Powering Business Sustainability Bursa Malaysia
Transcript of Powering Business Sustainability Bursa Malaysia
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POWERINGBUSINESS
SUSTAINABILITYA GUIDE FOR DIRECTORS
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2 / POWERING BUSINESS SUSTAINABILITY
DISCLAIMERThis Powering Business Sustainability -
A Guide for Directors (“Guide”) is issuedby Bursa Malaysia Berhad to assistBoards in applying the principles and goodpractices of corporate responsibility andsustainability.
This Guide is not exhaustive in itscoverage. Boards must exercisediscernment and diligence in theuse of this Guide.
Boards and company ofcers shouldobtain professional advice regarding anyspecic set of facts or issues.
Whilst Bursa Malaysia has used reasonableendeavours to ensure that the informationcontained in this Guide are accurate,correct or obtained from sources believedto be reliable, the information herein isprovided on an “as is” basis without anyrepresentations or warranties of any kind.In no event shall Bursa Malaysia or anyof its subsidiaries be liable in respectof any claim arising out of or relating tothis Guide. This Guide shall be read inconjunction with relevant laws,regulations and/or rules.
All rights reserved. The “Bursa Malaysia”name and logo are registered trademarks.
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FOREWORD
I am delighted to be writingthe introduction to Bursa Malaysia’sPowering Business Sustainability -
A Guide for Directors. Through thisGuide, we strive to raise the bar interms of practices and reportingon sustainability practices of listedcompanies.
Bursa Malaysia, as a frontlineregulator and also as a listedcompany has commenced thesustainability journey and thisGuide is in line with ourcontinuous efforts to enhance thecompetitiveness and attractivenessof Bursa Malaysia as a listing
and investment destination. Theincreasing interest from investorsto evaluate sustainability risks andopportunities in their investmentdecisions should not go unnoticed.
Sustainability is not a fad buthas become critical to businessstrategy, risk managementand more importantly, must bea priority issue in boardroomagenda. In this context, eachlisted company’s overridinggoal should be to operateeffectively towards sustainablebusinesses.
As leaders for listed companies,directors must have thecommitment and passionin driving the sustainabilityagenda and integrate it in theoverall business strategies and
organisation culture.
Sustainability is not a fadbut has become criticalto business strategy, riskmanagement and moreimportantly, must be a priorityissue in boardroom agenda.
In conclusion, as CorporateMalaysia, we have theresponsibility to ensure thatwe operate a sustainableand efcient businesstowards enhancing long termshareholders value. I amcondent that with this Guide,you will come away knowingmore about the essentialsin sustainable practices andembrace them towards asustainable and protable future.
TUN MOHAMED DZAIDDINHJ ABDULLAH
CHAIRMANBURSA MALAYSIA BERHAD
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Contents
06 12 26 Acknowledgements
About this Guide
Executive Summary
Why is SustainabilityRelevant?
14 What is sustainability?16 The case for
sustainability inbusiness
22 What investors want
Enabling EffectiveSustainability in your Organisation
28 Dening yoursustainability strategy
30 Integrating andmanaging sustainability
34 Enabling sustainability inyour organisation
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40 48 58Prioritising yourSustainability Focus Areas42 Common focus areas
Engaging Stakeholders
50 Effective stakeholderengagement
52 Information needs ofstakeholders
54 Identifying andengaging stakeholders
Measuring and Reporting
60 Measuring yoursustainability impact
61 Overview ofsustainability reportingprocess
64 Assurance for credibility
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Bursa Malaysiawould like to expressits deepest gratitudeto all who made thepublication ofBursa Malaysia’sPowering BusinessSustainability - AGuide for Directors(“Guide”) possible.
We would especially like to thankPricewaterhouseCoopers (PwC)Malaysia for sharing their insights,believing in the value of taking thisbeyond just another job, and workingwith us towards a greater good.
We are also grateful to a number ofindividuals and organisations whohave contributed their views and bestpractices during the development ofthis Guide, including sustainabilityspecialists from Securities IndustryDevelopment Corporation (SIDC),
ACCA (Association of CharteredCertied Accountants), CSR Asia,Khazanah Nasional Berhad, FinancialTimes Stock Exchange (FTSE), Dow
Jones, Association for Sustainableand Responsible Investment in Asia(ASrIA) and directors and sustainabilitypractitioners of public listedcompanies. Bursa Malaysia would liketo thank all involved for their supportthroughout, without which we couldnot have made this publication happen.
ACKNOWLEDGEMENTS
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ABOUT THIS GUIDE
This Guide hasbeen developed toassist directors inunderstanding thegrowing relevance ofsustainability and howcompanies can embedsustainability withinthe organisation.
The primary objectives of the Guide are to:enhance awareness of sustainability•
and its relevance to companiesprovide guidance on embedding•
sustainability within an organisationshare sustainability good practices•
highlight key areas for directors to oversee•
The level of content in this Guide is intendedto support the Board in discharging its role inensuring the sustainability of the organisation,where the Board should provide strategicguidance and oversight of management.This includes reviewing and approving thecompany’s sustainability strategy and ensuringtransparent sustainability reporting.
The sustainability agenda is being drivenactively through a combination of corporateconscience, stakeholder pressure andgovernment policies. As such, sustainabilityframeworks and standards will continue toevolve. This Guide references the sourceswhere information have been extracted fromand companies should refer to the relevantsource documents for further details andany updates. The information, examples andquestions for management included in theGuide are designed to provide guidance only,and are not exhaustive.
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Chapter 1Highlights the relevance ofsustainability to businesses .Companies with goodsustainability performancehave the potential to protectand enhance their brand and
intangible value. Sustainability,when viewed strategically, canact as a catalyst for innovationand help identify new businessopportunities, reduce risks andimprove cost efciencies.
Chapter 2Elaborates on the importanceof establishing a sustainabilitystrategy that is aligned tostakeholder expectations,corporate strategy and valuesin order to maximise impact . Toeffectively manage sustainability,companies need to integrateit into management cultureand operations. This chaptersummarises the supportingpillars to embed sustainabilitywithin the organisation.
The Guide is structured into ve chapters with eachchapter addressing a key sustainability concept.
Chapter 3Summarises the commonsustainability issues faced bycompanies in different industrysectors . Companies need tounderstand the issues mostrelevant to their stakeholders
and themselves and activelymanage and report on them.
Chapter 4Highlights the stakeholdermanagement process and thebenets to companies inproactively engaging theirstakeholders . Sustainability iscreating a shift in focus fromshareholders to stakeholders.It requires companies to increasinglyidentify their key stakeholders,engage them to support thedevelopment of a relevantsustainability strategy and toinput into the effectiveness oftheir sustainability programmesand reporting.
Chapter 5Introduces measuring andreporting in order to disclosesustainability performance .Good practice reportingemphasises the impact ofsustainability initiatives and
are transparent, credible andreect a balanced picture of thecompany’s activities againstperformance. Companiesare increasingly sharingtheir reporting roadmap thathighlights their reportingaspirations and progression overthe longer term.
Further guidance canbe found on BursaMalaysia’s SustainabilityKnowledge Portal atwww.bursamalaysia.com/ sustainability/
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EXECUTIVESUMMARY
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Sustainability generallyrefers to the adoption andapplication of environmentallyresponsible practices,sound social policies andexceptional governancestructures in order tominimise risks and volatilityand to enhance the long-term development impact ofcorporate activities 1.
Sustainability in business,therefore means managinga company in a way thattakes into account the social,economic and environmentalaspects that can be referredto as the “triple bottom line”or “People, Planet, Prot”.Sustainability is aboutobtaining a good balanceof these three aspects.Companies are now focusedon being responsible tostakeholders, not justshareholders, as stakeholderscan also have a big impacton the value of a company.
In 2006, Bursa Malaysialaunched its CorporateSocial Responsibility (CSR)Framework to highlight tothe public-listed companies(PLCs) that CSR is more thanphilanthropy and communityinitiatives. Bursa Malaysiahas always advocated CSRas being key to sustainability.
Companies are seeingincreasing benets fromsustainability, e.g. costreduction, better riskmanagement, attractingand retaining talent.Sustainability has also beenidentied as one of the threepillars in the New EconomicModel and is key to supportthe nation’s transition to ahigh-income economy.
Introduction toSustainability
Sustainable Stock Exchanges, “Real1.Obstacles, Real Opportunities”, 2010
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A. ENABLING EFFECTIVESUSTAINABILITY IN YOURORGANISATION
B. PRIORITISING YOUR SUSTAINABILITYFOCUS AREAS
Sustainability should notbe viewed on a standalonebasis and separately fromthe way an organisationoperates. Companies gainthe most benets whenthey successfully embedsustainability practiceswithin the organisation.The following are some ofthe key steps to embedsustainability in anorganisation. The processis a continuous loop, anddoes not end at step 7 ornecessarily start at step 1.
