Understanding ESG and Carbon Emissions
CONTENTS
• What is ESG?, Purpose, & Importance of ESG
• The 3 Components of ESG
• ESG Frameworks, Themes & Indicators
• Recent Developments & Key Trends
• Regulatory Compliance & Stakeholders’
Expectations
• Climate Change
• Carbon Emissions, Net Zero & Carbon Neutral
• Carbon Tax & Carbon Accounting
• Emissions Scopes, Categories, & Reporting
Standards
WHAT IS ESG?
Environmental, Social and Governance (ESG) is a universal concept used to
assess corporate behaviour and future financial performance by measuring
sustainability of the organization.
1
The term “ESG” first appeared in “Who Cares Wins”
published by the United Nations Global Compact in 2004
& were endorsed by 20 global banks.
2006: 63 signatories –
$6.5 trillion assets
2019: 2,450 signatories –
over $80 trillion assets
2
Evolution from Triple Bottom Line (TBL) that
started in 1994.
• Planet = Environment
• People = Social
• Profit → Governance
Governance: Accountability in ethics, risk
management, compliance and management
behavior that results in increase of profits.
3
ESG was conceived as a reporting guideline on sustainability of the
organization in these three core components.
Misconception that ESG is a sustainability guideline.
Difference between ESG and
sustainability: ESG sets specific
criteria to define environmental,
social, and governance practices
as sustainable.
4
PURPOSE & IMPORTANCE OF ESG
Reveals the organization’s ability to create
and sustain long-term values in a fast-
changing world, manage risks, and take
advantage of opportunities related to the
changes.
Helps the organization’s senior management to
understand, map and focus on sustainability in their
organization.
ESG has become the mainstream decision-making
tool for making investments and carrying out
business.
5
THE 3 COMPONENTS OF ESG
How an organization manages its How an organization manages its How an organization manages its
resources, waste, emissions, relationship with stakeholders, leadership responsibilities and
pollution, and impacts on the such as employees, customers, performance, and ethical
environment. suppliers, and communities where principles.
it operates.
6
ESG FRAMEWORKS
• ESG reporting is done using ESG frameworks developed by ESG
standards organizations.
Carbon Disclosure Project
7
Framework Focus
GRI Standards Corporate social responsibility with strong emphasis on
Global Reporting Initiative transparency and materiality, especially on social issues
FTSE4Good Wide scope of indicators similar to GRI applicable to
FTSE Russel specific industry sectors
UN SDG Global partnership for countries to achieve sustainable
United Nations Sustainable Development Goals development across all sectors and industries
TCFD Climate-related financial information: short-, medium- and
Taskforce on Climate-related Financial Disclosure long-term climate risks, and Scope 1 and 2 emissions
SASB Standards Integrated reporting with financial accounting (77
Sustainability Accounting Standards Board standards for specific industries)
Integrated Reporting <IR> Environmental, social, governance, and financial reporting
International Integrated Reporting Council
CDP Focus on carbon emissions, water, and biodiversity
Carbon Disclosure Project
(Adapted from SustainabilityNext, 2020)
8
ESG FRAMEWORK TO USE
(Source:
SustainabilityNext,
2020)
9
ESG FRAMEWORKS IN MALAYSIA
Used by Bursa Malaysia to evaluate
public-listed companies in the FTSE4Good
Bursa Malaysia Index
10
ESG THEMES AND INDICATORS
ENVIRONMENTAL
Material Energy Climate Change 6: Clean Water & Sanitation
Water & Effluents Emission Water Security 7: Affordable & Clean Energy
Biodiversity Waste Biodiversity 13: Climate Action
Supplier Environmental
Environmental Compliances Pollution & Resources 14: Life Below Water
Assessment
Supply Chain Environment 15: Life on Land
11
SOCIAL
Employment Labour/Management Relations Health & Safety 1: No Poverty
Occupational Health & Safety Training & Education Labor Standards 2: Zero Hunger
Diversity & Equal Opportunity Non-Discrimination Human Rights & Community 3: Good Health & Well-being
