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Budget 2014: Push for socially responsible investments lauded
October 26, 2013 | Publication : The Star Online

THE push towards socially responsible investments is a positive one which would nudge the country towards becoming a “first world” economy, analysts said.

Budget 2014 announced that efforts would be intensified towards promoting Malaysia as a market for Social Responsible Investments (SRI) and that an Environmental, Social and Governance (ESG) Index would be created to “raise the profile of listed companies which have high socially responsible practices”.

In addition, the Government will establish an SRI Fund to be invested in listed companies that demonstrate high accountability, transparency and sustainability, including inclusiveness in diversity encompassing gender, age and ethnicity.

For a start, Valuecap Sdn. Bhd. will allocate RM1bil to invest in companies that score high on the ESG Index. Valuecap, an investment holding company equally-owned by Khazanah Nasional Bhd, Permodalan Nasional Bhd and Kumpulan Wang Persaraan, has been mandated to invest in listed securities on Bursa Malaysia.

UOB Kayhian research head Vincent Khoo is positive on the move as it shows the thinking and principles were evolving towards that of a more advanced economy.

“This could also help increase coverage on small companies (that perhaps lacked coverage), but fulfil the criteria of the ESG Index,” he said.

Another analyst said the index would add a further layer of protection for investors.

Bursa Malaysia CEO Datuk Tajuddin Atan said that as markets across Asean became more and more integrated, he was confident a Bursa-focused ESG Index would provide the marketplace with a distinct advantage to attract SRIs from around the world, which were estimated at about US$34 trillion (RM105.4 trillion).

“The readiness of our public-listed companies to compete for SRI funds comes from the six years of effective syariah-compliant screening and profiling through our FTSE Bursa Malaysia Shariah Index Series and our Corporate Social Responsibility annual reporting requirements that were also implemented in 2007,” he said.

However, it will take some time to set up an ESG Index and come up with its specific criteria.

Areca Capital chief executive officer Danny Wong said the ESG Index policy could be negative news for certain industries such as tobacco, some mining and plantation companies and positive for new biotech development such as electric or hybrid car producers.

He said that while social responsibility was not the main point in deciding to invest in a company, there were benefits to this, as it mitigated certain risks, especially pertaining to trust.

“In the international arena, certain investors place high importance on these values. So it is a way to attract more foreign investors.

“Also, when you pick a company that scores high on the ESG Index, you know at least some risks are reduced. So there is some weight for a company that scores high on this index,” Wong said.