The Crucial Role of Whistleblowing in ESG

‍INTRODUCTION

Environmental, Social, and Governance (ESG) considerations have become central to corporate responsibility, guiding organisations to align their operations with ethical, sustainable, and socially responsible practices. In the context of ESG, whistleblowing stands out as a crucial instrument for promoting transparency, accountability, and adherence to regulations.

This article explores the profound importance of whistleblowing mechanisms in upholding ESG principles and contributing to the overall integrity of corporate governance, and discusses the key Malaysian legislation on the subject i.e. the Whistleblower Protection Act 2010.

WHISTLEBLOWING AND ESG

Whistleblowing is the term used when a person discloses information about any wrongdoing that occurs in the public or private sectors, such as fraud, corruption and abuse of power. Traditionally seen as a mechanism to expose fraud or corruption, whistleblowing is now recognised as an essential tool in the broader context of ESG.

Promoting Ethical Conduct

ESG principles emphasise ethical behaviour and social responsibility. Whistleblowing mechanisms serve as a proactive means of promoting and maintaining ethical conduct within organisations. By having a proper whistleblowing mechanisms and protections, employees, suppliers, and other stakeholders are encouraged to report any activity that contradicts ESG values, such as environmental violations, workplace discrimination, or governance malpractices.

Ensuring Good Governance

Good governance is of course a cornerstone of the ESG framework. Whistleblowing is instrumental in uncovering governance failures, financial improprieties, and other unethical practices within organisations. It serves as a checks-and-balances system, empowering employees to report any actions that compromise the integrity of corporate governance structures.

Legal Protections and Encouraging Reporting

To ensure the effectiveness of whistleblowing in ESG, legal protections and incentives for whistleblowers are crucial. Many jurisdictions have enacted laws that shield whistleblowers from retaliation, encouraging individuals to come forward without fear of reprisals. Companies, in turn, need to create a supportive environment that fosters a culture of accountability and encourages reporting of ESG-related concerns. The first step is to have a proper whistleblower policy for the organisation, followed by education of the employees on the proper reporting systems.

WHISTLEBLOWING IN MALAYSIA

Whistleblowing is not new to Malaysia. Malaysia signed the United Nations Convention Against Corruption in 2003 and ratified it in 2008. The Convention calls for signatories to consider providing protection against any unjustified treatment of any person who reports any offences to the competent authorities.

However, since Malaysia is a dualist State, an international convention does not readily apply domestically unless it is incorporated as local laws by an Act of Parliament.[1] Hence, the Whistleblower Protection Act 2010 (WPA) was passed by Parliament, and subsequently came into force on 15 December 2010. The WPA was legislated to encourage and facilitate disclosure of improper conduct in both the public and private sectors.

The following are seven important things to know about the WPA.

1. What are the protections available under the WPA?

There are three kinds of protections that can be a conferred on a person under the WPA[2]:

• Protection of confidential information;
• Immunity from civil and criminal action; and
• Protection from detrimental action.

2. Who can be conferred protections?

The protections under the WPA can be conferred on the whistleblower himself, as well as any person related to or associated with the whistleblower.

To better understand this, it is important to know the following defined terms in the WPA[3]:

• A “whistleblower” is defined as a person who makes a disclosure of “improper conduct” to the “enforcement agency” under Section 6;

• “Improper conduct” is any conduct which, if proved, constitutes a disciplinary offence or a criminal offence; and

• An “enforcement agency” refers to any ministry, department, agency or other body set up by the Government or a body established by Federal or State law or a unit, section, division, department or agency of a body established by law. In each case that body or agency must be conferred investigation and enforcement functions. This includes the Royal Malaysian Police, the Immigration Department of Malaysia and the Malaysian Anti-Corruption Commission.

3. What are the duties of an enforcement agency which receives a disclosure on improper conduct?

Once an enforcement agency receives a disclosure of improper conduct, it must conduct its own investigation regarding the disclosure and make a report as to its findings and the recommendations for further steps to be taken, if any. Since the WPA imposes a mandatory obligation on the enforcement agency to conduct the investigation, it cannot refuse to do so.

