National Industry Environmental, Social & Governance Framework (i-ESG)

Written by Darren Lai, Fatin Ismail and Tai Sher Lynn

RWC has previously written about ESG in a Nutshell, introducing the concept and how it impacts the business and companies at large in Malaysia.

In recent months, the Ministry of Investment Trade and Industry (“MITI”) introduced the National Industry Environmental, Social & Governance Framework (i-ESG). This is an active step taken by the government in embracing ESG. Between the years of 2024 to 2026, the ‘Just Transition’ phase aims to support industries to embark on the ESG journey by providing guidelines, capacity building and outreach programmes, mentoring and financing. 

This initiative comes about with the recently highlighted issues and challenges by the Ministry of Investment, Trade and Industry (MITI) such as:

  1. Lack of awareness;
  2. Difficulties in understanding, managing and quantifying ESG risks;
  3. The additional cost to organisations for training, adoption of technology and digital platform incorporation;
  4. The difficulty in using multiple ESG reporting frameworks; and
  5. The fast-changing international standards. 

The i-ESG Framework seeks to facilitate a balance and effective transition toward sustainable practices while considering the needs and capabilities of all stakeholders through the six (6) guiding principles:

  1. Phased approach — The framework adopts a two-phased approach, consisting of the initial phase known as “Just Transition” spanning from 2024 to 2026, followed by the second phase, “Accelerating ESG Practices”, spanning from 2027 to 2030;
  2. Incremental Progress;
  3. Business Sustainability;
  4. Collaborative Partnerships;
  5. Experimental Freedom; and
  6. Outcome-focused assessment.

Internationally, Malaysia alongside another 192 countries have committed to achieve the 17 Global Goals towards a more sustainable, resilient and inclusive development by 2030. This is in tandem with the United Nations Framework Convention on Climate Change, whereby the Paris Agreement stands as a legally binding international treaty addressing the critical issue of climate change (in which Malaysia is a party to).

Further to the above, as of January 5th 2023, the Corporate Sustainability Reporting Directive (CSRD) has officially taken effect. Under this directive, extensive groups of large corporations and some SMEs will now be mandated to report on their sustainability practices by the year 2025, for the financial year of 2024. 

Externally, the European Union and European Commission has also adopted many new proposals and directives in efforts to build sustainable goals. Amongst these include the Carbon Border Adjustment Mechanism, the European Union Deforestation Regulations and the EU Mandatory Due Diligence on Human Rights. This new legislation encompasses both EU and non-EU companies and places significance on businesses (including Malaysian business) to conduct thorough due diligence processes that encompasses their own operations as well as their direct and indirect business relationships. 

In summary, the i-ESG Framework appears to be a comprehensive and strategic approach to addressing ESG challenges in the Malaysian manufacturing sector and is a welcome step taken directly by the government in helping businesses transition to ESG practices.

Published on 8 January 2024

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