Strategic integration of management accounting practices into ESG risk and reporting: Evidence from Malaysia

Abstract

This research examines the use of management accounting practices (MAPs) by Malaysian corporations to incorporate Environmental, Social, and Governance (ESG) considerations in strategic planning and reporting. It evaluates the extent to which MAPs enhance ESG disclosures, internal risk management, and organizational legitimacy. The research design employs a mixed-methods approach, grounded in stakeholder theory and the institutional theory of legitimacy. ESG-active firms were interviewed through semi-structured interviews, and a nationwide survey was conducted among finance professionals in publicly listed companies. The results indicate that MAPs such as sustainability cost accounting, carbon budgeting, risk-based performance systems, and internal ESG dashboards improve the quality of external ESG reporting and internal controls over non-financial risks. These practices assist corporations in anticipating material ESG risks, aligning decision-making with stakeholder expectations, and facilitating integrated risk governance. However, challenges such as limited ESG information, knowledge gaps, and weak connectivity with traditional accounting systems hinder implementation, especially among medium-sized enterprises. This study can be valuable to corporate managers, regulators, and policymakers by highlighting opportunities to utilize MAPs for enhancing ESG governance and reporting. It also emphasizes the need for capacity-building programs and system integration to overcome current barriers and promote more sustainable corporate practices. The study concludes that management accounting practices are vital mechanisms for integrating ESG into corporate strategy and governance. Proper utilization of these practices can significantly improve ESG-related performance in Malaysian corporations, although organizational barriers remain a concern.