Speech by

Y Bhg Tan Sri Zarinah Anwar
Chairman, Securities Commission

& Chief Judge of the Awards

at the

StarBiz-ICR Malaysia Corporate Responsibility Awards 2010
29 March 2011
Intercontinental Hotel, Kuala Lumpur

Your Royal Highness Raja Dr Nazrin Shah Ibni Sultan Azlan Muhibbuddin Shah, the Crown Prince of Perak Darul Ridzuan
YBhg Datin Linda Ngiam, Group MD and CEO Star Publications
YBhg Dato’ Johan Raslan, Chairman, Institute of Corporate Responsibility Malaysia
Fellow judges
Ladies and gentlemen

First of all, allow me to express my appreciation to The Star, ICR Malaysia and their working partners, PwC and SIDC for organising the StarBiz-ICRM Corporate Responsibility Awards which have contributed to raising the awareness and visibility of Corporate Responsibility in Malaysia.

I am honoured to be part of a distinguished panel of judges tasked with selecting the winners of these Awards for the third year running.

Corporate Responsibility is founded on the premise that businesses can and should act as good corporate citizens and that demonstrating responsible business practices is a key requirement in building trust and confidence in an environment of rising public expectations.

In the last few years, we have seen corporate Malaysia make steady progress towards better CR practices. Strong CR reporting, with meaningful disclosure and high levels of transparency, serves to differentiate a company, builds trust with customers and enhances brand loyalty. I am glad to say that corporate Malaysia has seen the need to adopt responsible practices to stay ahead of the curve and to address pressing global issues such as the rise in ethical consumerism and environmental protection. Bursa Malaysia’s requirement on CR reporting has also helped in this regard.

Last year at the start of the 2010 Awards, I said that discussion of CR practices is increasingly taking place under the wider topic of “sustainability” which is defined as “the ability to meet the needs of the present generation without compromising the needs of future generations”. Sustainability has been identified as one of three key goals in the New Economic Model (NEM) unveiled last year. In support of the NEM, Bursa Malaysia launched a sustainability guide for directors together with an online knowledge portal to prepare companies for an Environmental, Social and Governance Index scheduled for rollout in 2012. The sustainability agenda received a further boost when the International Standards Organisation launched “ISO 26000: Guidance on Social Responsibility” in November last year. ISO 26000 is a voluntary guidance document issued to assist organisations with social responsibility for sustainable development.

As part of these developments, the StarBiz-ICRM Corporate Responsibility Awards continue to promote the CR and sustainability agenda by honouring and rewarding companies with exemplary CR practices, showcasing them for other companies to emulate. These Awards are uniquely positioned as a private sector initiative that is supported by the Securities Commission and Bursa Malaysia. They are focussed on how well a company demonstrates its understanding of CR and integrates responsible practices throughout its business operations rather than looking at specific projects or initiatives.

How were companies screened?

Let me now move on to talk about the Awards themselves and the process of screening, shortlisting and judging.

As in previous years, there is no change in the Award categories: companies were divided into two market capitalisation segments (above RM1 billion and below RM1 billion) with four awards in each market segment using Bursa Malaysia’s CSR Framework namely, Marketplace, Workplace, Environment and Community.

At the first stage, all public listed companies were requested to fill in an online survey which assessed a broad level of CR practices across the company. This year, we further improved the screening and scoring methodology by employing a more robust database survey platform that was more focussed, user-friendly and which allowed for a more efficient and in-depth review and analysis of responses. The enhanced methodology rewarded companies with structured CR policies that set targets and measured performance against those targets.

Screening of these online submissions was based on both quantitative and qualitative scoring, evaluating the quality and relevance of the responses. Companies were then shortlisted based on a qualitative review of the responses, available documentation and information gathered from telephone interviews.

In identifying leading companies, emphasis was placed on completeness, quality and materiality with extra points given for third party assurance, audit processes and external stakeholder engagement. To be shortlisted, companies had to achieve a minimum performance across all four CR categories—Marketplace, Workplace, Environment and Community.

Of the 165 companies submitting, 52 made it to an initial shortlist. Of the 52, 21 were further shortlisted as finalists. These companies demonstrated strong performance in all four categories of CR, and outstanding performance in at least one area. Of the 21 shortlisted companies, 11 were those with market capitalisation above RM1 billion.

The panel of judges assessed these 21 shortlisted companies for evidence that they had addressed material issues, demonstrated responsiveness to stakeholders, shown accountability through communications, and provided leadership in setting an example for other companies to follow.

Poor rate of submissions

The number of companies that took part fell significantly. This is extremely disappointing. The drastic drop in submissions affected mainly the market segment below RM1 billion.

One can speculate about the possible reasons for the lack of interest—the most likely being, “Why bother to submit when I know my company’s not going to win anyway?” At this juncture, I would like to reiterate why I think it is important for companies to take part even if they don’t think they are going to win.

First of all, participating in the Awards adds value to companies by allowing them to set a baseline for their own CR practices and to measure their progress over time as well as providing useful benchmark comparisons against other companies, especially those in the same industry. So for the 52 companies that made it to the initial shortlist and the 21 which have been shortlisted as finalists, my congratulations, for you have done well and it should encourage you to know where you stand. For those who did not make the lists, your participation in these Awards has indicated where you stand, and should incentivise you to do better.

