Unlike most buzzwords, ESG (Environmental, Social, and Governance) is a topic that is here to stay as this set of practices will inform the way in which companies implement policies that contribute positively to the environment, society and governing bodies.
In an era where consumers and investors are demanding greater transparency and accountability from companies, it is no surprise that supply chain is at the front lines of ESG.
Why is that? An organisation’s supply chain can expose hidden ESG risks which can hamper trade compliance capabilities such as natural resources depletion, human rights abuses and top-level corruption that can do serious reputational harm. Making supply chains more transparent ensures sustainable practices are conducted throughout all layers of its supply network including third party vendors.
This invisible yet crucial link between supply chain and ESG was discussed at length in our recently concluded 3rd German-Malaysian Business Forum that was held at Parkroyal Collection Kuala Lumpur.
In his opening remarks, MGCC executive director Daniel Bernbeck stressed on the importance of conducting open discussions in order to brainstorm solutions for best practices when it comes to ESG compliance.
He said that SMEs are the backbone of the German and Malaysian economy which makes these companies vulnerable to laws that govern ESG-related matters.
The half-day forum’s keynote address was delivered by the Deputy Minister of Economy Dato Hanifah Hajar Taib. In her keynote speech, Hanifah spoke of disruptions caused by Covid-19, demonstrating that the Malaysian economy was not immune to such shifts and that many businesses are still reeling from the effects of the pandemic.
“Sustainability is an essential factor for the economy.
“Many Malaysians don’t realise the impacts of climate change and therefore, awareness about the impacts of climate change must be supported if our goal is to become carbon neutral by 2025,” she added.
Hanifah also highlighted that new technology can be helpful when it comes to implementing ESG practices.
The use of RegTech (Regulatory Technology) was spotlighted in one of the expert insights’ sessions by Bluenumber founder and chief executive officer Puvan J Selvanathan. Following the many climate catastrophes in 2021, the message is clear that climate justice goes hand in hand with human rights.
RegTech can be used, for example, to gather data from palm oil plantations and their pollution levels to detect companies that are contributing to carbon emissions which falls under the Environmental segment of ESG. For the Social component of ESG which traces if any human rights violations are being committed, Puvan said this area tends to be a complex subject to broach. Similarly, RegTech can be used to gather data on working conditions or using questionnaires to determine any existing issues that require urgent attention.
Infineon Technologies senior director of facilities management Tan Sieow How gave attendees insights into one of the most sustainable companies in the world. With a mission to make life easier, safer and greener, Infineon is committed towards international standards and local societies by ensuring its hiring practices celebrates diversity (the company currently has 114 nationalities) and aims to have 20 per cent of women in middle and senior management positions by 2030. As one of the first semiconductor companies to voluntarily commit to the 10 Principles of the UN Global Compact, Infineon also ensures its plants reduce waste as well as electricity and water consumption.
Germany’s Supply Chain Due Diligence Act which came into force this year would mean that businesses now have a legal obligation to scrutinise all layers of their supply chain to prevent and address human rights misconduct and environmental impact. Pascal Brinkmann, partner at Luther, spoke at length about the new law’s objectives. He said one misconception that is crucial to note is that Germany and the EU are not trying to impose German standards in Malaysia but rather keep tabs on German firms who don’t comply with these standards by employing the new law to hold them accountable. The law affects companies in Germany with subsidiaries abroad as well as direct and indirect suppliers.
If found guilty, a fine of up to 8 million euros or 2 per cent of an enterprise’s average annual turnover will be imposed if its global turnover exceeds 400 million euros. The firms will also be excluded from participating in public tenders in Germany for up to three years.
The forum concluded with a robust discussion on headwinds and tailwinds in supply chain management that comprised of:
- Klaus Burkart, COO & Co Founder, Cargodian GmbH
- Vimala Arumugam, Managing Director, BASF (Malaysia) Sdn. Bhd.
- Dr Meenachi Muniandy (Jessica), Senior Director and Head of Industry, ESG Division, Ministry of International Trade and Industry
- Bilal Parvaiz, Executive Director & Head Islamic Corporate, Commercial & Institutional Banking, Standard Chartered Saadiq Berhad
Moderated by the Business Council of Sustainable Development (BCSD) Malaysia company director Khor Yu Leng, the panel discussion touched on several important topics including Malaysia’s ESG framework, how a lack of ESG strategies can hamper stock market success, the role of financial institutions in ESG adoption as well as the solutions available for businesses to conduct checks pertaining to ESG standards.