BUDGET 2024 is a promising one, especially within the environmental, social and governance (ESG) space as sustainability is integrated into economic policies.

Measures were presented to drive sustainable growth to protect as well as empower the welfare of Malaysians, and that includes focusing on strategies to prioritise sectors and initiatives that are investment-intensive. This reflects the government’s recognition towards ESG as a “need” today, and the whole-of-nation approach in making Malaysia an investment destination and at the same time achieving carbon neutrality by 2050.

Budget 2024 lays the foundation not only for the National Energy Transition Roadmap (NETR) with a RM2bil allocation, but also a RM200mil startup fund for the New Industrial Master Plan (NIMP) 2030.

This is in addition to the RM200bil financing funds by financial institutions to encourage industries to transition towards a low-carbon economy.

> A RM900mil loan fund has been allocated for small and medium enterprises (SME) to increase business productivity through automation and digitalisation.

Leveraging on this could lead to higher sustainability performance through the optimisation of resources used, waste reduction, streamlining of supply chain and promoting workplace safety.

> Guarantee funds of up to RM20bil will be made available for SME entrepreneurs, particularly for those involved in green economy, technology and halal fields.

> Putrajaya will be modelled as Malaysia’s low-carbon city through the installation of solar panels on the roof of government buildings and the use of electric vehicles as official vehicles, as the government leads by example in sustainability – further boosting investor confidence as ESG shifts from being just an investment category to mainstream strategy.

Experts share their take on what Budget 2024 means within the ESG realm:

How will Budget 2024’s emphasis on ESG affect investor sentiment and foreign investment in Malaysia?

KPMG Malaysia Sustainability Advisory Services head Phang Oy Cheng.Budget 2024 has placed a strong emphasis on promoting domestic direct investments and attracting venture capital for high-innovation start-ups and green growth geared towards climate resilience. The allocation of RM2bil towards funding Malaysia’s National Energy Transition Facility (NETF) and the government’s encouragement to financial institutions to provide financing funds of up to RM200bil are solid steps in the right direction as it will encourage foreign climate investors to view Malaysia’s energy transition efforts favourably. Particularly noteworthy is the funding allocated for green investments, which reflects the government’s commitment to explore the Third-Party Access System model to enhance the implementation of the Corporate Green Power programmes.

This initiative is expected to stimulate investments, both from foreign and local sources, in our renewable energy sector – thereby drive the momentum towards a low-carbon economy. In a recent report by BloombergNEF, global investment in low-carbon energy technology has surged to a record level of USD1.1tril in 2022. The biggest share of these spending was directed towards renewable energy and electrified transport.

The Organisation for Economic Cooperation and Development (OECD) has also estimated that an annual investment of USD6.3tril in infrastructure will be required annually on average between 2016 and 2030 to meet the development needs globally.

An additional US$600bil a year over the same period will make these investments climate-compatible, a relatively moderate increase that could yield substantial short and long-term gains in terms of growth, productivity and well-being. Furthermore, the additional investment cost is likely to be offset over time by fuel savings resulting from low-emission technologies and infrastructure.

Does Budget 2024 outline strategies for ensuring the long-term sustainability of ESG programmes and initiatives?

The support for sustainable and responsible investments (SRI) through the provision of tax exemptions and deductions up to 2027 can be seen as a mid-term attempt by the government to encourage local companies to raise sustainable economic instruments and drive long-term ESG programmes. Similarly, this can be seen in the proposed tax deductions for companies participating in the voluntary carbon market.

Furthermore, the allocation of increased funding for the Ecological Fiscal Transfer for Biodiversity Conservation (EPT) is also encouraging, as is the proposed issuance of a biodiversity sukuk and tax deductions for tree-planting activities or environmental preservation and conservation awareness projects certified by FRIM.

The emphasis on impact investing through the promotion and support of social enterprise in the form of tax exemptions, is also very welcomed, which is essential as the country seeks to gain a better foothold in the impact investing space.