1. Agree sustainability focus areas
2. Establish annualresource needs
3. Formalise responsibilitiesand reporting structure
4 . S et ev al ua ti on cr it er ia 5 . U se re le va nt me as ur esto monitor progress ofsustainability initiatives
6. Develop guidelines andtemplates for sustainabilityreporting
7. Develop a stakeholderengagement plan
Conduct inventory of existing•
sustainability initiatives andperformance
Assess sustainability issues•
most important to the keystakeholders as well as thecompany, challenges andfocus areasEnsure alignment with the•
company’s overall strategyand dene sustainability goals
Identify resources that•
are essential to achievesustainability goalsIncludes nancial assets,•
property, employees, rawmaterials, customers andintellectual property
Formalise sustainability•
reporting and governancestructureClearly dene persons-in-•
charge and their roles andresponsibilities; update
job descriptions and keyperformance indexes
Dene and agree on•
criteria to assess feasibilityof sustainability projectsDecide if sustainability•
projects should beimplemented based onfeasibility study
Dene metrics / dashboard•
required for differentstakeholders, includingBoard of Directors to assessperformanceCommunicate sustainability•
targets and metrics to relevantstakeholders
Develop internal reporting•
templates and guidelines;including processes andcontrolsCompile and analyse data•
Develop sustainability report•
Consider external verication/ •
assurance
Dene role of stakeholders•
and company’s strategy/ guidelinesIdentify key stakeholders•
and their main concernsPrioritise and map the•
stakeholders and theirconcernsReview and report outcome of•
stakeholder engagement andnext steps
A company’s sustainability focusis dependent on the businessimpact of their operations onthe Community, Environment,Marketplace and the Workplaceas well as stakeholders’expectations and corporatestrategy. Assessing sustainabilityissues along the company’s valuechain is a useful approach toavoid missing the identicationof key sustainability issues indetermining the sustainabilityfocus areas. The following arecommon sustainability issues thatare relevant across any sector 2:
Community Environment Marketplace Workplace
Raw materials processing Social inequity Abuse of nativesCommunity health & safety
DepletionEnvironmental damageUse of energy
CorruptionChild labourHuman rightsStandards for suppliersFacilitation payments
DiscriminationUnion rightsHealth & safetyWorking hours
Transport & logistics Social inequityCommunity health & safety
Pollution/SpillsEmissionsUse of energy
CorruptionHuman rightsStandards for suppliersFacilitation payments
Production Pollutions/SpillsEmissionsUse of energyUse of waterUse of raw materialsUse of packagingWaste management
CorruptionChild labourHuman rightsFacilitation payments
DiscriminationUnion rightsHealth & safetyWorking hoursStandards for suppliers
Distribution Social inequityDestroying local capability via access tobetter products/processesCommunity healthy & safety
Pollution/SpillsEmissionsUse of energy
CorruptionHuman rightsFacilitation payments
Marketing and sales Social inequitySocial inclusion
“Green” marketingSustainable packaging
CorruptionTruthful selling
Ethical marketing‘No logo’ attackConsumer awarenessFairtradeStandards for suppliersFacilitation payments
DiscriminationUnion rights
Health & safetyWorking hours
Management policies Support educationStakeholder engagement
Energy & efciencyClimate change strategy3 R’s (Reduce, Reuse & Recycle)Environment management/policyOperational eco-efciency
No corruptionObey the law
Avoid politicsCustomer relationship managementBrand managementInnovation management
Avoid facilitation paymentsResponsible government lobbyingCorporate governance
Diversity & inclusionMeritocracyRespect union rightsGood health & safetyGood working hoursPay for performanceHealth & awareness programmesTalent attraction, retention & developmentCorporate governance
V a
l u e c
h a
i n
PricewaterhouseCoopers Sept 2010, adapted2.with permission from John Zinkin, 2007
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C. ENGAGINGSTAKEHOLDERS ROLE OF
THE BOARD
D. MEASURING AND REPORTING
Stakeholders, and not justshareholders, are becomingincreasingly interested in theperformance of a company.Stakeholders are the individuals orgroups that are affected by, or canaffect an organisation, and theyinclude regulators, customers,employees, and investors.Organisations are expected tomeet stakeholders’ expectationsacross nancial, environmentaland social dimensions.
A robust stakeholder engagementapproach encourages a companyto communicate openly which
makes it easier to build trustbetween a company and itsstakeholders. Today, leadingcompanies have developedan appreciation that effectivestakeholder engagement cancontribute to learning andinnovation in products andprocesses:
Companies that measure, manageand communicate their social andenvironmental performance in a robustmanner tend to understand howto improve their processes, reducetheir costs, comply with regulatoryrequirements and stakeholderexpectations and take advantage ofnew market opportunities. Companiesin Malaysia are increasingly producingstandalone sustainability reports withgreater detail on performance, targetsand aspirations.
Dene parameters, identifyand collate data
Clearly dene the parameters to be•
covered, such as the rationale forthe company’s reporting, the scope ofcoverage, including reportingframework to adopt, level of assuranceand agreed focus areasDene reporting boundaries and•
materialityIdentify key functions and roles relevant•
for sustainability informationDevelop well-dened reporting•
templates to collate and manage data, ifexisting mechanism not already in place
Assess, prioritise andaddress sustainability gaps
Identify gaps between•
compiled data and thedened parametersPrioritise gaps identied•
Agree how and when to•
address gaps
Report sustainabilityperformance
Obtain approval from•
Board of Directors beforenalisation of reportPublish performance against•
commitments and targets.Share future targetsExplain any gaps in data/ •
shortfall against targets andrectication measuresConsider obtaining•
independent assurance onreport
Enabling Effective Sustainability
Discuss and approve the company’ssustainability strategy and alignmentto company strategy
View sustainability as part of theBoard’s duty of providing oversightand managing strategic, social, ethicaland environmental risks for betterdecision-making
Develop Sustainability Terms of
Reference for the BoardDelegate responsibility for social andenvironmental oversight to Boardcommittees / specic director whereappropriate
Include sustainability as part of theBoard agenda with the Board makingdecisions about the company’ssustainability position and direction
Approve budget for sustainabilityinitiatives and commitments
Set KPIs on sustainability for theBoard and Senior Management
Prioritising yourSustainability Focus Areas
Review and sign-off on material sustainabilityissues for the company to manage
Oversee management of material sustainabilityissues through robust processes and controls
Seek regular updates and measures onmanagement of material sustainability issues
Engaging Stakeholders
Ensure alignment on purpose of stakeholderengagement and readiness to manage the risksand issues raised
Lead specic stakeholder engagements togather feedback and ideas
Monitor output of stakeholder engagementsand make decisions to improve thecompany’s sustainability position and manageenvironmental & social risks
Ensure management considers investorand other stakeholder needs to balancebetween shareholder value and non-nancialperformance
Measuring, Reportingand Assurance
Review performanceof key sustainabilityinitiatives (includingexternal comparisons) andrecommend improvements
Cascade understanding thasustainability brings long-term value to the company
Encourage transparentreporting and assurance toincrease credibility
Discuss results of assurancwith assurance providersand management andoversee the required keyimprovements
Assess relevance of reportin attracting institutionalinvestors and sociallyresponsible investors
This list is not exhaustive and should be customised to reect the nature of the business.
Risk managementBetter relationships within•
the community and countryUnderstand societal•
sustainability concernswhich may adversely impactoperationsIdentify emerging issues•
that may inuence marketconditionsManage potential brand risks•
and associated costs
Strategic directionUnderstand impact of•
operations on stakeholders &inuence stakeholders wieldPrioritise sustainability•
issues based on materialityInnovate and generate•
new businessEstablish credibility as a•
partner in solutionsGet external feedback and•
advice from stakeholders
Accountability and transparency Account to stakeholders for the•
organisation’s actionsIdentify relevant social and•
environmental issues toreport against
Assuring the company’s•
stated performance againstsustainability issues
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WHY ISSUSTAINABILITY
RELEVANT?
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What is sustainability?
In 1987, the United Nation’s World Commission onEnvironment and Development (the Brundtland Commission)described sustainable development as “Development thatmeets the needs of the present without compromising theability of future generations to meet their own needs 1”.
Sustainability generally refers to the adoption and applicationof environmentally responsible practices, sound social policiesand exceptional governance structures in order to minimiserisks and volatility and to enhance the long-term developmentimpact of corporate activities 2. Sustainability in business,therefore means managing a company in a way that takesinto account the social, economic and environmental aspectsthat can be referred to as the “triple bottom line” or “People,Planet, Prot”. Sustainability is about obtaining a good balanceof these three aspects.
World Commission on Environment and Development, “Our Common Future”, 19871.Sustainable Stock Exchanges, “Real Obstacles, Real Opportunities”, 20102.Prime Minister’s Ofce, www.pmo.gov.my, accessed March 20103.Economist Intelligence Unit, “Doing Good: Business and the Sustainability Challenge”, 20084.Securities Commission Malaysia, “Speech at the Starbiz-ICR Malaysia Corporate5.Responsibility Awards 2009”, March 2010
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Leading global companies havelong moved beyond CorporateSocial Responsibility (CSR) as itwas perceived that the focus wasmore on the social aspects ofthe business – its people and thecommunity, and had limited impacton stakeholder value creation.
