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TITLE: Keynote Address by Yang Berhormat Senator Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz, Minister of Finance Malaysia at The MIA International Accountants Conference 2022, Leading ESG, Charting Sustainability

DATE: 08/06/2022

KEYNOTE ADDRESS BY

YANG BERHORMAT SENATOR TENGKU DATUK SERI UTAMA ZAFRUL TENGKU ABDUL AZIZ

MINISTER OF FINANCE MALAYSIA

at

THE MIA INTERNATIONAL ACCOUNTANTS CONFERENCE 2022

LEADING ESG, CHARTING SUSTAINABILITY

Salutations

  • Yang Berbahagia Datuk Bazlan Osman, Vice President, Malaysian Institute of Accountants
  • Yang Berusaha Dr Wan Ahmad Rudirman Wan Razak, Chief Executive Officer, Malaysian Institute of Accountants
  • Members of the Media
  • Ladies and Gentlemen

Assalamualaikum and a very good morning to all

  1. It is a great pleasure to be here today. Many thanks to the Malaysian Institute of Accountants (MIA) for inviting me to officiate and deliver the keynote address at the MIA International Accountants Conference 2022.
  2. I applaud MIA for choosing Leading ESG, Charting Sustainability as the conference theme. This focus on ESG and sustainability is timely as we navigate an unprecedented landscape where climate inaction, extreme weather, biodiversity loss and insufficient governance in various aspects of the global economy could lead to social inequity and widened wealth gaps.
  3. And all these ESG risks have been further exacerbated by COVID-19, which in the last 2 years have set back many developing countries’ progress by at least a decade.
  4. And what about Malaysia? In the last two years, the Ministry of Finance (MOF) has been RESPONSIVE to the nation’s pressing needs, particularly through the eight stimulus packages valued at RM530 billion and 2 expansionary budgets in 2021 and 2022.
  5. To future-proof ourselves and the nation, today I would like to focus on MOF's RESPONSIBLE and REFORMIST stand, and how the accounting profession can support this national aspiration to help the Government re-set the nation on the right (fiscal) track to chart Malaysia’s sustainability journey and build our people and businesses’ resilience. To achieve this, we must become more agile and competent, as well as embrace and incorporate ESG considerations into our policy formulation and business operations.
  6. Let me now share with you the policies supporting our ESG aspirations that the Government has put in place in the last 2 years, even while we were managing the pandemic. I will also share our direction on building a more resilient socio-economic nation moving forward.

Policies to Support Climate and Socio-Economic Resilience

Ladies and Gentlemen,

  1. The Intergovernmental Panel on Climate Change (IPCC) has warned that failing to reduce greenhouse gas emissions and limit global warming to 1.5 degrees Celsius could make the world uninhabitable. Even before that becomes a reality, there are already risks to global food security caused by the likelihood of crops being damaged due to climate-related calamities.
  2. We ourselves have experienced the effects of climate change not too long ago, through the unprecedented floods in our country. Climate migration will also increase as sea levels rise and inundate coastal states and cities. As such, addressing the risks of climate change will be critical to save not just our environment and businesses, but most importantly, humanity and our own lives!
  3. To transition to a low-carbon economy, build a sustainable business environment and nurture a society that shares its wealth-building opportunities equitably as laid out in the 12th Malaysia Plan, every one of us has a responsibility to work together as a nation.
  4. On this score, among the key eco-friendly priorities laid out by the 12th Malaysia Plan include reducing greenhouse gas emissions to 45% of GDP by 2030 in line with the Paris Agreement; a Comprehensive National Energy Policy to provide long-term direction on achieving Malaysia’s carbon neutrality aspiration and a target for renewable energy to account for 31% of Malaysia's total energy capacity by 2025.
  5. As for social aspirations, the Plan also specifies that, among others, average household income should reach RM10,000 by 2025
  6. and the economic growth gap to be reduced between the central region and Sabah-Sarawak.
  7. There are many other objectives in the 12th MP that are equally worthy of mention, but my intention today is to highlight that plans and blueprints aside, it is always the annual budget broad policies and specific measures that give life to our longer-term ESG-premised aspirations.

Sustainable Financing is Gaining Ground – Fast!

