In Malaysia, the construction industry is increasingly embracing Environmental, Social, and Governance (“ESG”) principles as part of a broader commitment to sustainability and economic development. As one of the cornerstones of the nation’s economy, integrating ESG into construction practices is essential for ensuring long-term growth, competitiveness, and alignment with national sustainability goals. The Construction Industry Development Board (“CIDB”) has underscored the importance of ESG integration, emphasizing that the sector’s future success depends on its ability to adapt to these principles. CIDB’s CEO, Datuk Mohd Zaid Zakaria, pointed out during the International Construction Transformation Conference (“ICTC”) that the construction industry accounts for about 6% of the global GDP and is responsible for a significant portion of the world’s carbon emissions, climate change, and energy use. With the sector’s high environmental impact, the need for sustainable construction practices has never been more urgent.
“Environmental” Responsibility
In Malaysia, rapid urbanization and ongoing infrastructure development create considerable environmental challenges. To address these issues, the construction industry must adopt sustainable building practices and initiatives aimed at reducing its environmental footprint. One of the key initiatives supporting this transition is the Green Building Index (“GBI”), which offers guidelines for constructing energy-efficient buildings with minimal environmental impact. There are growing numbers of green buildings and green development projects across the country incorporating sustainable materials, eco-friendly designs, and energy-efficient technologies into their projects which reduces carbon footprints and enhances overall operational efficiency. Amongst others includes:-
Alongside these efforts, the Malaysian government has introduced various programs such as Net Energy Metering, MyHIJAU, and the Sustainable and Responsible Investment (“SRI”) Sukuk Framework to support the transition towards a carbon-neutral economy while managing the costs associated with these initiatives.
“Social” Responsibility and Labor Welfare
The International Labour Organisation (ILO) reported that construction contributes to a large share of fatal occupational accidents globally. Given these challenges, it is crucial for Malaysian construction companies to address worker welfare by prioritizing safety, fair wages, and health standards through strict safety protocols and comprehensive training programs. By doing so, companies not only protect their workforce but also enhance productivity and create a safer working environment.
Social responsibility in construction also extends beyond workers to the broader community. Through the creation of jobs, the enhancement of public infrastructure, and active community development, construction firms can contribute to societal well-being. These socially responsible practices not only foster positive relationships with local communities but also strengthen the industry’s social license to operate, ensuring long-term success and stability.
“Governance” Ensuring Transparency and Accountability
Good governance is another cornerstone of ESG, particularly in the context of Malaysia’s construction industry. To overcome challenges related to corruption, lack of oversight, and poor regulatory compliance, construction companies must adopt strong governance frameworks that emphasize integrity, transparency, and accountability in their operations. This includes implementing anti-corruption measures, transparent financial reporting, and clear decision-making processes.
Effective governance also extends to ensuring that suppliers and contractors comply with ethical material sourcing and labour practices. Monitoring these practices is crucial for maintaining ESG standards and avoiding legal and financial risks. The CIDB has advocated for the importance of governance in driving sector growth, urging companies to improve transparency and adhere to ethical standards. By establishing robust governance systems, construction companies can reduce operational inefficiencies, mitigate risks, and build greater investor confidence.
As global ESG standards evolve, Malaysian construction firms that adopt strong governance practices are better positioned to align with international sustainability regulations and attract ESG-focused investors. The Malaysian government has supported these efforts by offering incentives for green building projects, tax breaks for sustainable initiatives, and regulatory frameworks that promote environmentally friendly construction practices. These efforts help the sector remain competitive, resilient, and aligned with the country’s broader sustainability objectives.
Conclusion
The ESG principles is critical to the future of Malaysia’s construction industry. By prioritizing environmental sustainability, improving labour welfare, and adhering to strong governance practices, the sector can achieve long-term growth while contributing to the nation’s economic and sustainability goals. ESG principles not only help construction firms reduce risks and enhance their competitiveness but also ensure that they operate in a socially responsible and ethical manner. As the construction industry continues to play a key role in the development of Malaysia’s infrastructure and economy, embracing ESG will be crucial in creating a more resilient, responsible, and sustainable future for the nation and its people.
About the author
Hee Sue Ann
Senior Associate
Real Estate
Halim Hong & Quek
sahee@hhq.com.my
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