In 2006, Bursa Malaysia launchedits CSR framework for public listedcompanies (PLCs) to highlight thatCSR is more than philanthropy
and community initiatives. BursaMalaysia has always advocatedCSR as being key to sustainability.Today, sustainability, whichsupports stakeholder valuecreation, should be the main focusof every responsible company.
“It is clear that weneed to move CSRup the businessagenda and embedit into the DNA ofevery company. Thispresents an enormouschallenge, as well asa huge opportunity toget things right fromthe start 3”.
“Corporate Responsibilityis much more thanphilanthropy: it is not aboutwhat a company does withits money once it has madeit; it is about how it makes itsmoney. Few companies canchoose to ignore this ndingif they want to thrive in thenew business environmentand so Boards will have tofocus more on how they dobusiness 5”.
Dato’ Sri Najib Tun RazakPrime Minister of Malaysia
Tan Sri Zarinah AnwarChairman, Securities CommissionMalaysia
Business opinion polls and corporatebehaviour both show increased levels ofunderstanding of the link between responsiblebusiness and good business 4. Also, institutionalinvestors, investment managers and nancialservice providers recognise that sustainabilityactivities that integrate broader environmentaland societal concerns into business strategiesand performance can drive superior operatingperformance and be the hallmarks of goodmanagement and corporate governance.
Sustainability is not new – some aspectsof sustainability are already embedded inbusinesses. Those that adhere to the Shari’ahprinciples, for example, adopt ethical practicesthat are in line with sustainability.
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The case forsustainability in business
The impact ofsustainability differsbetween companiesand sectors, andis dependent on
various factors. Theseinclude the size ofthe company, natureof work undertaken,its products,locations, suppliers,management,customers and thereputation of thesector in which thecompany operates.There is growingconsensus on the linkbetween sustainabilityand the success ofa business.
Management of sustainabilityin the past may have been
driven by priorities in healthand safety, quality, compliance,brand reputation, philanthropyand other areas. In today’sbusiness, it encompasses thegrowing expectations of societyfor businesses to do their partin addressing environment,social and corporate governance(ESG) initiatives. ESG issuesneed to be included in strategydiscussions, risk management anddecision-making to signal their
importance and to align effectivemanagement incentives withnancial and ESG performance. Itis a natural evolution for existinggood business practice and withgrowing environmental and socialpressures, it is becoming a keystrategic issue.
Good sustainabilityperformance is linked to long-
term returns and a lower riskprole. For example, companieswith sustainable practices seean increase in customer loyaltyand trust. Conversely, investorsthat support a companythat focuses on short-termprotability could have lowerreturns in the long-term horizon.
Sustainability is increasinglybeing used as a framework bybusinesses to help manage
change related to environmentand social issues, includingnew technology, governmentpolicies, consumer demand;and to make decisions thatbalance economic, social andenvironmental impacts.
PricewaterhouseCoopers, “13th Annual6.Global CEO Survey”, 2010, surveying1,198 CEOs globallyPricewaterhouseCoopers7.
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of CEOs are sensing a shift in consumers’preferences to associate with environmentallyand socially responsible businesses – consumersperceive value in a company’s reputation 6.
Figure 1.1 shows howa company’s value can
be signicantly drivenby intangible value,for example trust andsocial & environmentalperformance. Strategically,being sustainable helpsprotect a company’s value,and this will appear moreattractive to the company’sstakeholders and sociallyresponsible investors.
Figure 1.1: Sustainability in astrategic context 7
Market Value
Book Value
Financial Capital•
Physical Assets•
Reputation•
Brand•
Trust•
Credibility•
Integrity•
Intellectual Capital•
Customer Loyalty•
Risk Management•
Social & Environmental•
Responsibility
T a n g
i b l e s
I n t a n g
i b l e s
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Benets ofsustainability tobusinesses
Globally, corporate leadersincreasingly agree thatsustainability is simply part ofgood business management andrecognise the value this brings tothe organisation. The followinghighlights some of the keybenets to companies that adoptsustainable practices:
Enhance risk managementand brand protection
Companies need to adapt tosocietal conditions, needs anddecrease the cost of accessto capital through effectivelymanaging governance, legal,social, environmental, economicand other risks. Companies thatembed sustainable practices areable to enhance their reputationand build goodwill with the
public and non-governmentalorganisations.
Greenwash is a term used todescribe companies that maynot operate in a sustainablemanner but brand their productsand policies as environmentally-friendly in order to gain acompetitive advantage. Amongstkey traits observed in greenwashreporting include:
emphasis on a narrow set•
of attributes withoutconsidering more materialenvironmental issuesenvironmental claims that are•
broad and cannot be veried bysupporting informationfailure to disclose the•
organisational/operationalboundaries of theenvironmental claimsenvironmental claims that may•
be truthful but are irrelevant toa company’s stakeholders
Hence, it is important thatcompanies ensure that theyadopt sustainability for the rightreasons and report transparentlyon their actions.
Increase employeeengagement
In an increasingly intense war fortalent, sustainability differentiates
a company from others and hasthe potential to attract and retainemployees and foster greaterproductivity. This can be the directresult of the prestige and prideassociated with a company’s
PricewaterhouseCoopers, “Malaysia’s8.Gen-Y Unplugged”, 2009
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products and practices. Improvedhuman resource policies alsoindirectly improve employeemorale and loyalty. Employeesare not only a key stakeholderin companies’ sustainabilityconsideration, but are also“champions” of a company theyare proud to work for orbe associated with. A Gen-Ysurvey found that 77% of Gen-Y’s in Malaysia said they wouldconsider leaving an employerwhose social responsibilityvalues were no longer inalignment with their own 8.
Increase cost savings
Companies that adopt sustainablepractices have also reportedincreased cost savings throughareas such as reduced energy useand raw material wastage, andlower waste disposal costs.
Enjoy tax incentives
Companies who undertakesustainability activities maybe eligible for tax deductions,tax exemptions and othertax benets depending onthe qualication criteria. TheMalaysian Government hasintroduced various tax incentivesto encourage more sustainablepractices, e.g. pioneer statusand income tax exemption of
100% for generation of energyfrom renewable sources andenergy efciency activities until 31December 2015.
Improve access to capital
Financial institutions areincreasingly incorporating socialand environmental criteria intotheir assessment of projects andgeneral lending. When makingdecisions about where to placetheir money, investors are looking
for indicators of sustainablemanagement in companies inresponse to pressure from theirown stakeholders to nancemore environmentally andsocially acceptable projects andbusinesses.
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Identify new businessopportunities
Engaging stakeholders anddrawing feedback from a diverseaudience can be a rich source ofideas for new products, processesand markets. Demand for moreenergy or resource efcientproducts is driving innovation, andcompanies that respond best havea market opportunity.
With increasing focus on labourand environmental issues inglobal supply chains, a Malaysiancompany that is certied toenvironmental and socialstandards, for example, maybe a more attractive supplier toparticular retailers in Europe andthe US. A sustainable supply chainwill also increase foreign viability.The history of good business hasalways been one of being alert totrends, innovation, and responding
to markets. Mainstreamadvertising increasingly featuresthe environmental or socialbenets of products.
Differentiate from competitorsSome companies adoptsustainability to differentiatethemselves from their competitors.These companies offer moresustainable products and servicesto their customers, whether it isby sustainable sourcing, productsfree from animal testing or offeringfuture savings during the lifetimeof the product.
Engage communities positively
Good sustainability practicescan help companies build “socialcapital”. Improved communityunderstanding of the company, itsobjectives, and its people can helpbuild stronger links with society,e.g., reduction in crime, higheremployee retention rates andreduced disruption to operations.
Comply with regulationsand government
There is increasing regulationrelated to employment andenvironmental management.Maintaining and improvingrelations with governments andregulatory stakeholders couldsupport a company’s reputation,especially so for those lookingto expand their operationsoverseas. Strong management
of sustainability will helpcompanies in maintainingtheir license to operatethrough enhanced trust anddemonstration of responsibility.
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What investors want
Globally, there is an increasing focus on sustainableinvestment, with over 800 asset owners, investment managersand professional service partners subscribing to the UnitedNations Principles for Responsible Investment (UNPRI).
As at 31 December 2009, the 2010 European Sustainable
and Responsible Investment (SRI) Market estimates that totalSRI assets shot up to USD 7 trillion 9. The socially responsibleinvestments market is expected to grow to USD 26.5 trillion by2015, which is estimated to be 15% to 20% of global AssetsUnder Management 10 .
More organisations arecommitting themselves toembedding environmental, social
and governance criteria in theirinvestment decisions. Regionally,the Association for Sustainableand Responsible Investment in
Asia (ASrIA), based in Hong Kong,is a membership associationof nancial and non-nancialcompanies that promotes SRI in
Asia including with its Malaysianpartners 11 . We are also seeing anincreasing number of sustainabilityindices developed under the DowJones Sustainability Indexesseries (DJSI), FTSE4Good,Ethibel Sustainability Index andMSCI Environment, Social andGovernance Indices series inmany countries.
