environmental’ aspect is broad but for the purpose of this article, let us narrow it down to the current focus under the Environmental aspect i.e. Climate Change.

There are a lot of discussion around the topic, but one clear response to it for companies across industries is the establishment of Net Zero pathway; a complex and challenging subject for all, globally.

Amongst ASEAN countries, to date, Malaysia has seen to be having the clearest and comprehensive approach towards Net Zero. Neighboring countries such as Thailand and Indonesia have committed to achieve carbon neutrality by 2050 and 2060 respectively, while other ASEAN nations that mostly establish aspirations to the overall Sustainable Development agenda and reduction of greenhouse gas emissions – not specifically on Net Zero.

There is however, a similar trend across ASEAN in regards to the view on Net Zero as a response to combat climate change and emissions. As an example, Malaysia had made a stance to abstain from constructing new coal power plants and at the same time accelerating the retirement of existing coal capacity. Similar approach is being taken with countries such as Thailand, Vietnam and Indonesia that aim to diminish reliance on coal and increase investment in greener and sustainable energy alternatives. 

Based on the report on ASEAN countries Energy Transition Index (ETI), which benchmarks countries performance on their energy infrastructure and systems, and their readiness towards transition to greener and sustainable energy, there is a clear distinction with the ASEAN countries rankings.

Even as a developing country, Malaysia is ranked higher than the southern neighbor, Singapore, which is one of the developed nations and more economically advanced.

One of the observations made was that countries are challenged with the issues of investments in renewable energy (RE) being economically limited and moving at a slow rate. Eventually, and as based on historical data, there is projected reduction in Renewable Energy costs and the return on investments (ROI) surge from Renewable Energy, this would address the current challenges and would eventually scale up such investments. However, we need to note that there is also current contractual obligations from traditional power producers that is unavoidable, but critical to shift towards transition.

Governments would need to step up to facilitate the transition and industry is expecting governments to chart pathways and roll out policies and frameworks to enable the same. For Malaysia, the government had recently issued roadmap on energy transition called the National Energy Transition Roadmap.

National Energy Transition Roadmap

Research shows that nations that have sound ESG and climate agenda tend to create positive impact on foreign investment (FDI) through enhancing its attractiveness via mitigation of medium and long-term risks linked with ESG risks across all aspects. With investors have started to demand ESG criteria integrated into their investments mandates, nations that are aligned on adhered to global signatories or standards such those under the United Nations, would be deemed more attractive  to investors that set ESG compliance within their investment practices. This trend have grown rapidly in recent years and is forecasted to continue.

On 27 July 2023, Malaysia’s Minister of Economy launched the Part 1 of the country’s National Energy Transition Roadmap (NETR 1). Subsequently, on 29 August 2023, Malaysia’s Prime Minister launched the expanded and complete National Energy Transition Roadmap (NETR), which expands on NETR 1. The NETR sets Malaysia’s aspiration of accelerating the nation’s energy transition and sustainable growth agenda. It establishes a pathway to transition the national energy mix, reduce GHG emissions, generate significant investment and employment opportunities, and promote a just and responsible transition.  The NETR identifies 6 energy transition levers to facilitate Malaysia’s transition to clean energy, and outlines the Malaysian Government’s 10 flagship catalyst projects across these levers. The 6 levers are: (i) Energy efficiency, (ii) Renewable energy, (iii) Hydrogen, (iv) Bioenergy), (v) Green mobility, and (vi) Carbon capture, utilization and storage. The expanded NETR outlines 50 key initiatives and five cross-cutting enablers, in addition to the 10 flagship catalyst projects unveiled in Part 1.

Early in 3Q2023, the Malaysia government expedited the implementation of the NETR, to progressively and structurally transition Malaysia from dependency on fossil fuels towards greener alternatives. The implementation will be done across 10 pilot projects with an estimated cost of over RM620 billion. 

The high cost invested is due to NETR that stretches over long-term, but there is potential foreign investment will be made to scale up the NETR substantial implementation deliverables. NETR will place Malaysia at the forefront in green manufacturing within ASEAN Foreign participation and will note only enable Malaysia to reach its climate goals, but also become the green manufacturing hub within the ASEAN region.

As Malaysia strive towards Net Zero, in line with the structured execution of the NETR, there is potential for the country to tackle simultaneous issues it faces a weak currency and declining foreign ownership particularly in the equity market. This is direct impact from NETR that would enable the restructuring the economy and also ensuring strong and sustainable GDP growth in years ahead.

Conclusion

Malaysia is currently seen as a leader in the ESG and this includes on the climate agenda. NETR shall further elevate the country’s position to be amongst global peers and this too will set the expectation for local companies to pursue its own climate agenda and ambition.

 

All views and opinions expressed on this site are by the author and do not represent any particular entity or organisation  

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