MoF: Strong corporate exercise needed to ensure institutional investors commit to ESG

The commitment will ensure Malaysia’s aspiration of being a high-income nation by 2025, reduction of GHG intensity to 45% of GDP by 2030 and low car nation by 2040 can be achieved


THE Finance Ministry (MoF) reiterated government’s commitment to strengthen the corporate governance (CG) framework particularly in prioritising the environmental, social and governance (ESG) principles, and collective role of institutional investors.

“Effective CG is a crucial tool in the ESG toolkit, as it helps ensure appropriate policies, processes and structures are in place for businesses to remain competitive and sustainable in the long run,” Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz (picture) said.

Tengku Zafrul noted that as Malaysia aspires to be a high-income nation by 2025, reducing greenhouse gas emissions (GHG) intensity to 45% of GDP by 2030 or being a low carbon nation by 2040, all market players must commit and this is not solely on the shoulders of government or government linked-investment companies alone.

To strengthen the framework, MoF launched the Malaysian Code of Institutional Investors 2022 (MCOII22) and introduced a new section entitled “Stewardship Spotlight”, in addition to MCOII22’s six core pillars.

This new principle highlights the role of institutional investors in leveraging their influence over current or potential investee companies, policymakers, service providers and other stakeholders collaboratively.

“Responsible oversight of assets and stewardship are crucial to protect the interests of the people who is the ultimate beneficiaries,” he said during the launch of MCOII22 at the Corporate Governance Conference 2022 held at the Security Commission Malaysia.

The new code is also set as a benchmark for engagement activities to ensure they make informed investment decisions that will drive overall long-term values.

Tengku Zafrul noted that ESG assets are set to reach RM53 trillion by 2025, and companies must shape up on ESG or lose access to capital.

“Meanwhile, institutional investors have nearly RM2.2 trillion in assets under management and roughly RM750 billion in the local stock exchange.

“Because of that, institutional investors are expected to shape, influence and champion the ESG agenda within the Malaysian capital markets.

“They also carry considerable collective influence to not only catalyse ESG-focused change, but also facilitate and enable their investee companies including smaller businesses or smaller cap companies to embrace ESG,” he added.

Additionally, Tengku Zafrul also emphasised the importance of inclusivity and open communication between all stakeholders to prevent falling behind, particularly when certain parties may have little resources.

The MCOII 2022 is a result of a comprehensive review by the Institutional Investors Council Malaysia (IIC), undertaken under the PERKUKUH Working Group 12 since the inaugural Code was published in 2014.

To date, there are 38 signatories to the Code.

Echoing similar sentiments, IIC chairman Rohaya Mohammad Yusof said institutional investors are now expected to exercise sound stewardship through good corporate governance practices and sustainability culture and engagement.

“Organisation that is consistent in demonstrating high standards of governance practices, care for people and the environment while pursuing profit objectives is eventually enhancing their market values,” she said.

The Corporate Governance Conference 2022 themed “Investment Stewardship in Times of Heightened Sustainability Demands” was organised in partnership between IIC and the Securities Industry Development Corp.