High-profile corruption, lack of transparency could affect Malaysia’s governance score

by ASILA JALIL / graphic by MZUKRI MOHAMAD

HIGH-PROFILE corruption incidents and lack of transparency in governance might threaten Malaysia’s credibility of the institution over the long term and affect its scores on the governance factor.

Moody’s Investors Service sovereign risk group VP and senior analyst Christian Fang said Malaysia’s issuer profile scores (IPS) on its governance is currently rated “positive” mainly due to solid institutions and governance reflected on the country’s rankings on international governance indicators.

“We have seen high-profile incidents of corruption and perceived lack of transparency. If this becomes widespread, it could threaten the credibility of institutions and governance over the longterm, and this could weigh on our assessment as a risk for Malaysia,” Fang said in the virtual Malaysian Rating Corp Bhd Malaysian Bond and Sukuk Conference 2021 last Friday.

In January, Moody’s published two new environmental, social and governance (ESG) score types for sovereigns — the IPS and credit impact scores (CIS).

The IPS measure sovereigns’ exposure to ESG factors, while the CIS gauge the effect of ESG on default risk and the rating.

The IPS and CIS scale range from a score of one that indicates “positive”; two is for “neutral-to-low”; three is for “moderately negative”; four and five is for “highly negative” and “very highly negative” respectively.

Fang said most advanced economies have a “positive” governance IPS, making them well-placed to address any environmental or social risk.

“Governance IPS for emerging markets ranges widely, but the largest proportion has a ‘highly negative’ IPS of four,” he said.

He said Malaysia’s environmental IPS is “moderately negative” due to petroleum-related income, which exposes the country to carbon transition risk. Malaysia’s social IPS received a “neutral-to-low” scoring due to favourable demographics and access to basic services.

Malaysian Resources Corp Bhd chief corporate officer Amarjit Singh Chhina said ESG aspects in a company need to be made more inclusive to increase sustainable investment level in Malaysia.

He said the ESG journey for every company would be a long process. Still, it should remain simple to reach their sustainable goals by aligning them with the missions they already have in place.

“We need to make it more inclusive and demystify it. We have seen the take-up in terms of the listed sector and how little it is.

“What about the whole economy, the smaller companies and the small and medium enterprises? We need to keep things simple when it comes to raising awareness for ESG,” he said.

He said organisations need to look at the matter holistically instead of solely allocating an amount to incorporate ESG components in their operations.

He said among the steps that companies could take is ensuring every employee understands their role and purpose regarding ESG and sustainability.