ESG practices key to investments

PETALING JAYA: Retirement Fund Inc (KWAP) has warned that it “will not hesitate” to dispose of its investments, if the investee companies fail to show betterment in their environmental, social and governance (ESG) practices.

Nik Amlizan Mohamed, the CEO of the pension fund, said that KWAP has taken such action in the past, although she stopped short of naming the investee companies.

Nevertheless, it is worth noting that KWAP has sold its entire stake in Serba Dinamik Holdings Bhd earlier this year, after the company was found embroiled in multi-billion-ringgit financial irregularities.

Nik Amlizan, who made history in 2020 as the first woman to head a Malaysian pension fund, also noted that KWAP’s ESG policy was recently enhanced to incorporate two additional aspects.

“The first (aspect) is not to invest in companies that are in violation of widely accepted ethical norms, standards and laws with regard to human rights, labour standards, environment as well as corruption.

“The second aspect is not to invest in companies that operate in an unsustainable manner with severe and irremediable damage to biodiversity, ecosystem, climate as well as community,” she said during the Why Malaysia? virtual panel discussion jointly-organised by Bursa Malaysia and Malayan Banking Bhd.

Nik Amlizan Mohamed, the CEO of the pension fund, said that KWAP has taken such action in the past, although she stopped short of naming the investee companies.

Apart from KWAP, the other government-linked investment companies (GLICs) represented in the panel discussion were Khazanah Nasional Bhd, Permodalan Nasional Bhd (PNB) and the Employees Provident Fund (EPF).

All four GLICs expressed their aim to be more vocal in pushing their investee companies to be more ESG-compliant, as well as to make impactful investments.

EPF CEO Datuk Seri Amir Hamzah Azizan said the fund’s investee companies must embrace the “ESG movement”, and that EPF will assist them in the path towards ESG compliance.

“Ultimately, one of our most powerful tools we have as a shareholder is the voting guidelines.

“We tell the company that if we don’t see this (certain compliance), we can take steps to implement it.

“We can influence the company and we can raise motions in the AGM,” he said.

Moving forward, Amir said EPF will be “more noisy” in the shareholder meetings of its investee companies, as compared to its “fairly quiet and passive” presence in the past.

He also highlighted that the retirement fund has been publishing its voting decision for every AGM of its investee companies on its website beginning this year.

“It is our expectation that by next year, we will be publishing our voting decisions in advance before the AGM.

“This is part and parcel of us laying out what our expectations as shareholders are and guiding investments along the way,” he said.

EPF CEO Datuk Seri Amir Hamzah Azizan said the fund’s investee companies must embrace the “ESG movement”, and that EPF will assist them in the path towards ESG compliance.

PNB’s chief investment officer for private and strategic investments Rick Ramli said the asset management firm is already publishing its voting decisions on its website, five days before an investee company’s AGM.

“We do this because it gives opportunities to the companies to proactively engage with us, if they think we misunderstood the resolutions.

“Secondly, it also transmits to how we tend to vote, and if we deviate or vote “no”, we will explain why.

“Thirdly, it could also give opportunities to minority shareholders to engage us and tell us their stand on a resolution, so that PNB could vote accordingly,” according to Rick.

Pointing out that about 60% of its investment portfolio is made up of domestic equities, Rick said PNB also focuses on evaluating whether the directors of an investee companies have the right skill sets and dynamics, as well as whether the directors are asking necessary questions in board meetings.

During the panel discussion yesterday, the GLICs representatives also said that Malaysia continues to hold promising prospects for domestic and international investors.

Khazanah managing director Datuk Amirul Feisal Wan Zahir said Malaysia’s fundamentals remain solid, with the country playing a prominent role in the global supply chain.

“We are quite unique, in the sense that we play a neutral part in geopolitics. We are very unique in being well-positioned in the supply chain.

“We are blessed with the infrastructures that we have. We also have a conducive and competitive business environment.

“There are a number of areas that I consider as opportunities for Malaysia, such as the potential for energy transition, supply chain relocation, sustainability related investments and now since food security has become important, our country is well suited for that as well, especially for halal,” said Amirul.

EPF’s Amir is also optimistic about the country’s growth prospects, amid the reallocation of global investments due to geopolitical reasons such as the United States-China trade war previously.

He also noted that the retirement fund is investing in emerging opportunities domestically with high-growth potential.

“We are increasing our allocation into equities in Malaysia, not only for large-cap companies but also for mid- and small-caps.

“From the private equity space, EPF has allocated about RM1bil to promote growth in the sector because we need a much more robust engine that ultimately will also feed Bursa Malaysia with listed entities and that has started here.

Khazanah managing director Datuk Amirul Feisal Wan Zahir said Malaysia’s fundamentals remain solid, with the country playing a prominent role in the global supply chain.

“We believe that providing liquidity in the market will create bigger and better organisations that ultimately will be our engine,” he said.

Meanwhile, PNB’s Rick highlighted that the country needs “policy continuity and consistency”, which he said are highly necessary for investors to decide whether Malaysia is suitable for long-term investments.

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