  1. On that score, I am pleased to share that Government is committed to firstly, strengthen sustainability-related financing, which complements the UN Sustainable Development Goals (SDGs) by coordinating initiatives and programmes inculcating the elements of ESG, and which will help make Malaysia a sustainable financing hub.
  2. In identifying existing gaps of financing programmes and projects related to SDGs, among our efforts include:
    1. (One), at the ministry and national level, via the annual budgets, the MOF has tagged all programmes and projects under the development expenditure to the SDGs. This is also part of our overall effort to embrace the sustainability principle in public spending. In fact, the Government has stepped up its game via the Government Green Procurement (GGP) initiative, a public procurement scheme that takes into consideration standards for protecting the environment and natural resources as well as minimising the negative effects of human activities. In 2020, the GGP was valued at approximately RM590 million, involving 26 ministries. Further, not many are aware that Malaysia is among 10 countries in the world that have fully aligned their national budget measures to the SDGs. I also want to share that we just issued the Pre-Budget Statement for Budget 2023, and we have continued to enable the implementation of ESG-focused development projects and programmes.
    2. (Two), the Ministry of Environment and Water, in collaboration with MOF and Bursa Malaysia, will implement the Voluntary Carbon Market before transitioning to the Domestic Emissions Trading Scheme. This is expected to attract low-carbon investments, boost the credibility and international competitiveness of Malaysian products, and provide Malaysian entities with long-term financial resources. The Government has also announced plans to strengthen climate change governance in the country, including the establishment of the National GHG Centre to improve transparency in climate change data and reporting to boost confidence in low carbon investment.
    3. (Three), Bursa Malaysia’s recently proposed changes to the Listing Requirements are aimed at improving sustainability disclosures for listed companies across all sectors. These are also in line with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) Application Guide for Malaysian Financial Institutions, jointly issued by BNM and the Securities Commission in March this year. All these are based on global best practices on ESG and climate reporting, which are critical to monitor and drive action towards meaningful changes.
  3. Most importantly, corporate Malaysia need to make the transition to ESG-focused operations quickly. A study by a global bank in 2021 revealed that by 2025, 70% of multinational corporations (MNCs) will remove suppliers that endanger their carbon transition plan. And these MNCs are expected to exclude 35% of their current suppliers as they transition away from carbon. In short, if Malaysian companies are part of the MNC ecosystem, they risk being excluded from future business opportunities if they do not start to adapt their businesses to ESG practices. And this leads me to the second main strategy involving the SME sector.

Empowering and Enabling SMEs Towards ESG

  1. The second main strategy that the MoF is committed to is developing the capacity of our SMEs as one of the key building blocks to achieve our ESG aspirations and our net zero-carbon goal by 2050. This is because our SME sector is a key contributor to the economy, and employs almost 50% of our workforce.
  2. Recently, at the World Economic Forum in Davos, I was invited to discuss Financing Local Economies and SMEs with a few esteemed, global panelists. During that panel, the common theme across various countries and industries is that we need effective, scalable pathways and solutions to support SMEs and social enterprises as key drivers of employment, sustainable livelihoods, and the attainment of ESG goals.
  3. So, in terms of enabling SMEs, I am happy to share that:
    1. (One), through the recently launched Principles for Good Governance (or PGG) to be implemented by the Government-Linked Investment Companies (GLICs), we
    2. aim to catalyse the embracing of ESG principles by SMEs. This is because the six GLICs – EPF, PNB, KWAP, Khazanah Nasional Berhad; Lembaga Tabung Haji dan Lembaga Tabung Angkatan Tentera – not only collectively manage RM1.7 trillion of assets, but they also support a huge ecosystem comprising SMEs. The PGG recommends the establishment of a governance structure for board memberships, and for the oversight of ESG elements in future investment strategies. This helps ensure the readiness of the GLICs and the SMEs in their ecosystem to meet the growing demand of the global ESG-related market and investments. Clearly, we can achieve more broad-based target outcomes faster for the SMEs by leveraging on the GLIC ecosystem.
    3. (Two), through Budget 2022, we have specific financing measures to support SMEs to embrace ESG principles into their operations. This includes BNM’s RM1-billion Low Carbon Transition Facility, to help SMEs adopt sustainable and low-carbon practices; and a RM100 million matching grant for NGOs and social enterprises to assist the vulnerable in terms of education, income generation and mental health. To enhance social protection, we have also allocated, among others, RM80 million towards the Kasih Suri under EPF and SOCSO, which is a social protection scheme for housewives and widows against the risk of disability, illness or old age. We also expanded SOCSO's coverage to 9 new categories of beneficiaries including hawkers, fishermen, the disabled, as well as Orang Asli and indigenous tribes of Sabah Sarawak.
  4. There is a very good reason for all these initiatives: Global ESG assets are currently valued at $35 trillion and will exceed $53 trillion by 2025, representing more than a third of the $140.5 trillion
  5. in projected total assets under management globally. We must empower our SMEs to leverage and tap on this ESG-focused capital, because ESG investing is now a core component of the global pool of capital, and no longer a niche market.