The DJSI are the rst globalindexes established to trackthe nancial performance of
sustainability-driven companiesglobally. Sustainability portfoliosare managed using reliable andobjective benchmarks basedon the cooperation betweenthe Dow Jones Indexes, STOXXLimited and Sustainable AssetManagement. At present, theDJSI 12 has launched the DJSI AsiaPacic, DJSI Asia Pacic 40 andDJSI Japan 40, DJSI Korea, andthe DJSI Korea 20 in Asia.
The FTSE4Good Indexes 13 werelaunched in 2001 and theseindices are the best establishedwithin FTSE’s responsibleinvestment range. Companies areselected based on how well theymanage their environmental andsocial risks, using criteria thatincorporate globally recognisedsustainability standards.
Responsible Investor,9.www.responsible-investor.com,accessed October 2010Robeco and Booz & Co,10.“Responsible Investing: aParadigm shift”, 2008
Association for Sustainable and11.Responsible Investment in Asia,www.asria.org, accessedSeptember 2010Dow Jones Sustainability12.Indexes, www.sustainability-index.com, accessed May 2010FTSE4Good, www.ftse.com,13.accessed August 2010
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An overview of FTSE4Goodand Sustainable AssetManagement’s screening criteriawhen assessing companies:
FTSE4Good 14 Sustainable AssetManagement (SAM) 15
Environmental Criteria
SRI products with•
embedded environmentalcriteriaEngagement programme•
Environmental credit risk•
assessmentIntegration of nancial and•
environmental factorsSocial & Stakeholder Criteria
Equal opportunities•
Diversity policies•
Management systems•
Human Rights Criteria
Public policies•
Board responsibility•
Management systems•
Supply Chain LabourStandards Criteria
Policy/Labour codes•
Supply chain monitoring•
Countering Bribery Criteria
Prohibits giving and•
receiving bribesObey all relevant laws•
Restrict and controls•
facilitation payments
Environmental Dimension
Eco-efciency•
Environmental reporting•
Environmental policies•
and management systemsProduct stewardship•
Climate strategy•
Social Dimension
Corporate citizenship•
Labour practice indicators•
Human capital•
developmentSocial reporting•
Talent attraction &•
retentionEconomic Dimension
Codes of conduct•
Compliance•
Corruption & bribery•
Corporate governance•
Risk & crisis management•
Other sector-speciccriteria, all of which fallunder one of the threedimensionsNote: SAM’s assessment of corporatesustainability practices provides thebasis for the Dow Jones SustainabilityIndexes (DJSI) 15 .
Adapted from FTSE4Good, www.ftse.com,14.accessed August 2010Sustainable Asset Management, www.15.sam-group.com, accessed August 2010
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There is increasing evidenceshowing how good sustainabilityperformance positively impactsa company’s bottom line andenhances brand value. Figure 1.2depicts SAM’s assessment of its
portfolio in which the sustainabilityleaders consistently outperformthe sustainability laggards. Onemight argue that the costs ofimplementing sustainabilityactivities would adversely impact acompany’s nancial performance,but contrary to that, short terminvestments, if done well, can leadto long term gains.
“Companies should providea clear link between ESGfactors and its nancialmateriality in annual reports 17”.
Asset Manager , London
15
10
5
0
-5
-10
-152002 2003 2004 2005
SAM and PricewaterhouseCoopers,16.“The Sustainability Yearbook”, 2010WBCSD and UNEP FI, “Translating ESG17.into Sustainable Business Value”, 2010
Portfolio 1 - Sustainability Leaders (Top 20%)Portfolio 5 - Sustainability Laggards (Bottom 20%)
Figure 1.2: Sustainability can outperform 16
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2006 2007 2008
“Corporate measurement,monitoring and reporting ofenvironmental issues in Asiaare weak. ESG factors thathave been included in codesof conduct by multinationalsare reported more widely(where Asian companiesare linked by MNC supplychains). There is animbalance in requirements forMNCs and SMEs in Asia 17”.
Asset Manager , Kuala Lumpur
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ENABLINGEFFECTIVESUSTAINABILITYIN YOURORGANISATION
Key Takeaways
The alignment•
of a company’ssustainability strategywith that of itscorporate strategyensures a focused
and effective effortGood sustainability•
managementembeds sustainabilityelements into existingbusiness practiceswith a focus on valuecreation
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Dening yoursustainability strategy
Companies with effective sustainabilitystrategies have one thing in common– their sustainability strategies arealigned to or incorporated into theircorporate strategies, which assist in
embedding their sustainability activitiesinto the day-to-day business activities.
A company’s sustainabilitystrategy should be alignedwith its corporate values, andshould dene the company’ssocial and environmentalresponsibilities as wellas related future goalsand objectives.
It is vital for the company
to articulate clearly in itssustainability strategy itsplans to address the issuesof most concern to its keystakeholders. This is basedon the perspective that acompany’s success depends onthe strength of its relationshipwith its stakeholders 1.
A clear and aligned strategyprovides various benets tothe company, including easiercommunication of sustainabilityobjectives to gain support fromkey stakeholders including seniormanagement and the Board,and clearer alignment of socialand environmental efforts tomaximise the effort invested.
Figure 2.1 depicts howresponsible business andsustainable prots are embeddedinto the function of the Board.The Board is also responsibleto ensure integration of valuesand stakeholder interests incorporate strategy 2.
Business in the Community, www.1.bitc.org.uk, accessed March 2010UN Global Compact & the2.International Finance Corporation,“Corporate Governance, TheFoundation for Corporate Citizenshipand Sustainable Business”, 2009
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SHAREOWNERS OROTHER STAKEHOLDERS
Reporting to
BOARDIntegration of corporate citizenship
values, shareowner and otherstakeholder interests in corporate
strategy and risk management
MANAGEMENTMainstreaming
corporate citizenshiptargets within
company action plansand reporting to Board
on progress
DAY-TO-DAY OPERATIONS
Implementation of newpolicies in supply chain,
marketing, standard
operating procedures, andother business practices
Feedback fromSTAKEHOLDERENGAGEMENT,
includingOmbudsman orWhistleblowers
Figure 2.1: Function of the Board 2“A well-governedcompany takes alonger-term viewthat integratesenvironmentaland socialresponsibilitiesin analysingrisks, discoveringopportunities andallocating capital inthe best interestsof shareowners.There can be no
better way torestore publiccondence inboth businessesand markets andbuild a prosperousfuture 2”.
Georg KellExecutive Director,UN Global Compact
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Integrating andmanaging sustainability
Leading companies haveembedded sustainability intoongoing business practices.
A company’s performancemanagement system shouldbe aligned to the sustainabilityactivities of the company.This will support effectivemonitoring and measuring ofthe associated impacts of thesustainability activities. Trainingand development programmesshould be implemented to keyinternal and selected externalstakeholders (e.g. suppliers)to enhance sustainabilityawareness in the company.
A good SustainabilityManagement Framework willprovide a structured approachto implementing a robustsustainability managementmechanism in the organisation. S T A K E H O L D E R
E N G A G E M E N T
A.CorporateStrategy &
SustainabilityStrategy
B. SustainabilityInitiatives
C. SustainabilityMeasures
D. Structure, Processes,People & Infrastructure
E. Non-FinancialReporting & Assurance
Figure 2.2: Key components of asustainability management framework 3
PricewaterhouseCoopers3. Adapted from Bursa Malaysia4.CSR Framework, 2007
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A. Corporate strategy andsustainability strategy
A clearly dened sustainabilitystrategy will drive the focus of theorganisation and clearly communicateto stakeholders on its sustainabilityposition. This helps to align thecompany’s efforts across subsidiariesand departments, and increasebuy-in from all levels, includingmanagement and the Board.
The sustainability initiativesand measures adopted by thecompany must be aligned to thesustainability strategy. This willimprove coordination across theorganisation and support betterutilisation of resources.
B. Sustainability initiatives
Typically, a company’ssustainability initiatives fall intoone of the four dimensions as
highlighted in Bursa Malaysia’sCSR Framework in Figure 2.3.
The sustainability portfolioshould ideally reect the company’sdesired sustainability strategy. Theportfolio should be periodicallyassessed, and as and when thestrategy changes, should be rened.
Figure 2.3: Commonly used sustainability dimensions 4
Community Environment
Refers to invested ordonated money, time,products, services, inuence,management knowledge andother resources that positivelyimpact deserving localcommunities
Selected indicators:
Total community•
investment (RM)Number of hours spent on•
community initiativesNumber of community•
initiatives
Activities aimed at conservingecosystems and biodiversityand managing the impact of acompany’s operations on theenvironment
Selected indicators:
Total greenhouse gas•
emissions (CO 2-e)Total energy consumption•
Total water consumption•
Workplace Marketplace
Activities aimed at maintaininghigh standards of recruitment,development and retention ofemployees
Selected indicators:
Lost time injuries•
Percentage of females in•
senior management Average training hours per•
employee
Activities aimed at encouragingand inuencing shareholders,suppliers, vendors and customersto act in a sustainable manner
across the value chain to supportcompany’s own sustainabilityagenda
Selected indicators:
Number of supplier audits•
Percentage of suppliers•
meeting environmental criteriaCustomer satisfaction results•
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C. Sustainability measures
Measures should be developedto track the performanceof sustainability initiativesimplemented by a companyand the effort involved. Oncedeveloped, these measuresshould be agreed upon by the
owners and relevantstakeholders. Progressivecompanies are starting to seek todevelop these measures with keystakeholders upfront.
