Though taking authorized motion over climate-related hurt within the area remains to be not frequent, the rise of local weather commitments and disclosure necessities will seemingly imply it is going to see extra litigation going ahead, mentioned Rejina Rahim, advisor to the industry-led Institutional Buyers Council Malaysia.
This development is being noticed throughout the area, in response to a brand new information on local weather motion for boards in Southeast Asia, developed by environmental legislation charity ClientEarth, company sustainability advisory organisation Earth on Board and Local weather Governance Malaysia, an area chapter of the worldwide Local weather Governance Initiative community.
“Main company counsels from numerous Asian jurisdictions have opined that administrators are required to combine local weather dangers and alternatives into governance with the intention to validly discharge their duties, and face potential legal responsibility if they don’t,” the information acknowledged.
“We don’t have a alternative – traders and corporations want to ensure they’re adhering to necessities,” mentioned Rejina on the launch occasion of the information in Kuala Lumpur final Friday.
Monetary regulators within the area have been stepping up sustainability reporting necessities in latest months. For example, public-listed Singapore and Malaysian corporations should make climate-related disclosures by 2025 based mostly on requirements set by the Worldwide Sustainability Requirements Board (ISSB).
On high of that, nearly all of Malaysian corporations are exporters and should adjust to exterior sustainability disclosure necessities, such because the European Union’s Cross Border Adjustment Mechanism (CBAM) and anti-deforestation laws, mentioned Rejina.
She added that one in every of Malaysia’s largest institutional traders, Permodalan Nasional Berhad (PNB), has instructed investee corporations to undertake web zero targets by 2050 or danger being divested.
In April this yr, PNB up to date its voting coverage to require that investee corporations undertake a web zero ambition by 1 January 2025, and a web zero technique by the next yr. This technique ought to present “a complete plan outlining the steps they’ll take to realize their web zero ambitions in addition to interim emission discount targets,” mentioned PNB, which has a fund dimension of RM337 billion (US$76 billion) and is invested in a few of Malaysia’s largest corporations together with Maybank and plantations agency SD Guthrie, previously Sime Darby Plantations.
Though firm legislation and the duties of administrators differ by jursdictions, consultants say that administrators are liable for integrating local weather dangers and alternatives into their selections. [Click to enlarge] Picture: Information on Local weather Motion for Boards in Southeast Asia/ ClientEarth, Earth on Board, Local weather Governance Malaysia
Malaysia’s largest institutional investor, the Staff Provident Fund, has additionally required its investee corporations to element their web zero transition plans. The pension fund, which had RM1.14 trillion (US$257 billion) in belongings below administration in 2023, has made a “clear, time-bound emissions discount plan” a core requirement for investee corporations by this yr.
Philippe Joubert, founder and chief govt of Earth on Board, mentioned that corporations that fail to organize transition plans with the intention to meet their local weather targets are liable to greenwashing.
“If corporations are declaring (web zero ambitions) however aren’t fulfilling their obligations, traders is not going to be joyful,” mentioned Joubert.
Transition plans should be revisited
Transition planning is nonetheless weak amongst Asian companies and traders. The newest information by ClientEarth, Earth on Board and CGM confirms this, based mostly on structured interviews with administrators throughout Southeast Asia. One Singapore-based unbiased director mentioned: “Most boards are pledging to 2050 targets however none of them shall be round then… If you happen to don’t have some targets that shall be achieved by 2027 or 2030, then you might be greenwashing.”
One other Philippines-based sustainability supervisor mentioned that the corporate’s leaders struggled with making 30-year projections since company planning usually solely spans 5 years, although he shared that the chief group has begun to adapt to longer-term state of affairs planning after committing to web zero by 2050.
“It’s an ongoing course of however we’re making good incremental progress,” the supervisor mentioned.
It’s incumbent upon boards to overview key assumptions periodically for related robustness, even after a transition plan has been accepted.
Simon CY Wong, unbiased advisor in sustainable finance, Cambridge Institute for Sustainability Management
It is usually necessary that corporations and their boards of administrators replace their transition plans over time, as ecological and coverage modifications might have an effect on how efficient the plans proceed to be, mentioned Simon CY Wong, unbiased advisor in sustainable finance on the Cambridge Institute for Sustainability Management and a contributor to the information.
He cited Japan Airways’ goal of utilizing sustainable aviation gas, an “immature expertise”, to cut back 45 per cent of its emissions by 2050, whereas actions below its direct management represent only a sliver of the whole decarbonisation wanted to get to web zero.
“It’s incumbent upon boards to overview key assumptions periodically for related robustness, even after a transition plan has been accepted,” mentioned Wong.
In reality, administrators proceed to be liable for his or her previous or present actions even after they’ve left their board positions, Rejina mentioned. For instance, former administrators of Polish power big Enea had been sued by the corporate’s present administration over an absence of due diligence, as a result of they’d accepted a failed coal plant funding regardless of warnings about rising carbon costs, cheaper renewables and the affect of EU power reforms.
Giving the board an express mandate to supervise local weather motion may also help deal with this by setting a transparent course for the enterprise, each internally and to exterior stakeholders, mentioned the information. Sustainability must also be embedded into all board committees, avoiding a “sustainability silo,” it mentioned.
Bringing in administrators with expertise or a background in sustainability has helped some boards enhance their local weather motion. “One in every of our exterior administrators advised me that even after receiving formal coaching, it’s laborious for board members to soak up (sustainability-related knowhow) if it’s not one thing immediately associated to (their roles),” mentioned one Southeast Asian chief sustainability officer. “For us, the answer was to herald new board members who’ve direct and in-depth sustainability expertise.”
On the launch of a brand new information on local weather for boards in Southeast Asia, Rejina Rahim, advisor for the Institutional Buyers Council Malaysia (third from left), mentioned that the area can anticipate to see extra local weather litigation going ahead. The opposite audio system (from left) had been Elizabeth Wu, moderator and authorized marketing consultant at ClientEarth, Tommy Thomas, former attorney-general of Malaysia, and Philippe Joubert, founder and chief govt of Earth on Board. Picture: ClientEarth
Household companies as local weather actors
The information additionally famous that Southeast Asia’s family-owned companies, which make up 85 per cent of the area’s firms, could also be in a novel place to advance local weather technique.
“On this area, the affect of the household is kind of massive. If you happen to don’t persuade the patriarch, nothing will get achieved,” mentioned one company governance professional with in depth expertise in Southeast Asia. “However as soon as it’s supported by the household, it’s carried out and it’s carried out quick.”
Wong, who had performed interviews with a few of these household leaders, mentioned: “It was fairly inspiring to listen to from a few of these 70- and 80-year-old founders who wish to do extra (for local weather).”
Some interviewees, nevertheless, mentioned that there are nonetheless some boards of family-owned companies that undertake short-term pondering of their enterprise plans. This was very true of first-generation companies, which should prioritise survival, mentioned one academician.
Controlling shareholders of some Southeast Asia-based household companies had been personally motivated to take local weather motion. One founder mentioned he was impressed by former United Nations Secretary Common Kofi Annan when he launched the UN International Compact on human rights, labour, and setting in 1999. One other octogenarian founder was moved by watching the documentary An Inconvenient Reality by American politician and environmentalist Al Gore.
Such stakeholders could make it simpler for corporations to advance local weather motion, however boards should finally step as much as steer the company transitions, acknowledged the information.
“It will be inaccurate for administrators to view local weather change as a “compliance” difficulty,” it mentioned. “Boards in Southeast Asia ought to take into account how they organise themselves, the place they need to focus their efforts, and the instruments they need to draw upon to raised oversee their corporations’ local weather transition.”
