KUALA LUMPUR: Companies must shape their environmental, social and corporate governance (ESG) exercise or lose access to capital with purpose, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz has said.
He said ESG assets are expected to reach US$53 trillion (US$1 = RM4.56) by 2025, adding that institutional investors wield considerable collective influence with almost RM2.2 trillion in assets. assets under management and approximately RM750 billion on the local stock exchange. .
“Given their size and capacity, institutional investors can and should play a key role in providing effective oversight, catalyzing sustainability and unlocking value by actively engaging with their entity or portfolio companies. Not only in the interest of returns, but also on purpose, grounded in ESG principles,” he said.
Speaking at the Institutional Investors Council Malaysia (IIC)-Securities Industry Development Corporation (SIDC) Corporate Governance Conference 2022, he said that effective corporate governance is a crucial tool in the ESG toolkit to help ensure that appropriate policies, processes and structures are in place for businesses to remain competitive and sustainable over the long term.
“This brings the concept of stewardship to long-term institutional investors, such as pension funds who are also effectively owners of assets that could exert considerable influence over the operations and corporate behavior of their beneficiary companies,” did he declare.
He also expressed concern about supporting small businesses or small cap companies in starting their own sustainability journey.
“I say this because smaller companies with limited resources and capabilities face challenges when assessing, disclosing and communicating in-depth ESG data and sustainability issues, and as such, may face disproportionate burdens and report fewer disclosures compared to their large-cap counterparts.
“These challenges should not be underestimated, as the narrow application of ESG metrics and criteria risks systematically excluding these companies from future sources of funding, undermining their growth potential and undermining our sustainability journey in as a whole,” he added.
During the conference, Tengku Zafrul also launched the Revised Malaysian Code for Institutional Investors (MCII) 2022 which replaces the first MCII issued in 2014.
It includes six of the original principles as well as one new principle, in addition to introducing a new section called “Stewardship Spotlight”.
Tengku Zafrul said that this new principle emphasizes the role of institutional investors in leveraging their influence on companies, policy makers, service providers and other stakeholders, current or potential, in collaboration with a view to maximize their overall long-term value.
“Therefore, institutional investors are expected to shape, influence and champion the ESG agenda in Malaysian capital markets,” he said.