D. Structure, Processes, People& Infrastructure
Sustainability should beembedded within a company’sstructure, processes, roles of itspeople and infrastructure.
The sustainability roles andresponsibilities of an organisationshould be clearly dened andinstitutionalised, including updatesto job descriptions and KeyPerformance Indicators (KPIs)for existing roles impacted.
Effective management ofsustainability can be supportedby a dedicated sustainabilityfunction in an organisation ora well dened virtual team,comprising representatives acrossthe organisation. Bursa Malaysiaencourages its PLCs toclearly dene the sustainabilityroles and responsibilities withinthe company.
A formal sustainability functionworks well in companies that viewsustainability as a strategic issueas it:
provides management with•
visibility to all sustainabilityefforts in the companyaids in the change management•
process to update or transformpolicies and proceduressupports changing behaviours•
to embed a sustainabilityculture in the company
Sustainability needs to be drivenby Senior Management or amember of Senior Management.Some companies appoint aperson in charge of sustainabilitywho reports directly to the CEO.
Ultimately, the Board should beresponsible for the company’ssustainability practices and thereshould be a set of KPIs to governthe Board’s actions.
E. Non-nancial reporting& assurance
A company’s sustainabilityreporting should be atransparent and fair reectionof the sustainability initiativesundertaken by the company.This enables the company
to constructively engagestakeholders and seek to improveupon its impact and furtherenhance its reputation and value.
Most large companies producea standalone sustainability report,and an independent vericationof the company’s sustainabilityreport would increase its credibilityamongst stakeholders. Thereare also trends towards moreweb-based communication,
recognising that sustainabilityreporting may cover morelong-term issues that are notalways constrained to a nancialyear. Bursa Malaysiaencourages companies toprogressively increase the levelof disclosure included in theirsustainability reporting.
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In Standard CharteredBank, the overallresponsibility for thebank’s sustainabilityand climate changestrategy is guided by
the “Sustainabilityand ResponsibilityCommittee” which isa Board appointedcommittee chairedby an IndependentNon-Executive Director 5.
Corporate Governanceand Sustainability
Stakeholders want greatertransparency across a company’scorporate activity and specically on
how prots are generated. This has ledto a greater link between CorporateGovernance and Sustainability. Therole of the Board of Directors has toevolve to include strategic oversightof the social and environmentalperformance of the company andreview of non-nancial reports.
Directors are now recognising theneed for good corporate citizenshipin communities in which they operate,whether locally or abroad; as goodsustainability practices can enhanceand protect the reputation of acompany and its license to operate.
Standard Chartered, “Sustainability5.Governance”, assessed July 2010
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Enabling sustainabilityin your organisation
The following are some of the keysteps a company may consider whenseeking to embed sustainability inits organisation. These key stepscan be implemented in a company,
regardless of size. The process is acontinuous loop, and does not end atstep 7 or necessarily start at step 1.
1. Agree sustainability focus areas
2. Establish annualresource needs
3. Formalise responsibilitiesand reporting structure
4. Set evaluationcriteria
The Sustainability team,Senior Managementand the Board have toreview various inputs andagree upfront on whatsustainability means fortheir business, the keyissues and challenges
they may face, and thesustainability focus areas toenhance value creation forits multiple stakeholders.The focus areas should bealigned to the company’soverall strategy and aresupported by clearlydened goals for each area.
Resources required tosupport the sustainabilityefforts of an organisationshould be identiedupfront and included inthe company’s budgetingprocess. Resources includenancial assets, property,
employees, raw materials,customers and intellectualproperty.
A formalised sustainabilitystructure with clearlydened persons in-charge,their associated roles andresponsibilities and jobdescriptions with updatedkey performance indicators(KPIs) can be developed.
A formalised sustainabilityreporting and governancestructure can help drivesustainability maturity in theorganisation.
A dened set ofcriteria, which mayinclude process andimpact measures toassess sustainabilityprojects along withtargets, can be createdto provide clarity to
the Management orBoard when selectingsustainability projectsfor adoption. Feasibilistudies are conductedto support decision-making on whether toimplement projects.
1. Agree sustainabilityfocus areas
7. Develop a stakeholderengagement plan
The steps highlighted are common steps that Boardscan undertake, whether they are just starting theirsustainability journey, or for Boards that are moreadvanced. The differentiating factor is in the breadthand depth covered in each step.
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5. Use relevant measuresto monitor progress ofsustainability initiatives
6. Develop guidelines andtemplates for sustainabilityreporting
7. Develop a stakeholderengagement plan
To assess the successor the failure of projects,metrics or a dashboardshould be dened fordifferent stakeholders.It is good practice forcompanies to communicatetheir sustainability targets
and metrics to relevantstakeholders to supportachievement of targets.
Develop internal reportingtemplates, guidelines,processes and responsibilitiesto ease the compilation andanalysis of data that willsupport both internal andexternal sustainability reporting.
Assurance/external verication
should also be conducted toincrease credibility of the report.
Stakeholder engagementdemonstrates a visiblecommitment to sustainabilityand a company should clearlydetermine the purpose ofstakeholder engagementwhen embarking upon this. Thecompany’s key stakeholders
and their main concerns shouldbe identied, prioritised andmapped to help identify thematerial sustainability issuesfor the company. Outcomes ofstakeholder engagement shouldbe reviewed and reported.
Establish annualresource needs
4. Set evaluation criteria3. Formalise
responsibilities & reportingstructure
5. Use relevant measuresto monitor progress
6. Develop guidelines andtemplates for reporting
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Sustainabilitygovernance
A company’s Board of Directorsplay an important role indeveloping a roadmap forSustainability Governance. Goodplanning of implementationprocedures and propergovernance mechanisms can helpa Board successfully integratesustainability into its mandate.Below is a roadmap 6 developedfor Boards that are starting outand Boards that are ready to takeit to the next level.
Stage 1For Boards juststarting out
1. Build sustainability into the rm’s mission and values.Establish sustainability mission, vision, values, principles,and policies in consideration or stakeholder priorities andinternational standards.
2. Communicate Board’s commitment.Communicate the Board’s sustainability commitmentinternally and to stakeholders.
3. Build sustainability into risk management.Include social and environmental considerations in risk andopportunity identication, management and monitoring.
4. Integrate sustainability into business strategyand provide oversight.Integrate sustainability into business strategy and corporateplans; set goals, objectives, and targets, and monitorperformance against targets.
5. Mandate a committee with sustainability responsibility.Include a sustainability mandate within a pre-existingcommittee, or establish a new committee with a clearmandate. (See box “Proposed Sustainability CommitteeMandate.”)
6. Report to stakeholders on sustainability performance.Review and approve third-party audited sustainability reportfor distribution to shareholders and stakeholders;ensure sustainability report complies with internationalsustainability reporting standards.
Adapted from the Conference6.Board of Canada: The Role of theBoard of Directors in CorporateSocial Responsibility (report, June2008); Strandberg Consulting
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Stage 2For Boards ready to takesustainability to next level
7. Reward executives forsustainability performance.Incorporate non-nancial/long termobjectives into executive compensation;ensure performance management systemsreward sustainability performance.
8. Recruit directors withsustainability perspectives.Explicitly include sustainability in director recruitment,e.g. director diversity and experience and
background in sustainability issues/management.
9. Orient and train directors on sustainability.Include sustainability in director orientation,ongoing training and education, and Boardevaluations; ensure Board is provided with adequatesustainability expertise and information to makeinformed decisions.
10. Provide mechanisms for stakeholder input.Ensure mechanisms are developed for Boardconsideration of unltered input from stakeholders.
11. Recruit CEOs with sustainability competency.When recruiting a new CEO, ensurecandidates are assessed for sustainabilityawareness and competency.
12. Consider sustainability in majorbusiness decisions.Include consideration of sustainability inmajor acquisitions, business partnerships, mergersand investments.
Proposed Sustainability Committee Mandate
PoliciesReview and recommendsustainability policies(including codes of conduct)and management systems;monitor compliance withpolicies, commitments, andregulations.
Strategy Review/recommendsustainabilitystrategies and plans; provideguidance to managementon objectives and targets;provide oversight andguidance on sustainabilityperformance/progress.
TrendsMonitor and providerecommendations on publicpolicy, consumer, stakeholder,corporate, and generalpublic trends, issues, anddevelopments that couldimpact the company.
Risk ManagementMonitor and overseesustainability riskmanagement plans;review effectiveness ofissue identication andmanagement.
