On 15th Feb 2024, four ASEAN stock exchanges namely Bursa Malaysia, the Singapore Exchange (SGX), the Stock Exchange of Thailand (SET) and the Indonesia Stock Exchange (IDX) will be jointly developing an initiative to implement common ESG (environmental, social, and governance) metrics in their respective data infrastructures and advance the region’s sustainable development, known as the ASEAN-Interconnected Sustainability Ecosystem (ASEAN-ISE). Separately, the four Participating Exchanges also agreed on a foundational governance structure and operational blueprint for building this ecosystem. We see this positively as ASEAN exchanges are collaborating for a reliable, harmonised data system, with adaptable solutions for individual market needs.
Taking a step back, in ASEAN, the embrace of Environmental, Social, and Governance (ESG) practices is primarily driven by factors such as global supply chains, governmental regulations, progressive business leadership, and a younger demographic demanding sustainable consumption. Furthermore, there is a noticeable trend towards stricter traceability and reporting standards, driven by heightened demands (especially from North American and European customers) for sustainable sourcing. Therefore, the recent initiative by the Participating Exchanges is commendable in setting up a framework for sustainable future.
Challenges ahead primarily concern SMEs in adopting ESG practices due to speed and inclusivity issues. While more firms are expected to embrace ESG, some may face exclusion due to high compliance costs. ASEAN’s network-focused dynamic suggests a trickle-through effect as countries adapt to ESG regulations, potentially aiding wider adoption across the region. Therefore, this new ecosystem is envisaged to facilitate cross-border trade flows, connect corporates’ supply chains to ESG-oriented investment capital, and provide suppliers with good ESG practices and disclosures to secure more competitive financing rates.
Phillip Capital Management Sdn Bhd (PCM)’s role in ESG
In line with the nation’s goal towards sustainability, PCM has integrated ESG factors that we attest as material and relevant for a company’s financial performance and long-term sustainability into our investment decision-making process. These include but not limited to ESG ratings by established index, environmental considerations (climate change, natural resources preservation, pollution & waste), social considerations (health & safety, community engagement, employee relations) and governance considerations (board independence, transparency & disclosure, shareholder rights).
Separately, PCM offers discretionary portfolio that invests in stocks with high ESG ratings from the F4GBM and F4GBMS Indices, namely PMART and PMA ESG. There are both conventional and Shariah options available. PMART and PMA ESG is suitable for investors who want to optimise the risk-adjusted return by constructing a diverse sustainable portfolio of ESG companies.
In our recent publication, we emphasised that despite the challenges in 2023, the majority of our Private Managed Accounts posted positive returns, surpassing the 2.7% decline observed in the KLCI. Specifically, our ESG portfolios demonstrated robust performance, achieving a significant positive return of +9.7%, outperforming the KLCI, which saw a decline of -2.7%, and surpassing the F4GBM Index, which recorded a modest increase of +0.7%. Here is the list of stocks in our ESG mandates.
Table 1: ESG Mandates – Stock List 2024
Conventional ESG Portfolio
No | Stock | F4GBM ESG Rating [1] |
1 | BERMAZ AUTO BHD | 4-Star |
2 | CTOS DIGITAL BERHAD | 4-Star |
3 | INARI AMERTRON BHD | 4-Star |
4 | KELINGTON GROUP BERHAD | 4-Star |
5 | LAGENDA PROPERTIES BERHAD | 3-Star |
6 | MATRIX CONCEPTS HOLDINGS BHD | 3-Star |
7 | MALAYAN BANKING BHD | 4-Star |
8 | PUBLIC BANK BHD | 3-Star |
9 | SIME DARBY BHD | 3-Star |
10 | SIME DARBY PLANTATION BERHAD | 2-Star |
11 | TELEKOM MALAYSIA BHD | 3-Star |
12 | TENAGA NASIONAL BHD | 3-Star |
13 | YINSON HOLDINGS BHD | 3-Star |
Shariah ESG Portfolio
No | Stock | F4GBMS ESG Rating [1] |
1 | BERMAZ AUTO BHD | 4-Star |
2 | CTOS DIGITAL BERHAD | 4-Star |
3 | INARI AMERTRON BHD | 4-Star |
4 | LAGENDA PROPERTIES BERHAD | 3-Star |
5 | MATRIX CONCEPTS HOLDINGS BHD | 3-Star |
6 | PENTAMASTER CORPORATION BHD | 2-Star |
7 | SIME DARBY BHD | 3-Star |
8 | SIME DARBY PLANTATION BERHAD | 2-Star |
9 | TELEKOM MALAYSIA BHD | 3-Star |
10 | TENAGA NASIONAL BHD | 3-Star |
Source: PCM
How our holdings could harness the benefits of increasing ESG trend?
We believe listed companies with good ESG practices will continue to benefit from the rising sustainability trend. Furthermore, we have pinpointed selected names within key sectors—Construction, Renewables, Utilities, and Property—that stand to benefit from the Net-Zero Transition Roadmap (NETR) and the policies outlined in Budget 2024. As companies enhance their ESG performance, we foresee a reduction in the risks associated with foreign labour dependency, a factor that historically affected industries such as Plantation, Construction, Gloves, and Electronic Manufacturing Services (EMS). With supply chains increasingly prioritising ESG criteria, ongoing government and corporate initiatives will help mitigate the risks of sanctions and reputational damage. This is crucial amid heightened ESG scrutiny, safeguarding trade opportunities.
We will consistently assess our holdings and adjust our portfolio as necessary to align with prevailing market conditions. Please click on the link to learn more or email us at cse.my@phillipcapital.com.my if you require any further information.
Note:
[1] ESG Ratings of Public Listed Companies (PLCs) assessed by FTSE Russell in accordance with FTSE Russell ESG Ratings Methodology, December 2023 – link
Disclaimer:
The information contained herein does not constitute an offer, invitation or solicitation to invest in Phillip Capital Management Sdn Bhd (“PCM”). This article has been reviewed and endorsed by the Executive Director (ED) of PCM. This article has not been reviewed by The Securities Commission Malaysia (SC). No part of this document may be circulated or reproduced without prior permission of PCM. This is not a collective investment scheme / unit trust fund. Any investment product or service offered by PCM is not obligations of, deposits in or guaranteed by PCM. Past performance is not necessarily indicative of future returns. Investments are subject to investment risks, including the possible loss of the principal amount invested. Investors should note that the value of the investment may rise as well as decline. If investors are in any doubt about any feature or nature of the investment, they should consult PCM to obtain further information including on the fees and charges involved before investing or seek other professional advice for their specific investment needs or financial situations. Whilst we have taken all reasonable care to ensure that the information contained in this publication is accurate, it does not guarantee the accuracy or completeness of this publication. Any information, opinion and views contained herein are subject to change without notice. We have not given any consideration to and have not made any investigation on your investment objectives, financial situation or your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any persons acting on such information and advice.