Invention Journal of Research Technology in Engineering & Management (IJRTEM) ISSN: 2455-3689 www.Ijrtem. com Volume 3 Issue 6 ǁ September-October 2019 ǁ PP 39-42
Corporate Social and Environmental Responsibility (CSER) among Shariah-compliant companies in Bursa Malaysia: A Conceptual Study 1,
Mohd Rashdan Sallehuddin, 2,Nor Azrin Mohamad Rosli
¹ (School of Business Management, Universiti Utara Malaysia, Kedah, Malaysia) ²(Agrobank Berhad, Penang, Malaysia)
ABSTRACT: Environmental disclosures exercises have been seen to mature in the Western countries, but new in developing countries including Malaysia. Malaysia is at its infancy level of voluntary environmental disclosures with the country being in the ‘lagging’ group on environmental reporting practices. Thus, it is a fruitful exploration as this study focuses on corporate environmental responsibility disclosures among Shariah-compliant companies in Malaysia. There are many factors that are taken into account by the Shariah Committee before granting a Shariah-compliant label to the companies such as social, ethical, moral and religious dimension. Moreover, this study provides the overview of the environmental disclosures practices by Malaysia Shariahcompliant companies by providing an analysis of current state of such practices by examining both the extent to which Malaysia Shariah-compliant-companies disclose environmental information in their annual reports and some features of the disclosed information.
KEYWORDS: Corporate social and environmental responsibility, disclosures, Shariah-compliant, Bursa Malaysia. I. INTRODUCTION Disclosure for corporate social as well as environmental information has become a debatable issue over the past several years. The companies’ stakeholders have been more concerned on the way the companies interact with the environment and the extent they are engaged in environmental preservation and pollution prevention. As a result, the companies use the environmental disclosures as a vehicle to enforce the values of environmental concern to their stakeholders [5]. In the context of the transparency of corporate social and environmental reporting, it is vital for economic stability and the promotion of sustained levels of high-quality investment by companies. Moreover, the companies’ accountability in entertaining its stakeholders should not limit the eligible party to investors only but should be extended to other groups of stakeholders as well. Furthermore, in Islam, the social accountability concept has resulted in the concept of full disclosure where the community has the right to know about the effects of the companies’ activities and operations in their society [11]. In line with this, Muslim countries are gradually realigning their economic activities to accord with the tenets of Islam. One of the avenues to demonstrate their accountability and commitments in serving the needs of the Muslim community and society in general is via disclosure of relevant and reliable information in their annual reports [8]. Moreover, in the Islamic concept based on the principle of full disclosure and social responsibility, the companies should disclose both quantitative and qualitative information in their annual reports regarding their mission and objectives, information on the management team and members of the boards of directors. Based on the concept of uqud under Shariah Islami’ah, the ultimate contractual relationship between man and Allah should drive those involved in economic endeavor to take into account the material, moral and spiritual aspects in their disclosure practices. Even though the current corporate social reporting may be seen as appropriate for companies to demonstrate their accountability to the wider audience including the Muslim community but the most pertinent items of information from an Islamic perspective is often lacking [7]. As a result, it may impair the judgments of Muslim decision makers. Therefore, in order for Shariah-compliant companies to gain further credibility and respond to the expectations of the society, they have to ensure that they provide stakeholder with information concerning the performance and other useful information [14]. Although the studies on corporate environmental disclosure have been carried out in Malaysia but there were limited that specifically focuses on the Shariahcompliant companies. Anecdotal evidence claims that Shariah-compliant companies conducting their business in accordance with Islamic principles provide a greater amount of disclosure particularly on environmental matters.