StakeholderEngagementReview and monitorstakeholder relations,consider opportunitiesfor direct stakeholderinput into committeedeliberations.
Sustainability ReportDetermine overall scopeof, provide input on,and recommend Boardadoption of Boardsustainability report.
Incident ManagementReview incidents andremedial actions andmonitor crisis readinessand emergency plans.
Sustainability AssessmentReview and makerecommendations onsustainability impactsof major businessdecisions.
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Questions formanagement
What is our sustainability•
strategy and focus areas?Have we aligned our desired•
sustainability strategy to ourcorporate strategy?How are we managing•
sustainability within theorganisation? Do we have adedicated team to help driveour sustainability agenda?Who is in the Sustainability•
Committee?What steps are we taking to•
understand how to optimiseour economic, social andenvironmental outcomes?What are the key environment•
and social aspects of theorganisation’s business,products and processes?
Are the key focus areas•
meeting key stakeholders’expectations and demands?
Role ofthe Board
Discuss and approve the•
company’s sustainability strategy
View sustainability as part of•
the Board’s duty of providingoversight and managing strategic,social, ethical and environmentalrisks for better decision-makingDevelop Sustainability Terms of•
Reference for the BoardDelegate responsibility for social•
and environmental oversightto Board committees/ specicdirector where appropriateInclude sustainability as part of•
the Board agenda with the Boardmaking decisions about thecompany’s sustainability positionand direction
Approve budget for sustainability•
initiatives and commitmentsSet KPIs on sustainability for the•
Board and Senior Management
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Key Takeaways
Different businesses•
will have differentsustainability issuesand sustainabilityfocus areas thatstakeholders willexpect activemanagement ofIdentication of•
issues is donethrough variousmethods, e.g.stakeholder mappingand engagement,value chain analysisand benchmarking
PRIORITISING YOURSUSTAINABILITYFOCUS AREAS
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Common focus areas
A company’s sustainabilityfocus is dependent onthe business impact oftheir operations on theCommunity, Environment,
Marketplace and theWorkplace as well asstakeholders’ expectationsand corporate strategy.
Assessing sustainabilityissues along the company’svalue chain is a usefulapproach to avoid missingidentication of keysustainability issues indetermining sustainabilityfocus areas. The followingare common sustainabilityissues that are relevantacross any sector:
PricewaterhouseCoopers Sept 2010, adapted1.with permission from John Zinkin, 2007
Community
Raw materialsprocessing
Social inequity Abuse of nativesCommunity health & safety
Transport & logistics Social inequityCommunity health & safety
Production
Distribution Social inequityDestroying local capabilityvia access to better productprocessesCommunity healthy & safe
Marketing and sales Social inequitySocial inclusion
Management policies Support educationStakeholder engagement
Figure 3.1: Common sustainability issuesimpacting companies and industries 1
V a
l u e
c h a
i n
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Environment Marketplace WorkplaceDepletionEnvironmental damageUse of energy
CorruptionChild labourHuman rights
Standards for suppliersFacilitation payments
DiscriminationUnion rightsHealth & safety
Working hours
Pollution/SpillsEmissionsUse of energy
CorruptionHuman rightsStandards for suppliersFacilitation payments
Pollutions/SpillsEmissionsUse of energyUse of waterUse of raw materialsUse of packagingWaste management
CorruptionChild labourHuman rightsFacilitation payments
DiscriminationUnion rightsHealth & safetyWorking hoursStandards for suppliers
Pollution/SpillsEmissionsUse of energy
CorruptionHuman rightsFacilitation payments
“Green” marketingSustainable packaging
CorruptionTruthful sellingEthical marketing‘No logo’ attackConsumer awarenessFairtradeStandards for suppliers
Facilitation payments
DiscriminationUnion rightsHealth & safetyWorking hours
Energy & efciencyClimate change strategy3 R’s (Reduce, Reuse & Recycle)Environment management/policyOperational eco-efciency
No corruptionObey the law
Avoid politicsCustomer relationship managementBrand managementInnovation management
Avoid facilitation paymentsResponsible government lobbyingCorporate governance
Diversity & inclusionMeritocracyRespect union rightsGood health & safetyGood working hoursPay for performanceHealth & awareness programmesTalent attraction, retention &developmentCorporate governance
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Key sustainabilityfocus areas
Industrial ProductsSafety, clean internal combustion,energy efciency and properdisposal options for retiredproducts are key issues for thissector. Improving the efciencyand having the ability to preparefor present and future carbonconstraints are essentialconsiderations when developingproducts. Occupational health andsafety, human rights and equalityare also other challenges presentin the industry especially as theworkforce tends to be culturallydiverse. Exposure to humanrights and abuse issues arekey considerations as supplierspenetrate emerging markets.
Trading/ServicesSome key issues across thissector are energy efciency,greenhouse gas (GHG) emissions,the availability of clean water andwaste management. Threats tobiodiversity and the managementof ecosystems need to beaddressed. Equal employmentopportunities and the eradicationof gender bias are other issuesfaced by companies in this sector.
Consumer ProductsClimate change issues are ofprimary importance. They affectthe supply chain and the sourceof many consumer products.Ethically sourced products havealso gained importance amongstvarious stakeholders although
supply costs may increase. It isessential for consumer productgroups to constantly engage andmaintain stable relationships withtheir suppliers in the long term inorder to ensure that transparentreporting exists throughout thesupply chain process.
PropertiesEnergy efciency and climatechange are major concerns forthe property sector. Increasingenergy costs have made theamount of operational energyused in buildings a distinctivefactor for their attractiveness.Limited land availability, threatsto biodiversity and the supplyand usage of sustainable materialsare other key concerns.
ConstructionThe difculty in establishingproper controls over energyusage, responsible use andmanagement of resources andorganisational health and safetyissues have always been keyareas of concern. Water scarcity
and energy consumption arekey in establishing the resource-conscious status of constructionservices providers. Proper codesof conduct established andimplemented in a company canprevent involvement in anti-trustand bribery cases.
The Sustainability Yearbook 2 published annually by Sustainable Asset
Management (SAM) and PwC lists the sustainability leaders by different industrysectors and highlights sector specic focus areas. More details can be foundon Bursa Malaysia Sustainability Knowledge Portal. Some examples arehighlighted below:
SAM and PricewaterhouseCoopers,2.“The Sustainability Yearbook 2010”,2010
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PlantationPrimary challenges includeensuring responsible managementof forests and plantations andresponsible sourcing. Other issuesinclude minimising environmentalimpact of operations, complyingwith labour legislation, talentattraction and retention,occupational health and safetyas well as identifying supplierswith similar sustainabilityvalues. Threats to indigenouscommunities, chain-of custodyissues, GHG emissions andmanagement of ecosystems areissues that are gathering focus.
Finance Accountability and transparencyhave become increasinglyimportant in buildingcompetitive advantagein the nance industry.Established compliance andrisk management standardshave become vital. In addition,climate change, changes inan economy’s demographyand disintermediation of valuechains will continue to impactthe economic environment.Talent retention will persist asan issue for the industry.
Technology Key issues includeconservation of energyand resources, reusing and
recycling programmes, wastemanagement and proper wastedisposal. Security over the useof information technology andcondential data is also anissue in relation to client privacy.Other sustainability issuesinclude the use of hazardousmaterials and maintaining fairworking conditions.
HotelsMost hotel groups haveacknowledged that climate change,employment practices, communitywelfare, waste management andsustainable buildings are mainissues. Integration into localcultures, the sustainability offranchisees, the climate changeimpacts of tourist travel and sextourism are rarely considered.
MiningThe major challenges for theindustry include managing theenvironmental and regulatoryrequirements, improving miningsafety and increasing operatingcosts due to the shortage ofskilled workers. Management andreduction of GHG emissions as
well as occupational health andsafety remain major issues. Mineclosure planning has recently gainedmomentum and requires structuredstakeholder engagement activitiesas well as sophisticated modelling.
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Questions formanagement
What are our main concerns•
in the community,environment,marketplace and workplacedimensions?What are the relevant•
sustainability issues to ourbusiness and how do weidentify them?What relevant key issues are•
we failing to address?
Role ofthe Board
Review and sign-off on materiality•
of sustainability issues
Oversee management of material•
sustainability issues throughrobust processes and controlsSeek regular updates and•
measures on management ofmaterial sustainability issues
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ENGAGINGSTAKEHOLDERS
Key Takeaways
Stakeholder•
engagement benetsan organisationby enhancing itsaccountabilityand transparency,strengthening itsstrategic direction andsupporting proactiverisk managementStakeholder•
engagement is acontinuous processutilising variousmethods to achieve adesired outcome fororganisations whilstbalancing the needs
of its key stakeholders
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Effective stakeholderengagement
The increasing trend in non-nancialreporting highlights how organisations areexpected to meet stakeholders’ expectationsacross economic, environmental and socialdimensions. There is a shift towards a
more integrated approach in reporting acompany’s performance to a cross-section ofstakeholders rather than mainly shareholders.
