Letter from... Malaysia

Nazatul Izma Abdullah reports

Malaysia is banking on corporate social responsibility (CSR) to make its companies more accountable and investible in a congested international investment landscape.

Indeed, CSR has become a priority, judging by snowballing interest and various initiatives from both the public and private sector. Government has emerged as a key driver and supporter of CSR. In unveiling Budget 2007 in September 2006, the Prime Minister (who is also the Minister of Finance) announced that public-listed companies (PLCs) are required to disclose their CSR activities. Such disclosure will aid Malaysia 'on its way to achieving another global corporate reporting agenda - first (with) corporate governance, then international-quality financial reporting standards, and now CSR,' says Datuk Johan Raslan, chairman of the newly formed CSR Malaysia, a body for raising CSR awareness, and executive chairman of PricewaterhouseCoopers Malaysia.

Stock exchange Bursa Malaysia Bhd has also thrown its weight behind CSR, urging PLCs to integrate CSR elements into their strategic business management practices. To wean PLCs away from the pseudo-CSR mindset fixated mainly on philanthropy and community service, Bursa Malaysia has come up with its own CSR Framework for PLCs, a set of voluntary, flexible guidelines that outline key focal areas covering the environment, community, workplace and marketplace. Bursa Malaysia's Chief Executive Officer, Yusli Mohamed Yusoff said, 'Stakeholders are increasingly expecting companies to have good CSR practices beyond community service alone. CSR is a comprehensive approach to business practices based on ethical values and complements the exchange's push to improve the quality of PLCs in Malaysia.'

CSR's fundamental ethics dovetails nicely with Islamic values and syariah-compliant investment, which are vital to Malaysia's positioning as a global platform for Islamic finance and capital markets. At its most basic, syariah-compliant businesses eschew elements prohibited by Islamic law, such as alcohol, pornography and interest, which are deemed to be socially damaging and oppressive. Said John Zinkin, Deputy Chairman of CSR Malaysia and author of several books on corporate governance and stakeholder management: 'Malaysia has an opportunity to emphasise the Islamic dimensions of CSR... Malaysia can no longer compete on price as costs escalate, so it is smart to compete on the grounds that her companies are more socially responsible along the global supply chain.'

Of course, PLCs, especially the smaller ones grappling with limited resources, will not find it easy to embrace and integrate CSR into their strategic essences. 'The whole concept of CSR requires a cultural transformation, and that may be the biggest challenge of all,' muses Dato' Johan.

Information gathering to separate responsible companies from the irresponsible ones is another challenge. In future, investors should find it easier to screen Malaysia's responsible companies with the aid of tools like the OWW Responsibility Malaysia SRI Index launched on November 30 2006. Formulated by OWW Consulting, a specialist CSR research company based in Kuala Lumpur and Singapore, this is the first in the OWW Responsibility SRI Index Series which will initially cover Malaysia and expand to other South-East Asian economies in future. The first Malaysian index covers large cap public listed companies and will be followed by companion indices in the same series for small cap companies and for Government Linked Companies (GLCs).

OWW is banking that this SRI Index will help plug the paucity of information on socially responsible companies in Malaysia. Arshad Adam, co-founder and Finance Director at OWW Consulting, said, 'These opportunities have so far been out of the reach of Socially Responsible Investors because credible, consistent and comprehensive assessments of the Environmental, Social and Governance performance of Malaysian companies have not been available. Our new system fills this gap.'

Nazatul Izma Abdullah is a freelance writer on business and finance issues, based in Malaysia.