ESG and Institutional Investors in Malaysia

In a recent news article in The Edge ( see EPF wants brokerages to focus on ESG , SL Kang, The Edge Malaysia, pg 16 16th Nov 2020) , it was reported that Malaysia’s Employees Provident Fund (EPF) had instructed its panel brokers, starting from January 2021 to include an investee company’s environmental, social and governance (ESG) performance in their research methodology. This is to align with EPF’s intended sustainable investment framework that it intends to launch in December 2020. Whilst it is voluntary, brokers run the risk of being dropped from EPF’s panel if they did not accede.

This signals the increasing importance of ESG matters to government-linked funds such as EPF although this pivot is not recent, and began a few years prior to this with their membership of the Institutional Investors Council Malaysia (the IIC).

The IIC was formally established on 29 Dec 2017, following its formation in July 2015. It is an industry-led initiative as a platform to influence corporate governance culture in Malaysia and the adoption of the Malaysian Code for Institutional Investors of 2014 (the MCII), a joint initiative between the Securities Commission and the Minority Shareholders Watch Group. As of December 2018, there were 20 signatories to the MCII including EPF, Kumpulan Wang Persaraan (KWAP), Pertubuhan Keselamatan Sosial (PERKESO) , Khazanah Nasional Berhad (Khazanah) and large institutional asset managers. Signatories are obliged to report annually on their application of the principles of the MCII. Thus far ten of the signatories have published their Compliance Statements.

The IIC itself has 12 members including government agencies and government linked investment companies such as EPF, Khazanah, KWAP, PERKESO and Perbadanan Nasional Berhad . One of the common objectives of members includes the promotion of the ESG agenda amongst their investees.

The writing is on the wall – ESG issues matter to institutional investors.

From time to time I will be posting my thoughts about Sustainability and ESG in Malaysia, and why it is becoming more and more important for companies to pay attention. But firstly, let’s enquire where the ideas behind sustainability and ESG emanated from. Surprisingly, it all began with a mindset shift within corporations itself, as we will see in my next post.

Location: Kuala Lumpur, Federal Territory of Kuala Lumpur, Malaysia

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