It is no longer enough forcompanies to focus on managingonly their shareholders; theyalso need to engage otherstakeholders. Managing keystakeholders such as regulators,customers, suppliers, businesspartners, employees andcommunities are becomingincreasingly important.
Stakeholders can have asignicant impact on a company’smarket value especially itsintangible value. Instances ofproduct boycotts, employeestrikes and anti-productcampaigns can cause the marketvalue to fall if there is a largeintangible value attached to it.
A robust stakeholder engagementapproach helps a company tocommunicate openly whichmakes it easier to build trustbetween a company and
its stakeholders. Ultimately,organisations require strongstakeholder engagement forcontinued support of theirlicense to operate.
Today, leading companies havedeveloped an appreciation thateffective stakeholder engagementcan contribute to learningand innovation in productsand processes.
In its 2010 Trust Barometersurvey ndings, Edelman reportedthat more than half of its 4,875respondents concluded that allstakeholders are equally importantand should be considered whena CEO makes a key businessdecision. Only 14% opined thatshareholders of the company werethe most important, with the restindicating all other stakeholdershad an equal, if not more importantsay than the shareholders 1.Edelman, “2010 Edelman1.
Trust Barometer”, 2010
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Figure 4.1: Benets of stakeholder engagement
Risk managementBetter relationships within the•
community and countryUnderstand societal•
sustainability concerns
which may adversely impactoperationsIdentify emerging issues•
that may inuence marketconditionsManage potential brand risks•
and associated costs
Strategic directionUnderstand impact of•
operations on stakeholders &inuence stakeholders wieldPrioritise sustainability•
issues based on materialityInnovate and generate•
new businessEstablish credibility as a•
partner in solutionsGet external feedback and•
advice from stakeholders
Accountability andtransparency
Account to stakeholders for•
the organisation’s actionsIdentify relevant social and•
environmental issues toreport against
Assuring the company’s•
stated performance againstsustainability issues
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Information needsof stakeholders
Stakeholders are dened by AccountAbility as “a group or individualswho can affect, or who can be affectedby a corporation or its activities 2”.
The map of relevant stakeholderscan be different for separateissues. New stakeholders
can emerge on the sceneunexpectedly with the emergenceof new issues.
The World Business Councilfor Sustainable Developmenthighlights two categories ofstakeholders 3:
Direct stakeholders include•
shareholders and employees,often considered to be anorganisation’s most importantasset
Indirect stakeholders•
include all the individualsand organisations withinthe company’s sphere ofinuence, such as customers,suppliers, NGOs, capitalmarkets, nancial analysts,government agencies and localcommunities
AccountAbility, “AA10002.Stakeholder EngagementStandard”, 2005World Business Council for3.Sustainable Development, “Strikingthe Balance”, 2002
Stakeholders have varyinginformation needs and meansof interaction depending on
their role and focus area. An organisation will needto decide who is its primarytarget audience as it wouldbe impractical to spendequal effort addressingeach stakeholder group.
Various stakeholders readsustainability reports to satisfytheir particular informationneeds. The following is asummary to illustrate theinformation needs of commonstakeholders:
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Stakeholder Information Needs
Employees Social, economic and environmental performance of the company•
The benets and impact of sustainability initiatives implemented by the company•
Environmental performance of the company•
Employee engagement results•
Customers Social and environmental impact of the products and services•
Corporate values and practices•
Pricing•
Raw materials and packaging materials used•
Supply chain performance•
Quality of products and services•
Suppliers Financial health and supply chain practices•
Human rights•
Environment•
Product impact•
Business operations•
Working conditions•
Ethics, accountability and disclosure•
Government Regulatory purposes and control•
Formulation of policies•
Values and governance•
Compliance•
Fair play•
Social and environmental impact•
Capital markets,Financial analysts,Shareholders
Information to support longer-term investment•
Ethical indices performance•
Sustainability performance•
NGOs Company’s position on social and environmental responsibilities such as•
environmental protection, human rights, corruption
Community at large Impact of operations to the community and the environment•
Human rights•
Social impact•
Employment and business opportunity•
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Identifying andengaging stakeholders
Identify
Identication of key directand indirect stakeholdersis largely inuenced bythe role of stakeholdersand the impact that theyhave on the organisationand the nature ofthe relationship. Thevarious dimensions fororganisations are 4:
By responsibility Existing or future legal, nancialand operational obligations asstipulated in regulations, contracts,policies or codes of practice
By inuenceIndividuals or groups that at presentor in the future can inuence anorganisation’s ability to meet itsobjectives or hamper its actions.These can include those withinformal inuence and those withformal decision making power
By proximity Individuals or groups involvedin daily operations or live withinthe vicinity of an organisation’soperations
By dependency Individuals or groups that are mostdependent on your organisationsuch as employees for theirlivelihood, customers for theirproducts, suppliers for their rawmaterials
By representationIndividuals or groups either throughformal representation or traditionalstructure of a society entrustedto act as representatives, e.g.members of parliament, heads ofa local community, trade unionrepresentatives, councillors,representatives of membershipbased organisations
Engage
Select and utilise the rightengagement approach for eachstakeholder group.
The approaches to stakeholderengagement include relationshipsbuilt around one-waycommunication, consultation,dialogue and partnershipsas highlighted in Figure 4.2.Organisations need to understandthe risks and opportunities ofeach engagement approachand ultimately, decide on anapproach that will meet boththe organisations’ objective andstakeholder needs.
Companies embarking onstakeholder engagement shouldbe prepared to address conictingviews and issues raised by thedifferent stakeholders. Bothdirectors and management shoulddiscuss possible resolutions forpertinent issues raised. As goodpractice, companies shouldensure that feedback is givento stakeholders to promotetransparency and encouragedialogue once stakeholderengagement is embarked upon.
Bursa Malaysia encouragescontinuous communicationand engagement with relevantstakeholders to ensure thatsustainability is effectivelyembedded within the organisation.
Stakeholder4.Research AssociatesCanada, UNEP and
AccountAbility, “TheStakeholder EngagementManual”, 2005PricewaterhouseCoopers5.and adaptationfrom StakeholderResearch AssociatesCanada, UNEP and
AccountAbility, “TheStakeholder EngagementManual”, 2005
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Inclusivity of relationship
Trust us
M e t h o
d
T o o
l s
S t r a t e g y
Show us Involve us,Hear us
Communications Consultations Dialogue Partnerships
Any manner ofinformation-sharingwith stakeholders,generally throughone-way, non-iterative processes.
The process ofgathering informationor advice fromstakeholders andtaking those viewsinto consideration toamend plans, makedecisions or set
directions.
An exchange ofviews and opinionto explore differentperspectives, needsand alternatives,with a view tofostering mutualunderstanding, trust
and cooperationon a strategy orinitiative.
In the contextof sustainabilityinteractions,partnership hasbeen denedas “people andorganisations fromsome combination of
public, business andcivil constituencieswho engage incommon societalaims throughcombining theirresources andcompetenciessharing both risksand benets.
Company•
brochures & reportsRoadshows•
Websites•
Press releases,•
press conference,advertising
Questionnaire•
surveysFocus groups•
Ad hoc stakeholder•
engagement Advisory forums•
Online feedback/•
forums
Multi-stakeholder•
forums Advisory panels•
Online forums on•
intranet/internet
Joint ventures•
Alliances•
Local/regional•
/global multistakeholderinitiativesInternational•
organisationassociated forums
Monitor Monitor, Empower,Engage
Empower, Engage Partner
Figure 4.2 Stakeholder engagement methods 5
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Questions formanagement
Who are the priority•
stakeholders of myorganisation?Do we have a robust•
stakeholder engagement plan?Do we know the key•
sustainability issues relevantto our key stakeholders?How have we engaged our key•
stakeholders? Has it proveneffective to us and them? Dowe need to explore alternativemethods?Do we report our stakeholder•
engagement? Are we engaging for the sake•
of public relations purposesor are we genuinely interestedin seeking out stakeholdersperspectives?Do we use feedback from•
stakeholders effectively in ourdecision making process?Do we revert to stakeholders•
on issues raised? Is therea two-way communicationprocess with our
stakeholders?
Role ofthe Board
Ensure alignment on purpose•
of stakeholder engagement
and readiness to managerisks and issues raisedLead specic stakeholder•
engagements to gatherfeedback and ideas.Boards can have innovativeconversations that can helpexpand their viewsMonitor output of stakeholder•
engagements and makedecisions to improve thecompany’s sustainabilityposition and directionEnsure management•
considers investor andother stakeholder needs tobalance between shareholdervalue and non-nancialperformance
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MEASURING ANDREPORTING
Key TakeawaysSetting relevant KPIs for•
sustainability initiatives iscritical for understandinghow well a company’ssustainability strategyis performing and theimpact of these initiativesThe data reported in•
a sustainability reportshould cover areasthat have signicanteconomic, environmentaland social impacts tothe company and itskey stakeholders acrossthe four sustainabilitydimensions of workplace,marketplace, communityand environment
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Measuring yoursustainability impact
Sustainability is a part ofgood business practice forlong-term shareholder value.
