This article first appeared in The Edge Malaysia Weekly on December 12, 2022 - December 18, 2022

The gala dinner for the inaugural The Edge Malaysia ESG Awards was held at Sunway Resort Hotel on Nov 28. A total of 65 awards were presented to 44 public-listed companies (PLCs) and asset management firms at the event, which saw about 400 people in attendance.

The big winners of the night were Sunway Bhd, which won the long-term achiever award in the equities category, and AmFunds Management Bhd, which took home six awards — four gold and two silver — in the funds category. There were five categories of fund awards and six categories of equity awards.

The Edge Malaysia ESG Awards was organised in collaboration with Bursa Malaysia and FTSE Russell, with Morningstar as the knowledge partner of the funds category, UOB Malaysia as the main partner and Deloitte as the auditor. Astro Awani was the official broadcast partner. The event recognises companies that are leaders in the environmental, social and governance (ESG) space in Malaysia.

The Edge Media Group publisher and group CEO Datuk Ho Kay Tat said the momentum and pressure on businesses to adopt ESG practices have never been stronger. Businesses that ignore ESG risk being shut out of supply chains or divested by major investors and avoided by financiers.

“[Businesses] might also find themselves unprepared for future risks like increased environmental disasters due to climate change or being shut out of certain markets for poor labour and governance practices. On the other hand, ESG principles are crucial to develop strong, resilient companies. These are the companies that can deliver long-term value to their shareholders, consumers and other stakeholders,” he added.

Ho said that by recognising the best performers, he hopes that more Malaysian companies and fund managers will be encouraged to do better and learn from each other.

“ESG compliance is not easy. I’m sure you all have had to put in a lot of effort to seek out how to accomplish each goal. It is a journey. There is a lot of learning and changes we need to adopt as we go along, which also means accepting new experiences,” he added.

Shihan Abeyguna, head of business development at Morningstar Asia, pointed out that the assets under management of sustainable funds in Malaysia had doubled in the last two years to reach about US$700 million.

“The regulator [Bursa Malaysia] has led the way in ensuring that there are apt guidelines for the financial industry to manage ESG risks. In addition, Bursa was among the first in Asia to introduce SRI (sustainable and responsible investment) fund guidelines to protect investors. Now, there are over 60 SRI funds available for local wholesale and retail investors,” he said.

It is becoming more crucial for investors to pay attention to non-financial risks even as the markets are negatively affected by various events. Inflation has morphed from a vague threat to a stark reality, said Shihan. This is exacerbated by the conflict in Ukraine, which has triggered an energy crisis and shone a light on the topic of weapons and human rights.

“We are seeing more extreme weather events, from catastrophic floods in Pakistan and wildfires in Europe to droughts and hurricanes around the world. All these issues are not isolated. They are intermingled,” he noted.

“So, what does it mean to be an investor today? In this interconnected world, investors need to consider non-financial risks posed by problems ranging from climate change to natural resource depletion and the treatment of workers in the supply chain.”

Shihan also acknowledged the problem of greenwashing, where fund managers and companies are accused of misleading customers by exaggerating the attributes of their products.

“Despite the accusations, some [of which are] deserved, ESG and sustainable investing are here to stay. We are at an inflection point of an important trend that will last for generations. In fact, criticisms will only have a beneficial effect of accelerating the efficacy of sustainable investment approaches, increasing investor education and bolstering the understanding that there is no one-size-fits-all investment strategy and that practitioners often need to make hard investing choices,” he said.

Helena Fung, head of sustainable investment for Asia-Pacific at FTSE Russell, said the FTSE4Good Bursa Malaysia Index has been an important benchmark of corporate ESG performance since its launch nearly eight years ago in December 2014. During this period, there has been a significant evolution in the recognition of ESG and the number of Malaysian companies that have introduced sustainability initiatives.

“We now have 87 eligible companies in the FTSE4Good Bursa Malaysia Index. [The] eligibility is based on meeting a specific ESG threshold for companies in emerging markets, in line with the globally recognised FTSE4Good methodology,” she added.

ESG has become critical in evaluating risk and opportunity across an increasingly complex spectrum of issues, said Fung. The need for businesses to consider sustainability is increasingly obvious due to the social and environmental issues that emerged during the pandemic, and from the rising cost of dealing with the impact of climate change.

“Companies may believe that they play only a small part in effecting broader change, but achieving objectives set at both government and global levels on substantive issues such as biodiversity, equality and climate change, requires the efforts of all participants in the value chain. ESG is an evolving space and there is always more to do,” she pointed out.

Bursa Malaysia CEO Datuk Muhamad Umar Swift said that while the awards ceremony recognised the past achievements of companies, it is time to look ahead at how ESG practices can also be adopted by small and medium enterprises (SMEs). “To that end, we have entered into a joint venture with the Companies Commission of Malaysia, whereby we have access to SME data and a far more encompassing view, beyond just PLCs.”

He added that the stock exchange regulator is taking FTSE’s methodology and applying it to all listed companies in the hope that it will create a call to action for all PLCs.

“What we envision is for the exchange to move towards being a sustainable exchange, where all PLCs are verifiably green,” he said.

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