Benchmarking the individual company’s CR performance and achieving higher CR standards are important since elsewhere in the world there are growing calls for sustainability accounting. This process helps companies engage and satisfy stakeholders who are increasingly more knowledgeable and informed, and have greater awareness of CR and sustainability issues. Understanding and managing stakeholder expectations is a crucial part of building reputation and enhancing the value of your brands.

A new and major consideration is if companies want to take advantage of increasing capital coming from investors concerned with ESG (Environment, social and governance) factors. Companies must recognise that socially responsible investing (SRI) has been growing at a faster rate than conventional funds under professional management. According to the Social Investment Forum Foundation’s 2010 “Report on Socially Responsible Investing Trends” in the United States, SRI funds have risen by 380% from US$639 billion in 1995 to US$3.07 trillion in 2010.

According to the foundation’s survey, 85% of fund managers cited client demand as the reason for incorporating ESG criterion into investment management while 52% of institutions cited regulation or legislation as the reason for incorporating ESG factors into their investments.

No doubt, CR practices are a necessary criteria for ensuring long term sustainability, in tandem with the rising demand for corporations to pursue a better balance between economic and social goals. Increased demands for greater accountability and transparency will also enhance the need for companies to integrate environmental, social and governance issues in their decision making process, and to report on them. Participating in Awards such as these therefore, will contribute towards strengthening the discipline of reporting, internal monitoring and adherence to international standards and benchmarks, all of which go towards enhancing the attractiveness of the companies to a more discriminating population of investors.

What can we learn from the overall results?

Now, let us consider the overall results from this year’s submissions. I’m pleased to note that there were major qualitative improvements among the shortlisted companies. The leading companies have improved and are setting higher standards of CR performance. A majority of companies, particularly those with market cap below RM1 billion, still lag behind and have not implemented structured CR programmes with clear policies and targets. As in previous years, there is a clear distinction between companies in the two market segments with a much higher proportion of companies in the segment above RM1 billion market cap achieving a score of above 50%. This may also help explain why most of the sustainability reports were produced by companies above RM1 billion market cap.

However, it is heartening to note that in the initial shortlist of 52, 27 were companies below RM1 billion market cap. This clearly demonstrates that a smaller market cap is not an impediment to good CR practices. Subscription to high ethical standards and a commitment to ensuring a moral underpinning to business activities and the ideal of the greater good is what makes the difference.

Let me now say a few words about what we have learned from the companies’ responses in each of the four categories:

In the marketplace category, most companies had satisfactory formal corporate governance structures in line with Bursa Malaysia’s Corporate Governance Framework. Equally, most companies also have in place ethics policies although there was little evidence of monitoring and enforcement of these policies. Supplier requirements in the form of environmental specifications appear to be increasing.

In the workplace category, training and development remained a focus area. Most companies had structured and extensive training programmes for employees, but there is much room for improvement in respect of other basic workplace policies. About half of the companies address the issue of occupational health and safety, but there appears to be no real connection between the risks posed by the activities of the companies and the efforts made to mitigate them. What is encouraging is the evidence showing that the adoption of ISO, OHSAS and other international standards plus certification has generally increased across the board.

The environment category saw a significant discrepancy in the performance of companies. 51% of those above RM1 billion market cap scored above 50% while only 28% of companies below RM1 billion did so. There were no significant improvements recorded in the number of companies setting environmental targets. As in previous years, there appeared to be little correlation between sector impact and environmental performance.
Generally, there was also lack of understanding and disclosure on the significance of biodiversity and its management. But encouragingly, there appeared to be more concerted efforts towards green office initiatives including going paperless and adopting the 3Rs (reduce, reuse, recycle).

In the community category, many companies made significant and tangible efforts to raise the well being of the local community, undertaking a range of projects of varying depth and breadth, including those which had multiplier effects. Many companies encouraged employee volunteerism. Financial assistance was also extended. In this regard, I encourage companies to make efforts to measure the impact of their donations, or relate these to National Development Goals or to the UN Development Goals.

What did the judges look for?

In the judging process, the panel of judges were looking for evidence of a company’s CR claims and how these have improved year on year. In several categories, choosing the winners was difficult because the contenders were equally strong. In choosing one company over the other, the judges looked at differentiators such as efforts expended to address material issues on business operations, meeting stringent international standards and encouraging similar practices eg amongst their vendor networks, adopting community projects that had a multiplier effect eg by embedding green awareness and sharing practical knowledge with the local community.

I would like to commend all companies that participated in the Awards for making the effort to do so. I would also like to commend all companies that made it to the shortlist for your CR leadership. To the winners of the StarBiz-ICR Malaysia CR Awards 2010, congratulations; and I hope you will keep up the good work.

I would also like to thank my fellow judges, Dato’ Yusli Yusoff, Dato’ Kok Wee Kiat and Datuk Peter Wentworth for their hard work and insights. It has been a pleasure working with them.

My appreciation once again to The Star and ICR Malaysia for organising these important Awards.

Your Royal Highness, ladies and gentlemen, thank you for your attention.