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Corporate Social and Environmental Responsibility (CSER)… II. OVERVIEW OF CSER IN MALAYSIA Before 31st December 2007, corporate social and environmental responsibility (CSER) reported in the annual report for Malaysian companies were not set as mandatory. However, some companies have already taken advanced action by reporting their CSER in their annual reports. On the 5th September 2006, the guideline for public-listed companies namely CSR Framework was launched by the Bursa Malaysia. The framework was designed to cater the requirement of public-listed companies in implementing and reporting the CSR activities. There are four areas covered under the CSR practice such as marketplace, workplace, community and environment with no order of priority. Thus, commencing on 31st December 2007, all public listed companies were required to disclose the CSR activities involved in their organizations [6]. During tabling the Annual Budget 2006, the Prime Minister (then) Dato’ Seri Abdullah Ahmad Badawi announced the requirements for PLCs to report on the CSR initiatives and encouraged companies to participate in CSR activities. Additionally, the government also made it a requirement for companies to report on their CSR activities when tendering for government contracts under Budget 2006 [16]. Thus, it can be seen that, the directive from the Prime Minister is meant to encourage Malaysian PLCs to become more engaged and involved in social responsible activities within their business operation [17]. The total number of public listed-firms in Bursa Malaysia to disclose CSER anticipated increasing for the coming years due to the introduction of the new listing requirement. The other initiatives introduced by the government in relation to CSER following the requirement are: providing tax deductions for companies that provided public facilities and activated green technology, conferring “Prime Minister CSR Awards” for companies that have superior performance in their CSER activities such as launching “Green Building Index”, introducing “National Green Technology Policy” and initiating “Green Malaysia” [13]. Briefly, the government’s support for CSER concept and disclosure is considered timely, particularly when the country is going all out to entice foreigners to invest in Malaysia as well as promoting local companies to penetrate foreign market [13;3]. It is due to most of the foreign investors, particularly from developed countries that place high importance on transparency of reporting.
III. RATIONALIZATION THE SHARIAH-COMPLIANT COMPANIES IN BURSA MALAYSIA AS SAMPLE Despite the growth of Islamic Capital Market in Malaysia, the research on corporate environmental responsibility disclosure especially among Shariah-compliant companies remains relatively limited. This is important because Islamic capital market especially Shariah-compliant securities are the fastest growing segment especially in Malaysia. Malaysia is an interesting context for furthering investigating the corporate environmental responsibility disclosure on Shariah-compliant securities due to it is among one of the key players in the world of Islamic finance and Islamic capital markets [1]. As of the year 2009, Shariah-compliant companies consist of 88 percent (846 companies) of the total 960 companies [6]. The rate of increase between the years 1998 and 2009 is 211 percent, thus indicating the importance of these companies as a component of the overall capital market and the Islamic Capital Market (ICM) in Malaysia [14]. The Bursa Malaysia and ACCA had been promoting more transparency and higher level of Corporate Social and Environmental Reporting (CSER) disclosure since the early 2000s [2]. Their continuous efforts over those periods in encouraging the public listed companies in Bursa Malaysia to voluntarily disclosed CSER was launched in September 2006, which stipulates that CSER practices to be included in the company annual reports. Notably, the initiative introduced by Bursa Malaysia provides a unique opportunity to study the CSER disclosure behavior of the companies especially among Shariah-compliant. Moreover, in order for Malaysia to strengthen its Islamic Capital Market (ICM), it has to ensure that both local and foreign investors are willing to invest including investment in Shariah-compliant companies. The analysis of this study involves an examination of 254 public listed Shariah-compliant companies on the Main Market of Bursa Malaysia for the year 2010. Thus, it hopes that these companies must convince investors that it is a good investment through communicating information particularly in addition to mandatory disclosure in their annual reports. Consequently, being one of the earliest and fastest on the development of Islamic finance and Islamic capital markets in the Southeast Asian region, there has been little academic investigation of corporate environmental responsibility disclosure on Shariah-compliant securities and few comparative studies towards conventional and Islamic in particular. Additionally, since Shariah-compliant companies constituent securities of Bursa Malaysia and mostly all of them being Malaysia based therefore they are more relevant to be used as sample in this study.