Institutionalising ESG Measures

  1. The third main strategy is the establishment of the Malaysia Sustainable Development Goals Trust Fund (MySDG Fund) by the Government of Malaysia, through the MOF and in collaboration with the United Nations (UN) in Malaysia. By institutionalising such a major funding collaboration, the Government is demonstrating its strong commitment to integrate SDG principles into Malaysia’s national development plans and policies, while also being open to public scrutiny on the fund’s usage. The Government has allocated RM20 million as initial contribution to the MySDG Trust Fund.
  2. I am also pleased to share that through our Budget 2023 Pre-Budget Statement, we have outlined a few key priorities, including Malaysia’s strategic transition from the current recovery phase towards longer-term reforms. These involve facilitating better income opportunities and enhanced holistic wellbeing to achieve the vision of a more inclusive and sustainable socio-economic development for Keluarga Malaysia. We can only achieve lasting, sustainable reforms by having the whole nation move together towards that common vision.
  3. To that end, how can the accounting profession play its role in galvanising the nation towards achieving its ESG vision? As our corporates, SMEs and GLICs are taking action on embracing ESG principles, from the Government’s standpoint, auditors and accountants have a great responsibility to:
    1. Firstly, help these companies improve their ESG standing and practices, particularly the ‘G’ or governance in ESG, based on global standards and frameworks. This is because there has been increasing regulatory and public scrutiny on corporates, where they must be seen to walk their ESG talk, or risk being punished by their investors and/or customers who can take their money elsewhere. Sustainability reporting based on international ESG standards and frameworks on climate reporting, such as the Task Force on Climate-Related Financial Disclosures (TCFD), are critical to drive actions and implementation on ESG and climate change. The accounting profession can guide companies on providing a reliable disclosure based on high-quality, credible information, with no ‘greenwashing’. Reliable reporting is crucial to support decision-making by investors and capital providers, as well as customers.
    2. On this score, I am pleased to find out that MIA is actively advocating for ESG and TCFD reporting. I am confident that, given the profession’s expertise and competencies in disclosure, accountants will be able to play significant multi-disciplinary roles in accelerating the nation’s transition to a low-carbon, circular economy.
    3. Secondly, the MIA should seek to be part of strategic collaborative initiatives with specific regulatory agencies and entities that promote ESG principles. On this, I commend the MIA for supporting Bursa Malaysia’s efforts to champion sustainability in the capital market. This include Bursa’s recently proposed changes to the Listing Requirements aimed at improving sustainability disclosures, which I had mentioned earlier and is in line with TCFD’s recommendations. It is through the accounting profession’s expertise in reporting disclosures and guiding
    4. businesses on net zero and sustainability growth strategies that Malaysia can attract low-carbon investments, boost the credibility and international competitiveness of Malaysian products, and help Malaysian entities access ESG capital.
    5. Thirdly, it is crucial for MIA members to upskill themselves to master a good understanding of the technical reporting that is required for ESG reporting. ESG risks are both business and investment risks, and accountants are at the heart of reporting on them as well as the financials. As auditors of your clients’ financials, you all have a responsibility to help quantify value creation, its preservation or erosion as a result of these ESG risks. Entities like the MIA need to also help develop industry-specific standards to guide the disclosure of financially material sustainability information by companies to their stakeholders such as customers, civil society and policy-makers like MOF. Share with us your ideas on how best to do this via our Budget 2023 feedback and input portal: https://budgetmemorandum.treasury.gov.my
    6. Fourth, the MIA and its members should also advocate tax compliance – an important aspect of Governance in ESG – because it supports the nation’s fiscal sustainability, which is crucial for continued socio-economic development. The Government appreciates MIA's advocacy on tax governance, which focuses on addressing non-compliance and systemic inefficiencies, especially post-COVID-19, when tax collection has been constrained by business losses.
  4. On fiscal REFORMS, I would like to share that the MOF is looking to table the Fiscal Responsibility Act in the upcoming Parliament session, which includes efforts to broaden our tax base – including taxing the shadow economy – and improve tax compliance and administration towards helping boost tax collection.
  5. This is crucial to replenish the nation's coffers to support our developmental and longer-term reform agenda. Back to MIA, your members are important business advisors and change agents. The government always welcomes MIA's efforts on all fronts, especially in helping all stakeholders make informed decisions and developing and regulating the accountancy profession to improve enforcement and governance.
  6. To strengthen regulations, the Government looks forward to continued collaboration with the MIA on the reform of the Accountants Act 1967 and its operationalisation. The Government lauds MIA's efforts to improve compliance and audit quality by revising the Practice Review process and rules. We also welcome MIA's efforts to crack down on members associated with dubious accounting practices for good governance and public interest. Implementing these measures can boost Malaysia's reputation as a trusted, stable, and preferred business and investment destination.

Ladies and gentlemen,

  1. Before I conclude, I’d like to thank MIA once more for inviting me to officiate this event. This year’s virtual Conference, I understand, has successfully attracted more than 2,000 delegates, which is commendable.
  2. I would like to personally encourage all delegates to embrace lifelong learning at this Conference and other MIA programmes to maintain their relevance and support for Malaysia's ESG efforts.
  3. On that note, it gives me great pleasure to officiate this event, and I wish you a productive conference. I also would like to see more initiatives such as this to propel Malaysia's ESG journey forward and help chart the nation’s sustainability journey, thank you.

Thank you.