KUALA LUMPUR: Public listed companies (PLCs) need to step up on environmental, social and governance (ESG) disclosure to comply with Bursa Malaysia's enhanced sustainability reporting by 2025 for the Main Market and 2026 for the ACE Market, said Bursa Malaysia.

The exchange said that only 18 per cent or 169 of the 949 companies in 13 sectors plus ACE Market received ESG ratings from MSCI, S&P Global, Bloomberg and Sustainalytics, while the FTSE Russell's coverage level stood at 25 per cent.

S&P and Bloomberg rated 144 and 132 companies respectively while MSCI and Sustainalytics covered 32 companies each.

FTSE Russell, which is Bursa Malaysia's index partner, provides ESG ratings for 237 PLCs.

The exchange said generally companies with larger market capitalisation (cap) received more ESG coverage, mainly because large companies have sufficient resources to provide ESG-related data while smaller companies are more concerned about costs related to compiling ESG data.

It noted that out of 181 companies, only two ACE companies had ESG scores.

This showed that there is less investor demand for ESG ratings of smaller companies, therefore, rating agencies were less likely to allocate resources to evaluate them.

In terms of number of companies, it said the Bursa Malaysia Industrial Production Index is the largest with 222 constituents but only 21 of them or nine per cent are rated, which is the lowest rate among all sectors as the index's market cap average of RM1.1 billion is the fourth smallest.

"To improve the quantity and quality of ESG data, investors require more engagement and cooperation between PLCs and rating providers.

"PLCs need to improve their ESG disclosures to attract the interest of investors and rating agencies," Bursa Malaysia said on the social media platform X.

It also said companies with little to no ESG data are encouraged to take the first step and kickstart their ESG journey by utilising sustainability reporting guides and toolkits at Bursa Sustain.

On the other hand, rating providers could increase their ESG coverage to companies with lower market caps.

It said there is room for improvement as there are mid- and small-cap companies that are working hard on their ESG data disclosures and waiting to be discovered by investors.

To compete for customers, it said rating agencies could distinguish themselves with their own unique propositions, analysis and rating methodologies.

As a result, investors could receive varying ESG scores from different raters.

"Investors need to scrutinise the data and methodologies deployed by different rating firms to understand the diverged ESG views.

"Some fund managers and research houses have even developed their own in-house ESG assessment model," it said.

Currently, Malaysia is still in the early stages of ESG implementation and improvement in ESG coverage could add value to investors' decision making.

Moving forward in the ESG journey, the development of ESG data by both PLCs and rating agencies could help to grow sustainable investment in the capital market and ultimately shareholder value.