Dasar Tenaga Negara (DTN) 2022-2024: The Rise of ESG in Investment and Corporate Governance

In today's rapidly evolving investment landscape, Environmental, Social, and Governance (ESG) standards have become a crucial consideration for investors. As the global momentum for ESG-based investments increases, businesses must adapt to meet these emerging priorities. Malaysia's approach, encapsulated in the Dasar Tenaga Negara (DTN) 2022-2024, underscores the growing importance of ESG criteria in investment decisions and corporate governance.

The Growing Importance of ESG Criteria

Investors are increasingly prioritizing ESG elements and transition risks when making investment decisions. The Malaysian government recognizes this shift and is implementing stricter ESG criteria, emphasizing climate change as a key factor. This transition has several significant implications:

• Stricter ESG Standards: Enhanced ESG criteria focus on climate change, resulting in increased capital constraints and financing premiums for carbon-intensive investments, such as coal-fired power plants.

• Transition Risk Consideration: Investors are more attuned to transition risks, leading to the exclusion of high-risk sectors and strengthening shareholder support for businesses to develop roadmaps to mitigate these risks.

• Demand for Transparency: There is a rising demand from shareholders for comprehensive and transparent environmental reporting and climate commitments, pushing companies to implement initiatives to reduce their carbon footprint.

• Green Investment Allocation: Investors are increasingly channeling funds into green investments, necessitating long-term planning in high-potential growth sectors. This trend encourages both domestic direct investment (DDI) and foreign direct investment (FDI) focused on the green economy.

The Role of Businesses in the ESG Transition

Businesses must navigate the evolving energy transition landscape and meet escalating ESG commitments from consumers, partners, and shareholders. This can be achieved through several strategic actions:

• Enhancing Carbon Emission Accounting and Transparency: Improving carbon emission calculations, reporting transparency, and formal carbon emission commitments are essential for maintaining market access and attracting investment capital to meet rising ESG demands from stakeholders.

• Adopting Environmental Sustainability: Integrating circular economy principles and leveraging ESG-based considerations in manufacturing and operational locations can enhance environmental sustainability. Companies part of initiatives like RE100, which commit to 100% renewable energy, are setting an example.

• Future-Proofing Business Strategies: Revising and ensuring business strategies are resilient to future challenges posed by increasing energy transition risks is crucial. Exploring new business models, such as transitioning from existing core businesses to new growth areas like renewable energy and innovative energy solutions, can provide a competitive edge.

The Road Ahead

As the global focus on ESG intensifies, the Malaysian government's proactive stance through DTN highlights the critical need for businesses to adapt and thrive in this new era. By embracing stricter ESG standards, considering transition risks, and responding to the increasing demand for environmental transparency and green investments, businesses can position themselves at the forefront of sustainable growth and investment.

The transition to a more sustainable and ESG-compliant business model is not just a regulatory requirement but a strategic imperative. Companies that successfully navigate this transition will likely enjoy enhanced market access, greater investor confidence, and a stronger competitive position in the global market.

By integrating these ESG principles into their operations and strategies, Malaysian businesses can contribute to a sustainable future while ensuring long-term profitability and resilience in an ever-changing investment landscape