Freedom of Association &
Child Labour Customer Responsibility 4: Quality Education
Collective Bargaining
Forced or Compulsory Labour Security Practices Supply Chain Social 5: Gender Equality
8: Decent Work & Economic
Rights of Indigenous People Human Rights Assessment
Growth
11. Sustainable Cities &
Local Communities Supplier Social Assessment
Communities
Public Policy Customer Health & Safety
Marketing & Labelling Customer Privacy
Socio-Economic Compliance
12
GOVERNANCE
9: Industry, Innovation and
Governance Anti Corruption
Infrastructure
Corporate Governance 10: Reduced Inequality
16: Peace & Justice Strong
Risk Management
Institutions
12: Responsible Consumption &
Tax Transparency
Production
17: Partnerships to Achieve the
Goals
13
ENERGY CLIMATE CHANGE AFFORDABLE & CLEAN
• Energy consumption • GHG emissions and ENERGY
within the organization energy reduction • Affordable & Reliable
• Energy consumption • Short-term quantitative Energy Services
outside the organization targets • Renewable Energy
• Energy intensity • Long-term quantitative • Improvement in Energy
• Reduction of energy targets Efficiency
consumption • Independent verification
• Reductions in energy of GHG or energy
requirements of products • Total energy consumption
and services
14
VARYING ESG FRAMEWORKS
Organizations and investors are frustrated with the many offerings of rival
ESG reporting frameworks.
Current ESG frameworks vary so widely that organizations have been able
to choose the easiest and most advantageous to them.
15
International Sustainability
Standards Board
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RECENT DEVELOPMENTS
Bursa Malaysia, Bank Negara, and
local banks accelerating ESG
adoption through strategic financing
for public-listed companies.
17
March 2022: Bursa Malaysia consultation paper for
sustainable reporting with key alignment to TCFD
recommendations.
12th Malaysia Plan included carbon tax as part of
government initiatives towards Net Zero carbon
emissions.
Bursa Malaysia to develop Voluntary Carbon
Market.
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KEY TRENDS
Corporate boards and executives enhancing their ESG skills.
Emergence of new regulations and standards.
Complexity in challenges, risks and opportunities.
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Increasing recognition for
biodiversity and natural capital.
Aligning and mainstreaming ESG
pledges.
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REGULATORY COMPLIANCE
Bank Negara
Draft of Climate Risk Management and Scenario Analysis
published in December 2021, and came into effect on 1
June 2022:
• Governance, strategy, risk appetite and risk
management will come into effect on 31 December
2023; and
• Scenario analysis, metrics and targets, and
disclosure will come into effect on 31 December
2024.
21
Bursa Malaysia
2015 – Sustainability Reporting Guide, and Sustainability Toolkits.
Consultation paper released in March 2022 that required disclosure of:
• Prescribed sustainability matters and indicators for listed issuers across
all sectors;
• In line with the TCFD recommendations;
• Prescribed sustainability matter and indicators for listed issuers in
specified sectors;
• Enhancing disclosure of quantitative information – 3 financial years’ data,
performance target and summary; and
• Requiring statement on whether the Sustainability Statement has been
assured and the scope covered.
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EXPECTATIONS FROM STAKEHOLDERS
Banks:
• Money lent or invested to be a positive force that works towards making
a better tomorrow.
Investors:
• Companies more likely to be outperformed.
• Not underperform in the markets.
• ESG issues not financially material.
• Stable share price.
Customers:
• Expect companies to do more.
• Be responsible regarding ESG issues.
• Do business with companies that support ESG.
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CLIMATE CHANGE
Climate Change refers to long-term shifts
in global temperatures and weather
patterns.
The main cause of Climate Change is
human activities.