Companies that measureand report their sustainabilityperformance understand how toimprove their processes, reducetheir costs, comply with regulatoryrequirements, manage stakeholderexpectations and take advantageof new market opportunities.
Measures dene the outcomeof an initiative or programmeundertaken by a company.Clear denition and monitoring ofmeasures support:
management's decision to•
review and revise sustainabilitystrategy and focusbetter stakeholder engagement•
and management
better understanding of the•
impact and benets of thesustainability programmeprioritisation of higher impact•
initiatives
As good practice, companiesshould set baseline and targetmeasures to monitor theprogress and effectiveness of theinitiative and its impact (samplemeasures are highlighted inFigure 2.3). Targets set should beachievable and realistic.In order to track progress, it isgood practice to have milestonesin place in order to identify andanticipate problems.
Year-on-year comparisonsdemonstrate the improvementsand challenges faced, andprovide management withquantitative data to supporttheir efforts, complementingqualitative statements.
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Companies are increasingly reporting their sustainabilityperformance using different means, either in their annual reports,websites or standalone sustainability report. Good sustainabilityreports commonly have a clear, holistic, transparent and independentaccount of the companies activities in the sustainability sphere.
A robust reporting process will ensure data reported is easily veriableand assured by independent parties and sustainability stakeholders.
Overview of sustainabilityreporting process
Dene parameters,identify andcollate data
Assess, prioritiseand address
sustainability gaps
Reportsustainabilityperformance
Clearly dene the•
parameters to be covered,such as the rationale for thecompany’s reporting, thescope of coverage,including reportingframework to adopt,level of assurance andagreed focus areas
Dene reporting boundaries•
and materialityIdentify key functions•
and roles relevant forsustainability informationDevelop well-dened•
reporting templates tocollate and manage data,if existing mechanism notalready in place
Identify gaps•
between compileddata and the denedparametersPrioritise gaps•
identied Agree how and when•
to address gaps
Obtain approval from•
Board of Directorsbefore nalisation ofreportPublish performance•
against commitmentsand targets. Sharefuture targetsExplain any gaps in•
data/shortfall againsttargets and recticationmeasuresConsider obtaining•
independent assuranceon report
Figure 5.1: Sustainability reporting process
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Figure 5.2: Key considerations of quality sustainability reporting
Sustainability frameworks and good practices require companies to providea comprehensive and holistic view of their sustainability performance throughadopting a quality reporting framework. Some of the key considerations ofquality sustainability reporting for companies are listed here. Further details canbe obtained at Bursa Malaysia’s Sustainability Knowledge Portal.
Reporting principles
Adopt balanced•
frameworks that providepositive and negativeaspects of activitiesundertakenFrameworks should•
provide clarity andprovide an accuratestatus update of theinitiatives undertakenStakeholders should•
be able to analyse thechanges and performcomparison checks in atimely mannerInformation should be•
veried and examined toensure that it is reliableand accurate
Content guidelines
Include sustainability•
vision, company structure,governance and policiesClearly dene materiality•
of sustainability issuesand highlight relevance ofsustainability initiatives tostakeholders and companyShare performance•
measures, including pastand current performanceindicatorsConsider obtaining•
verication and assurancereports by a stakeholderpanel or credible externalthird party assuranceproviderHighlight future•
commitments Address any gaps,•
shortfalls in targets andissues highlighted via theassurance process
Methodology
Dene content and•
boundaries to determinethe reporting scopeand depth. Discloseboundary of reportIdentify key•
sustainability areas andmeasures to ascertainthe areas or signicantthemes to stakeholdersPrioritise key areas•
and measures byassessing key risksand opportunitiesto determine areasand measuresdeemed importantto stakeholders andbusinessesReport key areas and•
measures based onprinciples and guidelines
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It is not necessary for companiesto report everything, but a goodsustainability report shouldprovide a balanced representationof the company’s sustainabilityinitiatives and progress status.Typically, quality sustainabilityreports demonstrate the followingwithin well-dened boundariesand for the material areas:
Accuracy A good sustainability report shouldprovide adequate informationthat is accurate with a signicantamount of detail regardingthe company’s progress onsustainability performance
Transparency Companies should provide abalanced view of the actualperformance status of thecompany’s sustainability initiatives
Completeness A good sustainability reportshould be concise with a detailedoverview of the economic,environmental and social impactsto provide stakeholders anaccurate assessment of thecompany’s performance
Companies choosing toreport on their sustainabilityperformance are encouragedto adopt global frameworks toguide them.
Global Reporting Initiative (GRI)is a widely used sustainabilityreporting framework and iscommitted to continuousimprovement and applicationworldwide. This frameworksets out the principles andindicators that organisations canuse to report their economic,environmental, and socialperformance.
Other commonly usedguidelines include:
London Benchmarking•
Group (LBG) for communityinvestment
Greenhouse Gas (GHG)•
Protocol for environmentalreportingRoundtable on Sustainable•
Palm Oil (RSPO) for palm-oilspecic reporting
Companies should adoptthe framework(s) that best suittheir business.
Reporting boundaries
The reporting boundaryfor the sustainability reportneeds to be dened. Thisis especially pertinent forlarger companies thathave many subsidiaries,associate companies or
joint ventures.
The reporting boundaryneeds to be consideredfrom both the perspectivesof management andstakeholders. At aminimum, the reportingboundary should coverentities which theorganisation exercisescontrol or signicantinuence over, to
ensure an accuraterepresentation in its report.The approach chosen todene boundaries shouldbe clearly disclosedin the report to avoidmisunderstanding.
Bursa Malaysia's ListingRequirement (Appendix 9c,Part A (29)) states thatcompanies must include in theirannual report “a description ofthe corporate social responsibilityactivities or practices undertakenby the listed issuer and itssubsidiaries or if there are none,
a statement to that effect".
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Assurance for credibility
Assurance of reports can help verify authenticity ofa company’s sustainability performance and canbe carried out internally or externally. Companiesseeking assurance should have an independent partyto conduct such assurance to ensure credibility. Thewriter of the sustainability report must be independent
of the assurance provider.
Internal Assurance
A company’s sustainabilityinformation can be veriedinternally by a group ofindividuals or a committee(e.g. internal audit) whichis independent of thedivision tasked withcompiling the sustainabilityactivities for verication.
External Assurance
As a company’s economic,social and environmentalperformance attractincreasing attention from awide range of stakeholders,credible sustainabilityreporting has becomeincreasingly important as asource of information.
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Questions formanagement
Do we have performance•
measures and KPIs thatare meaningful for oursustainability initiatives?How can we further enhance•
the company’s value by beingmore sustainable?Do we compare our•
sustainability targets andachievements against industryleaders?
Are we reporting data that is•
material to ensure the rightfocus of the report?What is the boundary of our•
sustainability report and whatrationale is used to dene it?What degree of comfort•
do we need to provide ourstakeholders and readers forour sustainability report?Should we consider obtaining•
external assurance on thereport?How have we maximised•
the distribution of reports topromote our company?
Have we effectively•
communicated our reports toour relevant stakeholders?
Role ofthe Board
Review performance of•
key sustainability initiatives
(including externalcomparisons) and recommendimprovementsCascade understanding that•
sustainability brings long-termvalue to the companyEncourage transparent•
reporting and assurance toincrease credibilityDiscuss results of assurance•
with assurance providers andmanagement and oversee therequired key improvements
Assess relevance of report•
in attracting institutionalinvestors and sociallyresponsible investors
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GLOSSARY
Abbreviation Full term/denition
CSR Corporate Social Responsibility
CR Corporate Responsibility
DJSI Dow Jones Sustainability Indexes
ESG Environmental, Social and Governance
FCFF Free Cash Flow to the Firm
FTSE Financial Times and Stock Exchange
Gen Y Those born after 1980
GHG Greenhouse gases
KPIs Key Performance Indicators
MNC Multinational Companies
PLCs Public Listed Companies
PwC PricewaterhouseCoopers
ROIC Return on invested capital
SAM Sustainable Asset Management
SME Small Medium Enterprises
Stakeholders A group of individuals who can affect, or who can be affected by acorporation or its activities
SustainabilityDevelopment that meets the needs of the present generation withoutcompromising the ability of future generations to meet their own needs(as dened by the Brundtland Commission)
SRI Socially Responsible Investments
Triple bottom line Takes into account social, economic and environmental aspects
WACC Weighted average cost of capital
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DISCLAIMER
Although care has been taken in the production of this Guide, there is no warranty expressed or implied as to the accuracy orcompleteness of the material herein. In no event shall Bursa Malaysia be liable for any claim, howsoever arising, out of or inrelation to this Guide. Bursa Malaysia shall under no circumstances be liable for any type of damages (including but not limitedto, direct, indirect, special, consequential, incidental, or punitive damages whatsoever or any lost prots or lost opportunity). Allapplicable laws, regulations and current Bursa Malaysia Berhad rules should be referred to in conjunction with this Guide.
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