ESG offers huge opportunities

KUALA LUMPUR: The market for environmental, social and governance (ESG)-related projects in Malaysia will require financing of about RM45bil in the next five years to 2025, says United Nations Global Compact Malaysia and Brunei chairperson Ramesh Kana.

“That’s a lot of money to be spent over the next five years, if we truly are to finance what’s in the pipeline and what we see coming through the pipeline,” he said at the online webinar on “ESG and You: Beyond Investing” organised by MIDF Amanah Investment Bank.

Ramesh pointed out that due to this enormous funding requirement, public sector financing alone will be insufficient, given the strain that it will impose on public finances.

“As such, the deployment of private sector investments through the capital market will be critical in financing the sustainable development needs,” he said.

Ramesh said it is estimated that 10.3% of total assets held by banks in Malaysia are potentially exposed to climate change risk.

“That is a staggering amount. The sectors with the highest exposures are construction, transportation, agriculture and utilities,” he said, adding that climate risk factors include rising temperatures and sea levels as well as extreme weather conditions.

“The coastal areas around Malaysia will gradually face the risk of being submerged, with receding coastlines. Now, all these will lead to issues of food security and production as well as volatility of prices. And, of course, we will have damaged assets and compromised infrastructure,” said Ramesh.

He added that while the trend is still nascent here, interest levels in creating a pool of ESG capital as well as ESG-related projects that address the sustainable needs of the country have grown exponentially and this is accelerated by regulators’ support.

However, Ramesh noted that Malaysia still lags other countries when it comes to investing in developments that mitigate climate change such as waste management, renewable energy, electric vehicles and construction of green buildings.

Meanwhile, at a panel session themed “Investing in ESG – A Practice”, MIDF Amanah Asset Management Bhd chief investment officer Nor Aishah Saad said S&P Global Market Intelligence had reported that more than 70% of ESG funds perform better than the S&P 500 – outperforming by as much as 20% during the Covid-19 pandemic period.

“That says to me, there will be more traction, and greater demand within this space, going forward,” she said.

Nor Aishah added that the asset manager believes the integration of ESG into its investment processes provides additional lines for risk assessments of all investment portfolios, and the formulation of its investment strategy as well as portfolio construction.

“Our sustainability approach, which is guided by our investment philosophy, defines us as long-term fundamental fund manager with the consistent drive to achieve above-average performance. Also, we are cognisant and mindful that there’s no compromise with delivering returns when we consider ESG for investing,” she said.

Net Zero Capital Group executive director Devendran Sinnadurai said ESG has definitely played a part in the investment space.

“From a private equity perspective, there is a focus now in terms of how we can start investing more in responsible and sustainable investments,” he said.