The development of environment, social, and governance (ESG) investments in Malaysia is still considered to be at an early stage. However, ESG-themed funds are starting to gain more traction. Currently, there are 17 funds that have an ESG and sustainability focus, or that have qualified as a Sustainable and Responsible Investment (SRI) fund by the Securities Commission Malaysia (SC). Of these, six were introduced during the first quarter of 2021 and the other two in 2020.
Among the major drivers of ESG investing trends are the millennials’ rising interest in ESG related investments, focus on long-term investment trends, and outperformance of ESG investment products. Malaysia’s fund fact sheets demonstrate that most of these funds, especially those with exposure to tech stocks, have outperformed their benchmark indices since the beginning or in the previous year. However, it was noted that the new ESG funds launched in 2020 have not produced significant results due to the short time period of comparison and the smaller ESG funds market.
Several factors like limited investment universe and lack of quality ESG reporting have been identified in the local and global landscape as hindrances to its development. For instance, almost all ESG-themed funds available locally have a global or regional outlook except two. BIMB Investment Management stated that only 80 of the 1,000 stocks available on Bursa Malaysia comply with its ESG requirements that are using UK-based Arabesque’s S-ray assessment, thus making the firm diversified and invested up to 30% of its net asset value in foreign stocks to gain higher potential returns.
Meanwhile, Affin Hwang Asset Management (AHAM) had identified a dearth of publicly available ESG information as well as a lack of corporate commitment to long-term ESG targets among the local companies. Fund houses would need to verify the accuracy of the reported information by spending for assessment services from ESG rating agencies or digital screening tools by third parties. The companies may also need to improve in terms of methodologies and reporting indications in presenting their business outlook to gain investors’ interest.
Malaysia has undertaken a few measures to overcome these challenges. Local regulators such as SC and Bursa Malaysia and institutional investors such as the Employees Provident Fund (EPF) have been promoting ESG adoption. Bursa Malaysia created the FTSE4Good Index in 2014 while the Principles for Responsible Investment (PRI) was mandated for its signatories (consisting of 10 local organizations including Principal Asset Management, BIMB Investment Management, and the EPF) to publicize their reports on various indicators regarding climate change risks and opportunities in 2021.
(Source: The Edge Markets)