Intergovernmental Panel on Climate
Change (IPCC), United Nations
National Oceanic and Atmospheric
Administration (NOAA), United States
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HISTORY OF CLIMATE CHANGE POLICY
IPCC 5th
IPCC 6th
Rio Earth Kyoto Kyoto Protocol: Assessment
Assessment
Summit: Protocol: 5% Becomes Report: 95%
Report: Likely
Agreement on emissions international certainty
to reach 1.5oC
UNFCCC reduction law humans caused
by 2030
Global Warming
1990 2000 2010 2020
Paris
IPCC 1st IPCC 2nd IPCC 3rd IPCC 4th
Agreement:
Assessment Assessment Assessment Assessment
Limit Global
Report: Global Report: Proof Report: More Report: >90%
Warming to
Warming that humans are evidence that humans likely
1.5oC and way
caused by responsible for humans caused responsible for
below 2oC by
humans Climate Change Global Warming Climate Change
2050
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CONSEQUENCES OF CLIMATE CHANGE
Weather phenomena and
conditions become more
frequent and severe: Heat
waves, droughts, storms, heavy
rains, floods, etc.
Melting glaciers and polar ice
caps cause sea level rise and
warmer oceans.
Ocean acidification adversely affects marine life, especially organisms that
rely on shells and skeletons made from calcium carbonate.
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Loss of biodiversity from destruction of
ecosystems causing loss of natural habitats
and species.
Worsening air and water quality, loss of
food sources, livelihoods, properties,
and communities from extreme
weather.
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FOCUS ON CLIMATE CHANGE
Understand and identify Climate Change as a
source of risk and opportunity.
Manage the risk and opportunity
by generation action plan to move
forward.
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CARBON EMISSIONS
Carbon footprint: Total
greenhouse gas emissions
caused directly and indirectly Primary sources of
by an individual, greenhouse gas emissions:
organization, product, or
event. • Energy
• Transportation
• Production
• Waste
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NET ZERO & CARBON NEUTRAL
Net Zero: Reduce carbon emissions to the lowest
amount and offset the balance by producing
renewable energy and/or capturing and
sequestering carbon from the atmosphere.
Carbon Neutral: Balance between emitting carbon
and absorbing carbon from the atmosphere,
including the use of carbon credits.
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CARBON EMISSIONS REDUCTION
Why is reduction important?
• Limit the rise of temperature to
well below 2°C, which when
reached, effects may be
irreversible.
• 1.5°C to be reached by 2030 if
no drastic reduction.
Prevent more severe consequences of Climate Change and Global
Warming.
31
CARBON TAX
Carbon Tax is a charge imposed on carbon emissions emitted
during production and use of goods and services.
Other countries:
• Sweden – €116.33 per ton of carbon dioxide
equivalent (tCO2e), the highest in EU.
• Singapore – SG$5 per tCO2e from 2019-2023 on
any industrial facility that emits direct carbon
emissions equal to or above 25,000 tCO2e
annually.
The government announced that carbon pricing instruments will be
introduced in 12 Malaysia Plan, in the form of carbon tax and a domestic
emissions trading scheme (DETS).
32
CARBON ACCOUNTING
Carbon accounting is the process to quantify
GHG emissions, so that organizations may know
their climate impact and set plans to limit carbon
emissions. This process is also known as a
carbon or GHG inventory.
The process involves identifying the sources of carbon emissions,
measuring and calculating, and tabulating them into a standardised report.
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EMISSIONS SCOPES
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EMISSIONS CATEGORIES
Scope 1 Direct Scope 2 Indirect Scope 3 Indirect
Category 1 – Category 2 – Category 3 –
Direct emissions Indirect emissions Transportation
from energy
Category 4 –
Products used by
organization
Category 5 –
Products used
from organization
Category 6 – Other
indirect
(Source: ISO 14064-1)
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EMISSIONS REPORTING FRAMEWORKS
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