PETALING JAYA: As more companies embrace environmental, social and governance (ESG), the ugly side of this practice –greenwashing – is expected to increase if actions are not taken to minimise its occurrence.
Industry observers said Malaysia, as a trading nation as well as foreign direct investment destination, would lose out if companies adopt a lackadaisical attitude on greenwashing.
Amid headwinds like inflation and supply chain disruptions, investors are increasingly looking to park their monies into companies that adopt sustainability practices.
Greenwashing is the process of conveying a false impression about how a company’s products are environmentally sound.
Instead of “falsifying” their ESG initiatives, companies should make honest investments and back their claims with targets and milestones, they said.
Minority Shareholders Watchdog Group (MSWG) CEO Devanesan Evanson expected an upsurge in greenwashing.
Minority Shareholders Watch Group (MSWG) chief executive officer Devanesan Evanson
The phenomenon is likely to rise as companies know the price of not adopting ESG practices, according to him.,
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The companies risked being punished by institutional investors and countries that import the their goods.
“Institutional investors will sell down companies that do not adopt ESG practices and this can hurt both the share price and prestige of the company.
“The companies do not have the vote of confidence of the institutional investors. Many minority shareholders follow the cue of the institutional investors and will do likewise,” he told StarBiz.
Devanesan said foreign countries would forbid the imports from companies found to be ignoring ESG practices.
For example, the recent Withhold Release Order by the US Customs and Border Protection involved cases in Malaysia relating to forced labour issues and indiscriminate degradation of the environment, he said.
“Thus, to make it seem as if they are adopting ESG practices, some companies may choose the easy way out by greenwashing rather than investing money and resources in honest and sincere adoption of ESG,” he said.
The FTSE4Good Bursa Malaysia (F4GBM) Index was launched in December 2014 to support investors in making ESG investments in Malaysian-listed companies, among others.
As at June 9, there have been 10 new additions to the constituents of the F4GBM Index, bringing the total number of constituents to 87, and nine new additions to the constituents of the FTSE4Good Bursa Malaysia Syariah or F4GBMS Index.
Separately, with the nine new additions to the F4GBMS Index, the index’s constituent count stands at 65.