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Corporate Social and Environmental Responsibility (CSER)… IV. THE DEVELOPMENT OF SHARIAH-COMPLIANT SECURITIES IN MALAYSIA. There has been a recent surge in demand for Shariah-compliant securities in the market and this outlook has spurred the growth especially in Malaysia [9]. The first move in facilitating the development and innovation of Islamic financial products in Malaysia was to establish the Shariah Advisory Council (SAC) at the Security Commission (SC) soon after SC’s own establishment in 1993. SAC under the Securities Commission will be responsible in determining the status of the securities traded in Bursa Malaysia whether they can be considered as Shariah approved which means that the securities are considered as a halal company for investment or vice versa [10]. The Securities Commission is a statutory body set up under the Securities Commission Act 1993 which reporting directly to the Minister of Finance. It is the sole regulatory body for the regulation and development of the capital market in Malaysia. It is directly responsible for the regulation and supervision of the activities the market institutions including stock exchanges, clearing house and monitoring of licenses [15]. Due to the demands from local and foreign investor on securities with Shariah-principles, the Shariah Advisory Council (SAC) was given the task to manage and monitor all the matters pertaining Shariah-compliant securities. This includes providing guidance on Islamic Capital Market (ICM) transactions and activities with the aim to standardize and harmonize applications [6]. The establishment of ICM has consequentially led where Muslim decisions-makers expects companies to disclose relevant information that may assist them in fulfilling their spiritual needs [7]. It is also to establish Malaysia as a centre for ICM internationally and to enable Muslim to recognize and build confidence in Shariah-compliant investments [15]. In order for Malaysia to strengthen its ICM, it has to ensure that both local and foreign investors are willing to invest including investment in Shariahcompliant companies. Therefore, these companies must convince investors that it is a good investment through communicating qualitative and quantitative information disclosure in their annual reports [14]. The Shariah Advisory Council applies standard criteria in classifying the companies listed on Bursa Malaysia as approved and non-approved companies based on their core activities. The list is constantly updated in May and November every year and the listing is used by the Bursa Malaysia in updating the component stocks of the Bursa Malaysia Shariah Index (KLSI) [10]. The list was done by reviewing the company’s annual financial reports, responses to a survey aimed at obtaining detailed company information and through specific inquiries made to the respective company’s management. Additionally, they will continue to monitor the activities of all public-listed companies on Bursa Malaysia to determine their status from Shariah perspective.
V. ENVIRONMENTAL REPORTING AND ISLAM Environmental issue has been a major discussion throughout the world especially among developing countries such as Malaysia. The soil erosion, open burning practices, deforestation, global warming, water and air pollution, industrial fossil fuel usage and processing are some of the examples of environmental issues being discussed. Thus, some of these disasters have claimed many lives and others have caused misery to the many affected victims for a long time. As a result, due to all these reasons, people have to be informed on the need and the importance of environmental protection not only for themselves but also for their future generation. Every single person who lives in this word would dream a better life for their own as well as their family. Everybody wants a good and healthy environment and the responsibility to protect the environment must be carried out by every single person especially by Muslim. Every Muslim must obey with what has been stated by God and follow through what has been taught by holy Prophet Muhammad (pbuh). The issue of environment protection has already been repeatedly mentioned in Al-Qur’an and Hadith. According to [12], there are about five hundred verses in the Al-Qur’an that relate to environmental issues and the manner such issues are to be highlighted. Taken into account the context of corporate reporting, one would expect that environmental matters would be an important component of disclosure in annual reports. In Islam, reporting on the environment is a conscious effort on the part of organizations to be more transparent in their disclosure practices. Similarly, the objectives of corporate reporting in Islamic businesses are to show business entities compliance with Shariah and also to assist users in making economic decisions. Therefore, the Islamic businesses should disclose all information about their operations because in the Islamic context, the Muslim societies have the right to know how organizations could affect their well-being. Finally, this to some extent would fulfill the social accountability and full disclosure precepts of Islamic corporate reporting [4].
VI. CONCLUSION The discussion above provides some insights of the possibility for future academic researchers with regards corporate social and environmental responsibility (CSER) among Shariah-compliant companies in Bursa Malaysia. There is a positive, increasing advancement in the study of CSER in Malysia. Furthermore, it’s plays an important role in exploring issues in accounting for environmental based on the issues highlighted above. Hence, it’s also updates the Malaysian literatures on environmental disclosures and sustainability issues especially
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Corporate Social and Environmental Responsibility (CSER)‌ to Shariah-compliant companies in Bursa Malaysia. Finally, the findings of this study are used as a guideline for the investors in evaluating whether the companies are complying with the Shariah laws and regulations as a whole. The result of the study also provides information and guidelines for Financial Accounting Standards Board (FASB), Malaysian Accounting Standards Board (MASB) and Securities Commission (SC) to act and improve their guidelines, rules and regulations. This can be done by making environmental responsibility disclosure compulsory for all Shariah-compliant securities.
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