4. How is confidential information protected?

The WPA prohibits the disclosure of improper conduct or any confidential information, including information disclosed by a whistleblower, obtained in the course of investigation of such disclosure. The prohibition extends to disclosure of such confidential information in proceedings in any court, tribunal or other authority.

5. What is “detrimental action” and how are the whisthleblowers protected from it?

Detrimental action is defined to include:

• Action that causes injury loss or damage;

• Intimidation or harassment;

• Interference with a person's lawful employment or livelihood; and

• A threat of any of the aforesaid actions.

The WPA prohibits any person from taking detrimental action against a whistleblower or a person related or associated to him in reprisal of a disclosure of improper conduct. The whistleblower may make a complaint to any enforcement agency of any detrimental action committed against him or any person who is related or associated to him. The enforcement agency will then investigate into this complaint in a procedure similar to the investigation of improper conduct.

If any detrimental action is taken against the whistleblower, he may seek from the court damages or compensation, an injunction or any other relief that the court deems fit.

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6. Can the protection conferred to the whistleblower under the WPA be withdrawn?

Yes. Section 11 of the Act sets out various circumstances in which the protection can be revoked, including where:

• The whistleblower himself has participated in the improper conduct disclosed;

• The whistleblower wilfully made a false material statement in his disclosure; and

• The whistleblower makes the disclosure solely or substantially for the motive of avoiding dismissal or other disciplinary action.
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7. Are there any other incentives which can be granted to the whistleblower under the WPA?

An enforcement agency can order rewards to be paid to a whistleblower for any disclosure of improper conduct or complaint of detrimental action in reprisal of such disclosure if such disclosure or complaint leads to the detection of cases on improper conduct or detrimental action or to the prosecution of the person against whom the disclosure was made or the person who committed the detrimental action.[4]

CONCLUSION

Whistleblowing acts as a powerful catalyst for transparency within organisations. Instinctively, one might categorise whistleblowing as part of ESG governance. Nevertheless, due to the unique features of wrongdoing reporting systems, whistleblowing can also exert substantial influence on both environmental and social facets.

In the evolving landscape of corporate responsibility, whistleblowing stands out as an indispensable tool for organizations committed to ESG principles. By fostering transparency, addressing environmental and social concerns, and ensuring legal compliance, whistleblowing mechanisms contribute significantly to the overall integrity of corporate governance. Embracing whistleblowing as a proactive element of ESG strategy not only mitigates risks but also positions companies as responsible, ethical, and sustainable entities in today's conscientious business environment.

As the WPA imposes an obligation on employers to investigate improper conduct that constitutes a disciplinary offence, employers should establish a whistleblowing policy in their organisations to enable them to discharge this statutory obligation, should the need to do so arise. A whistleblowing policy should be drafted in a manner that protects a whistleblower but prevents abuse by potential talebearers. A well-drafted whistleblowing policy will increase employees’ trust and confidence in their employers, which in turn is vital for the successful implementation of that policy and will lead to a change in the culture of the organisation towards greater transparency and integrity.

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If you would like more information on implementing whistleblowing mechanisms, reviewing whistleblowing policies or other related matters, contact us by clicking here.

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This article is written by Raja Nadhil Aqran (Partner) and only contains general information. It does not constitute legal advice nor an expression of legal opinion and should not be relied upon as such.

A previous version of this article was published on ESG in Malaysia.

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[1] See the Court of Appeal in AirAsia Bhd v Rafizah Shima bt Mohamed Aris [2014] 5 MLJ 318 (pages 329 to 332) and Shankar J (as he then was) in Public Prosecutor v Narongne Sookpavit & Ors [1987] 2 MLJ 100 (page 105).

[2] Section 7(1) of the WPA.

[3] Section 2 of the WPA.

[4] Section 26 of the WPA.

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