Director's Masterclass Series: Session 5-6: Navigating Climate Risks: Investor Priorities

On August 20th, 2024, industry leaders convened at Bursa Malaysia for the “Director’s Masterclass Series 2024: Navigating Climate Risks: Investor Priorities”, as part of the Public Listed Companies Transformation (PLCT) Program.

Ms. Aina Zahari, Director of Corporate Strategy at Bursa Malaysia, inaugurated the session with her opening remarks. She succinctly outlined the objectives of the PLCT program, emphasizing its commitment to advancing corporate excellence and best practices.

Ms. Aina emphasized that sustaining investor confidence, both foreign and domestic, hinges on the adoption of sustainable practices that consider the company’s bottom line. Climate risk, she asserted, is not merely an environmental concern but a critical business issue. With investors increasingly demanding transparency, she stressed the importance of board members embedding climate risk assessments within their strategic planning. Citing a United Nations Environment Programme Finance Initiative study, Ms. Aina noted that 85% of financial institutions have already integrated climate risk into their governance frameworks, signaling a significant shift towards enhanced compliance and oversight.

The fireside chat session with Amar Gill, Secretary General of the Asian Corporate Governance Association (ACGA) then commenced, moderated by Datin Seri Sunita Rajakumar, Founder and Chairperson of CGM. Before passing the floor to Mr. Gill, Datin Seri Sunita set the tone by highlighting the rising costs of inaction on climate mitigation and urged businesses to manage risks while seizing emerging opportunities. Mr. Gill began by providing an overview of his career, including his time as an analyst at CLSA during the Asian financial crisis, where he observed the challenges of equitable corporate governance. This experience fueled his commitment to the field, which he furthered through roles at BlackRock and now at ACGA.

He then continued by providing an overview of the evolution of ESG within large asset managers like BlackRock, acknowledging the recent political backlash against ESG, particularly in U.S. states with economies reliant on oil and gas. He explained that despite the perception that ESG conflicts with shareholder value, most asset managers recognize that sustainability is integral for long-term value creation. Consequently, many have shifted their stance from prioritizing just climate to considering materially relevant sustainability factors, aligning business models with shareholder value while adhering to social and regulatory constraints, including Nationally Determined Contributions (NDC) targets. Gill also stressed the critical importance of data integrity in sustainability reporting, emphasizing the growing influence of the International Sustainability Standards Board (ISSB) as the emerging global standard and warning that poor data collection and verification could lead to significant shareholder dissatisfaction and potential voting action by shareholders against directors.

In response to Datin Seri Sunita’s inquiry about balancing growth in emerging markets with increasing accountability and disclosure requirements, Mr. Gill identified emissions intensity as a key metric for boards and management to assess. He explained that companies must demonstrate the ability to grow while reducing emissions per unit of production, thus balancing economic expansion with environmental responsibility. Mr. Gill also emphasized the importance of evaluating emissions not just in terms of volume but also in terms of value, noting that lower profit margins in emerging markets can limit the capacity to invest in cleaner technologies and processes. The discussion then shifted to risk management, where Mr. Gill advised directors to engage with industry experts and shareholders to prioritize and manage emerging issues such as increased sustainability reporting, climate litigation, carbon pricing, and extreme weather events. He advised against relying solely on management for information, advocating instead for external perspectives to fully understand the risks and opportunities facing their companies. In her final question, Datin Seri Sunita called attention to the growing awareness of the economy's dependence on nature, asking his thoughts on whether companies risk losing credibility if they fail to adopt nature-positive strategies. Gill responded by highlighting the International Sustainability Standards Board (ISSB) as setting the global baseline for sustainability reporting and predicted that industries reliant on natural resources would soon need to comply with the Taskforce on Nature-related Financial Disclosures (TNFD) guidelines, urging companies to prepare their data collection processes accordingly.

The fireside chat with Amar Gill highlighted the critical importance of corporate leaders addressing climate risks through strategic governance and environmental stewardship to ensure long-term value and investor confidence. As global standards like the ISSB and TNFD emerge, companies must prioritize data integrity, embrace nature-positive strategies, and align with evolving regulatory frameworks.

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