3 Reasons Why Businesses Should Care About ESG

With the growing impact of climate change and global warming, the question of whether to integrate sustainability into your business strategy is no longer up for debate. Adopting a values-driven approach when formulating business strategies is not just a trend, but also a responsibility that should be shouldered by all businesses. By blending ESG (Environmental, Social, and Governance) practices into daily operations, businesses are able to showcase their values and also achieve profitability and long-term success in the process.

What Exactly Does Sustainability Mean For Malaysian Businesses?

A recent UOB Business Outlook Study¹ reveals that over 4 in 5 businesses in Malaysia recognise the importance of sustainability. Despite this awareness, the adoption level of ESG (Environmental, Social, and Governance) practices has remained stagnant since 2022.

Citing reasons such as an increase in the cost of products or services to end customers, insufficient knowledge to identify and execute the right initiatives, and lack of proper infrastructure for renewable energy – Malaysian businesses show a reluctance to adopt sustainable practices, with only 39% of respondents having implemented sustainable practices in their company.

Despite this outlook, at least 53% of respondents seem to be aware of sustainability being a key motivator in the improved reputation or branding of the company, which can lead to a boost in profit in the long run. In fact, many of today’s firms have adopted a strategy known as the triple bottom line², which suggests that organisations should focus on more than just profits, or the “bottom line,” and also measure their environmental and social impact. These focuses can be referred to as “the three Ps,”: people, planet, and profit.

Aside from potential profits, are there other benefits to prioritising ESG? Let’s explore three key reasons why businesses in Malaysia should consider caring about ESG, especially in regard to the environmental and societal aspects:

1. Green Technology Tax Incentive

One compelling reason for businesses to embrace ESG is the availability of tax incentives. The Malaysian Investment Development Authority (MIDA)³ offers the Investment Tax Allowance, which can significantly reduce the financial impact of adopting green technologies. These incentives make it easier for businesses to invest in sustainable practices such as investing in energy-efficient machinery, renewable energy sources, and waste reduction technologies. By taking advantage of these incentives, businesses not only contribute to environmental conservation but also improve their bottom line.

2. Reduce Risk and Increase Resilience

Incorporating ESG practices can help businesses mitigate risks and enhance their resilience. By reducing their carbon footprint, companies can avoid potential legal and regulatory restrictions that may hinder business operations, especially when conducting business overseas. For instance, Malaysian companies exporting goods to the European Union must comply with the Carbon Border Adjustment Mechanism (CBAM)⁴, which requires companies to provide data that can be used to calculate the embedded carbon emissions. This is particularly important, as according to the Securities Commision Malaysian Capital Market Stability Review (2023)⁵ – up to 75% of Malaysia’s exports to the EU will be impacted by the CBAM, collectively accounting for 8% of Malaysia’s total exports in 2021 to 2023.

Failing to meet these standards can result in financial losses and damage to a company’s reputation. Proactively adopting ESG practices ensures compliance with international regulations and reduces the risk of losing potential customers located in countries that impose ESG regulations.

3. Enhanced Company Image and Increased Brand Value

Consumers are becoming increasingly conscious of the environmental and social impact of their purchasing decisions. Businesses prioritising ESG practices can enhance their company image and increase brand value. By transparently disclosing their ESG initiatives, companies can build trust and loyalty among their stakeholders. The Simplified ESG Disclosure Guide (SEDG)⁶ is an example of how companies can report their ESG practices. Transparent reporting not only attracts environmentally and socially conscious consumers but also appeals to investors who prioritise sustainability.

UOB Decarbonisation Solutions

To support businesses in their ESG journey, UOB offers⁷. These solutions provide financing options for various ESG initiatives, including solar power implementation, electric vehicle (EV) charger installation, and energy efficiency programs. By leveraging these solutions, businesses can make significant strides toward sustainability while also benefiting from financial support from UOB.

***

As we move towards a greener future, the adoption of ESG practices is not just a trend but a necessity. Embracing ESG can provide businesses with financial incentives, reduce risks, and enhance their brand value. UOB is committed to helping businesses on this journey with its Decarbonisation Solutions. Take the first step towards a sustainable future by exploring UOB’s ESG financing options today.

Learn more about UOB's Decarbonisation Solutions here.

¹ UOB Business Outlook Study 2023
https://www.uob.com.my/assets/web-resources/business/images/sme-hub/insights/uob-business-outlook-study-2024-malaysia/uob-business-outlook-study-2024-infographic-my.pdf

² The Triple Bottom Line: What It Is And Why It’s Important (Harvard Business Review, 2020)
https://online.hbs.edu/blog/post/what-is-the-triple-bottom-line

³ Investment Tax Allowance (Malaysian Investment Development Authority)
https://www.mida.gov.my/setting-up-content/incentives/

⁴ How EU’s Carbon Border Adjustment Mechanism (CBAM) Affects Malaysia?
https://www.uobgroup.com/assets/web-resources/research/pdf/SM_240520.pdf

⁵ Securities Commission Malaysia Capital Market Stability Review (2023)
https://www.sc.com.my/api/documentms/download.ashx?id=0bd0e2fc-a858-4499-8a9a-648435ed6d58

⁶ Simplified ESG Disclosure Guide (SEDG) for SMEs in Supply Chains
https://sedg.capitalmarketsmalaysia.com/

⁷ UOB Decarbonisation Solutions
https://www.uob.com.my/business/finance/esg.page