How does Budget 2024 address the balance between immediate needs and future sustainability?

Upon closer examination, Budget 2024 is very much focused on two main aspects of sustainability management within our country:

> Provide structures to promote investments into conservation and the transition towards a low-carbon economy.

> Stimulation of corporate activities, both among large enterprises and small and medium enterprises, to facilitate the transition towards a low-carbon economy.

These initiatives are pivotal for the country’s future economic development.

EY APAC Decarbonisation Solution Leader, Malaysia Climate Change and Sustainability Services (CCaSS) partner Arina Kok.

However, the sustainability of these good intentions is questionable because Budget 2024 fails to adequately address the capacity enhancement needs of ESG vis-a-vis climate change risk management and the imperative of progress to a low-carbon economy.

Further, there needs to be greater awareness raised among the SMEs on the necessity of demonstrating sound ESG management – particularly to financial institutions, customers and partners. There is also a notable lack of address for the country’s legal infrastructural needs in light of the accelerating climate change risks. The proposed development of a port in Carey Island is illustrative of this oversight, where projections of rising sea levels indicate that Carey Island is a particular risk.

Moreover, Budget 2024 is primarily centred on providing the necessary economic instruments to facilitate our country’s transition towards a low-carbon economy. While this is a commendable goal, it is important to note that the budget does not comprehensively address the other aspects of ESG.

For instance, the legal situation for managing migrant workers in our workforce and how we as a nation need to address the requirements set by the International Labor Organisation (ILO).

To fully realise our national aspiration of developing our capital markets into a prominent regional SRI hub, we must broaden our approach to encompass a more comprehensive spectrum of ESG factors. This broader focus will not only cater to the current needs of SRI investors but also ensure our long-term success in this endeavour.

How does Malaysia’s Budget 2024 compare to ESG-focused budgets in neighbouring countries or regions?

Compared to ESG-focused budgets in neighbouring countries such as Australia and Singapore, Malaysia’s Budget 2024 has taken some initial steps towards ESG goals.For example, Australia’s ESG initiatives in its Budget 2023-2024 include a significant A$2bil allocation for Hydrogen Headstart program to accelerate large-scale renewable hydrogen projects and a further A$4bil to become a RE superpower. In addition, Australia’s “Rewiring the Nation” program allocates A$20bil in low-cost finance to expand and modernise Australia’s electricity grids to support more renewable power.

Meanwhile, Singapore has announced in its Budget 2023 that it intends to raise the carbon tax progressively over the next few years. Further, Singapore intends to continue harvesting solar energy, transitioning to cleaner energy sources like hydrogen, and working with neighbouring countries (including Malaysia and Indonesia) to develop regional power grids.In comparison, Malaysia’s Budget 2024 included some ESG-focused programs and tax exemptions or deductions such as:

> Improve the implementation of the Corporate Green Power Program under the Third-Party Access (TPA) model to drive investment in RE capacity as Malaysia targets 70% RE capacity by 2050 under the NETR.

> Continue the tax exemption for fund management companies managing SRI funds, and tax deductions on SRI sukuk issuance costs until YA 2027.

> Add a proposed tax deduction of up to RM300,000 for companies that invest in measurement reporting and verification (MRV) related to the development of carbon projects. These expenses can be deducted from the sale of carbon credits traded on the Bursa Carbon Exchange (BCX).

What can Malaysia learn from global ESG trends and experiences?

Key lessons that Malaysia can learn from the developed members of the OECD global community are their waste disposal efforts through industry regulation and guidelines and impactful community education programs to ensure businesses, households and organisations embark on cohesive waste management practices.

Among the policies and practices to consider include (see table).To further enhance its ESG efforts, Malaysia can learn from global trends and experiences by emphasising waste management, community education programs, and industry regulation to promote cohesive waste management practices.

Ultimately, Budget 2024 demonstrates Malaysia’s commitment to embracing ESG principles and its potential to attract sustainable investments while highlighting the need for broader and more comprehensive ESG strategies for the future.