In the global race towards green and sustainable business practices, the heat is on. Quite literally. Earth’s global surface temperature has risen at an unprecedented rate, according to a landmark report from IPCC earlier this year. If greenhouse gas emissions continue at an uncurbed pace, temperatures could reach an increase of 5.4C (RCP8.5) by 2100. This is well over the 1.5 to 2°C temperature rise limit – the point that would see extreme and simultaneous climate change effects like long-term drought and heatwaves. Scientists warned that immediate and large-scale reductions of all greenhouse gases would be required to limit global warming to 1.5°C.
Much of the world is springing into action. Regulators of major economies – such as the US and Europe – have begun demanding environmental, social and governance (ESG) disclosure and compliance. This pushes companies worldwide to divert much focus and capital towards sustainable solutions, community empowerment, and ethical policies.
For example, Malaysia – committed to a carbon neutral target by 2050 – is working on requiring climate risk stress testing (CRST) exercise among its financial institutions by 2024 after releasing the TCFD Application Guide for Malaysian businesses earlier this year.
Following the Sustainability Reporting Framework of 2015, Malaysian public listed companies have been disclosing ESG-related practices. But for many local micro, small and medium-sized enterprises (MSMEs), ESG may be unfamiliar territory.
This is where Margie Ong comes in. The founder and CEO of Thoughts In Gear, a sustainability and social impact consulting firm based in Malaysia, has been helping organisations of all sizes strategise for a more sustainable future. Most recently, Ong joined ERM, the world’s leading sustainability consulting firm, as a Partner.
Asia Connects catches up with Ong to find out why MSMEs can no longer afford to wait in the adoption of ESG, and how these companies can align business continuity plans with the urgent fight for the planet.
Asia Connects: Congratulations on your new role with ERM! Over two decades ago, you were working as an engineer with Intel Malaysia. How did that evolve into a career in sustainability and social impact consulting?
Margie Ong: In retrospect, every role I have held in my career over the last 25 years seems to connect to where I am. As an electrical engineer at Intel, the thought that the chips we were producing could be powering life-saving devices seemed to make the monotonous manufacturing process purposeful. As we were manufacturing chips on the floor, I constantly asked whether we were making an impact. Learning that our chips made a difference, such as by using life-saving devices in hospitals, would make me happy for a while.
I left Intel to pursue an opportunity in management consulting at the Boston Consulting Group (BCG). Since then, I have run regional departments in global companies like HCL Technologies and worked with non-profits like the CIMB Foundation.
Over the years, I realised that companies need four core drivers for sustainability – a clear purpose, a good plan, excellent implementation and articulate storytelling. This was nine years ago when in Asia, sustainability was just beginning to come up in conversations and mostly discussed as part of corporate social responsibility (CSR).
That was why we founded Thoughts In Gear. The name denotes transforming ideas into action. In the last nine years, we have helped companies discover their purpose.
AC: With your depth of experience working with Malaysian companies, can you explain whether the global attention on ESG affects local MSMEs?
Ong: At the moment, with regards to ESG or sustainability in general, there is no regulation that applies to MSMEs in Malaysia. Regulations mainly apply to listed companies or industries regulated in specific ways, such as a cement company has to adhere to restrictions from the Department of Environment (DOE) on emissions, pollution levels, and such. So, compliance is not a pressing issue for MSMEs for now.
That said, there may be several other pressure points pushing companies to speed up on adopting ESG practices. One source of the pressure is their clients. Malaysia makes up the supply chain of many multinational corporations (MNCs) worldwide. These MNCs focused on reducing their carbon footprint and ensuring ethical labour practices. As a result, the SMEs that make up their supply chain are being scrutinised more than ever.
The study Carbon Dated by Standard Chartered last year showed that 78% of MNCs will remove suppliers that do not get on board with the standards of ‘E’ (environmental) including greenhouse gas accounting; the ‘S’ (social) including labour practices; or the ‘G’ (governance) including anti-corruption measures. That puts a lot of Malaysian export revenue at risk. The report showed that our country would be the seventh worst hit in the world by this possible loss in revenue.
Financing is another factor for advancing ESG commitments. In our country, institutional investors like the EPF, KWAP, Khazanah and PNB have signed on to the UNPRI, or United Nations Principles for Responsible Investment. As a result, they would need their investee companies to report and disclose their ESG performance as well. MSMEs may also enjoy better financing rates with some banks if they can prove a high level of ESG performance and there are financing products that are purely linked to sustainability.
The last two pressure points are the talent pool and consumers. Millennials are beginning to choose employers based on a company’s purpose. Consumers are also shifting towards purchasing from more ethical and sustainable brands.
AC: For many MSMEs, the opportunities and risks of taking on environmental, social and governance responsibilities seem daunting. How can these companies structure their ESG plans?
Ong: I usually position it as a scale between threats on the left and opportunities on the right. On the far left is the pillar of ‘Reducing Risks’. There are five risks we encourage a company to look at. One is physical risks – for example, what are the physical threats that climate change will bring to the company? Two is transition risks – as the world moves towards a low-carbon economy, what does it mean for the company? The third is existential risks – as in, is your whole industry at risk? Then, there are regulatory risks – what regulations are coming, not just within your country but across the world, which you need to be aware of? Finally, reputational risks – unethical company behaviours that would drive off consumers and investors. Reducing these risks is often the starting point for a company’s ESG journey.
Then, the middle of the scale is the pillar of ‘Maximising Profits’. These are win-win situations whereby ESG practices positively impact the company’s bottom line and the environment or society. Most of the time, it’s about improving efficiency. For example, reducing a company’s water and energy usage would improve the environment while also helping the company save costs.
As a company improves efficiency, it would be on its way towards the far right of the scale – the pillar of ‘Unlocking Growth’. This is where it gets interesting for long-term business growth and sustainability. In a world transitioning to a low-carbon economy, what opportunities present themselves? Many companies would not be doing things the same way as before. What are the business pivots or innovations that you can embark on to differentiate yourself? For example, as companies begin to look for tenancy in green buildings, what does that mean for a property developer?
AC: For some MSMEs, it may seem difficult to invest in sustainability when they are still recovering from the impact of the Covid-19 pandemic. What would be your advice for them?
Ong: I feel them. Having talked to so many companies out there, I understand the intense financial pressures they are under, especially post-Covid. They’d tell us, ‘We are in survival mode. We don’t have the luxury to take on ESG now.’
To realise these benefits, ESG might require investments, and there are trade-offs. But they can be planned and carried out in phases. So, for companies that say they cannot commit to ESG now, I would recommend that they prepare by first learning about ESG and what it means for the business based on the three pillars that we discussed. Evaluate the risks, look for opportunities, and create a framework.
It does not have to be a huge strategy document 80 pages bound in hardcover. It can be a simple roadmap that you sketch out – what the company will go through in the next three to five years, the investments it needs to adapt, and the potential returns. It should be a living document that you modify according to your learnings and the ebb and flow of different pressures. The plan can change, but at least start planning. It is the companies that are not finding out more and stumbling in the dark that I’m worried about.
Because the need for sustainability is not a passing trend. The world has urgent issues that need to be addressed, and as such, ESG is a crucial part of keeping a business going, not merely a nice-to-have. Recently, a client told us that at his last investor meeting, 60% of the questions from his investors were about ESG. This made ESG an urgent agenda for him. But this client is also personally motivated; he wants to leave a better world for his children. This is often the case with ESG – the commitment to it is closely tied to one’s personal values and ethics.
