EPF to bolster Malaysia ESG progress with PRI embrace

The Malaysian pension fund's sign-up to the UN principles further boosts Malaysia's attempts to improve levels of corporate governance and transparency.
EPF to bolster Malaysia ESG progress with PRI embrace

Malaysia’s Employee’s Pension Fund is set to become the latest Asian asset owner to sign up to the UN’s Principles of Responsible Investment (PRI) in an accelerating trend for the region.

A spokesperson for the EPF confirmed that the fund has completed its submission to become a signatory to the PRI and will make a public announcement in due course. The official start date is April 1.

The 2018 biannual survey by the Asian Corporate Governance Association ranked Malaysia fourth out of 12 Asia-Pacific economies, the biggest mover for the year in terms of market accountability and transparency.

Largely behind this improvement were the decisions by the local stock exchange and regulator, Bursa Malaysia and the Securities Commission, to issue a new code on corporate governance and new reporting requirements for all listed issuers covering environmental, social, and governance (ESG) factors.

The strong showing also reflected concrete moves by the new government to tackle the endemic corruption issues fostered by the country's previous Najib Razak regime. In a shock election result, Mahathir Mohamad was re-elected prime minister of Malaysia last year, replacing Najib.

Kumpulan Wang Persaraan (KWAP), Malaysia’s pension fund for civil servants, in 2018 became the first pension fund in Malaysia to sign up to the PRI. With KWAP and also Malaysian sovereign wealth fund Khazanah leading the way and now with EPF set to join them, the PRI in Asia is hoping to build on the momentum.

“We have been engaging with a number of the regional asset managers and others at various stages of interest and development,” PRI’s network manager for Asia, James Robertson, told AsianInvestor. “I hope with EPF coming on board, as well as KWAP and Khazanah already driving this, it will send a strong signal to other investment institutions locally and in the region.”

Speaking about its increased governance activities, EPF chairman Tan Sri Samsudin Osman told AsianInvestor, “The EPF has always taken an active stewardship role, particularly with regard to our domestic investments. We believe that long-term value creation for our stakeholders is a function of ongoing engagement with a myriad of organisations, institutions and individuals.”

Osman said EPF’s investment team rigorously monitors its investee companies and frequently engages with management on strategy and financial matters as well as concerns on ESG-related factors. Responses from the respective companies are then monitored to ensure that steps are being taken to address the issues raised in order to protect and enhance shareholder value. Proxy voting also forms an integral part of its engagement process, he said.

As part of the transition from being a passive shareholder, EPF first published its corporate governance principles and voting guidelines in 2010. Also that year, it was one of the founding members of the Minority Shareholders’ Watch Group, alongside the Armed Forces Fund Board, the Retirement Fund, Permodalan Nasional Berhad (PNB) and the Malaysian Hajj Pilgrims Fund Board.

In 2015, EPF helped to establish the Institutional Investors Council Malaysia as an industry-led initiative to influence a wider sphere of corporate governance culture through, among other things, the effective adoption of the Malaysian Code for Institutional Investors.

Despite the progress being made on corporate governance in Malaysia, Stanley Kwong, global responsible investment analyst at Aviva Investors told AsianInvestor that Malaysian companies are generally weaker around implementation, with poorer ESG disclosures and a widespread lack of independence on boards.   

But Kwong acknowledged that larger institutions have been more successful at integrating ESG into their processes. “Integration has traditionally been focused on equities; however, many institutions are strengthening integration across fixed income and real assets,” he said.   

He also noted that societal attitudes are now changing on sustainability and ESG issues.

“All stakeholders have a role to play in driving positive changes and strengthening the disconnect between the roles of the government, local industry and individual companies in Malaysia,” he said. “Civil society and the media have previously faced high levels of pressure – for example, the suppression of the media that published on 1MDB. There is still a long way to go in this area, however, there are encouraging signs.”

1Malaysia Development Bhd, or 1MDB, is a state fund set up by former prime minister Najib in 2009 that is at the heart of a massive, global corruption scandal. Najib is currently on trial for money laundering.
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