Malaysia:
[ENERGY, PROJECTS & INFRASTRUCTURE] Special Alert: MITI i-ESG Framework (Phase 1.0): What's New?
30 October 2023
Lee Hishammuddin Allen & Gledhill
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Recently, the Ministry of Investment, Trade, and Industry
("MITI") has published the i-ESG
Framework (Phase 1.0) ("Framework"),
which offers a guideline to support Malaysia's manufacturing
sector in achieving their environmental, social and governance
("ESG") goals. The launch of the
Framework signifies the start of the first phase of MITI's plan
(known as "Just Transition", scheduled
from 2024 to 2026) to encourage the adoption of ESG requirements
and goals. It lays the groundwork for manufacturers to embark on
their ESG journey to help ensure their readiness to shift towards
and embrace the second phase, "Accelerating ESG
Practices", scheduled from 2027 to 2030.
Key Outcomes
The Framework was crafted to achieve these central
outcomes1:
- Seamless integration of sustainable production and consumption
within the manufacturing sector;
- Empower and initiate sustainability reporting;
- Attract a bigger influx of ESG-compliant investments;
- Increase export competitiveness and accelerate market
expansion; and
- Achieve net-zero greenhouse gas
("GHG") emissions by 2050.
Pillars and Strategies
The Framework is built upon 4 pillars and 6 key enablers, as
illustrated below:
Based on these pillars and enablers, the Framework introduced 17
strategies to facilitate a just transition.
Key
Pillars |
Description |
Strategies |
Objective |
Standards |
Specific and detailed quality
requirements for reporting or broad framework relating to ESG
information
|
i-ESGReady: Design and conduct ESG
readiness assessment to gauge the extent of companies'
readiness in their ESG engagement |
Facilitate effective preparation for ESG performance
and the adoption of appropriate sustainability reporting |
|
|
i-ESGStart: Devise a clear, consistent, and
coherent sustainability reporting guideline for manufacturers at
the start of their ESG journey |
Establish a
well-structured, step-to-step guideline to enable efficient
sustainability report generation that aligns with recognised
standards |
Utilise digital
tools for the gathering and assessment of sustainability reporting
data |
Facilitate the
transformation of raw data into complete reports that display ESG
advancement |
Transition to
net-zero industrial parks |
Counter carbon
footprint, ensure adequate governance on workers' welfare and
business conduct, and to meet the requirements of leading companies
that have commenced plans towards carbon-neutral operations |
Introduce a
carbon price certificate as a proactive measure to warrant
compliance with the Carbon Border Adjustment Mechanism (CBAM) |
Allow importers
to benefit from the deduction from their final bill if they can
prove that a carbon price has already been paid during the
production of the imported goods, allowing them to continue trade
without facing trade barriers or related-tariffs |
Develop carbon
footprint for products |
Enable
consumers to make more informed and sustainable choices by
providing them with information of the carbon footprint of
products |
Capacity Building |
Involves 5 key elements: (1) awareness; (2) attitudes, values and
belief; (3) skills, knowledge and expertise; (4) resources; and (5)
access to information within each business organisation |
KenalESG: Conduct awareness programme across
regions, with a specific focus on reaching out to micro, small and
medium enterprises ("MSME") |
Encourage
companies to adopt sustainable practices that consider the
long-term impacts of their operations on ESG, leading to a more
resilient business model |
GSEP1: raise awareness among ministries
and government agencies including state and local councils |
ESG ratings by
prominent credit rating and investment research agencies exert a
direct influence on government's credit ratings, its capacity
to secure financing, and the expenses associated with
borrowing |
Promote ESG
training programme tailored for MSMEs, involving internationally
recognised ESG certification courses |
Enable MSMEs to
improve their capacity to recognise and respond to the
opportunities and challenges resulting from a shifting business
environment by helping them engage effectively with various
stakeholders, and ensuring that they comprehend their legal
obligations relating to ESG |
ESG training
programmes for government officers |
Ensure that
policies are designed to promote ESG practices, as government
officers play a vital role in policy-shaping that impacts various
industries and sectors, allowing them to prioritise projects which
align with ESG goals and promote effective cross-sectoral
collaborations |
Establish a
CSRMatch platform |
Enhance public
awareness and understanding of the intricacies of Corporate Social
Responsibility (CSR), and serve as a nexus to accommodate the needs
of the vulnerable communities through CSR programmes |
Financing |
Sustainable finance, which involves the expansion of green
financing alternatives and advancement of low-carbon, and green
technologies |
Establish
financing marketplace |
Enhance the
prospects of ESG projects to secure funding and investment
opportunities by connecting individuals seeking funding, and
facilitating the process of raising capital for various
projects |
Provide
outcome-based incentives (e.g., access and improve the existing
GITA2 and GITE3 schemes) |
Foster and
sustain a high level of commitment among companies when integrating
ESG initiatives into their operational frameworks |
Promote Green
Financing / ESG Financing Options |
Reduce
pollution, conserve natural resources and mitigate climate change
as green financing products often come with preferential terms to
encourage businesses and individuals to adopt green practices |
Encourage
net-zero technologies |
Set up a
controlled environment that facilitates the development, testing
and refinement of innovative solutions, serving as an experimental
space where businesses, researchers, start-ups and stakeholders can
join forces on net-zero technologies |
Market Mechanism |
Focuses on the supply and demand dynamics, with the emphasis on the
role of carbon pricing mechanisms and other emerging market
trends |
Design Carbon
Pricing Instruments |
Create
financial incentives for businesses to reduce GHG emissions |
Launch Sustainable Development Goals (SDG) Investor
Map |
Create a market intelligence tool that
helps private sectors to identify investment themes in emerging
markets that could advance SDGs that are aligned with development
needs and government policies
|
|
Conclusion
As Malaysia heed towards a renewable energy-driven future, ESG
practices are shifting from being a discretionary choice to an
essential one for most business, trades and investments. It is a
welcome sight to see that MITI recognises that many businesses are
struggling to keep up with the ever-changing ESG-standards and
trends. The Framework provides manufacturers initiating their ESG
journey or are facing challenges along the way with an easy and
useful guide to realign their priorities and focus towards
developing more robust measures to establish an ESG-friendly
business ecosystem. However, given that these measures could put a
strain on resources, especially in the case of MSMEs, feasibility
is likely to be a significant concern for companies and
businesses.
Further details in relation to the Framework can be viewed here.
Footnotes
1. Chapter 3.1.2 of the i-ESG Framework.
2. GSEP refers to the "Government Sustainability
Engagement Programme". It is a programme which involves a
series of customised mini conferences organised by MITI and
Malaysia External Trade Development Corporation (MATRADE) to foster
awareness and understanding among government officials. For further
details, see https://www.miti.gov.my/miti/resources/IESG/ESG_Newsletter_Feb_2023.pdf.
3. GITA refers to the "Green Investment Tax
Allowance", which is a government-backed incentive programme
designed to encourage the development of green technology for the
purchase of green technology equipment/assets. For further details,
see https://www.mgtc.gov.my/wp-content/uploads/2022/07/REC-GTGT-007-GUIDELINES-FOR-GREEN-TECHNOLOGY-TAX-INCENTIVE-GITAGITE.pdf.
4. GITE refers to the "Green Income Tax
Exemption", which is a government-backed incentive programme
to provide green technology service providers with a tax exemption
of up to 70% of the statutory income derived from providing
qualifying green services. For further details, see https://www.mgtc.gov.my/wp-content/uploads/2022/07/REC-GTGT-007-GUIDELINES-FOR-GREEN-TECHNOLOGY-TAX-INCENTIVE-GITAGITE.pdf.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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