Earnings still key for investors

Rakuten Vincent Lau cq

KUALA LUMPUR: While environmental, social and governance (ESG) concerns are increasingly becoming relevant, the financial performance of companies or industries will still be the primary factor driving investing decisions, according to Rakuten Trade head of equity sales Vincent Lau.(pic)

“Profit is still paramount. The financial picture is still the top driver for investors,” Lau told StarBiz, and pointed out that despite ESG concerns, the share price of oil and gas, as well as plantation companies, have seen strong gains and heavy buying interest as these sectors are benefitting from the high prices of commodities.

However, Lau said ESG concerns among investors are here to stay, as they are driven by environmental and social issues such as climate change, income and gender inequality, and labour market fraud and malpractices.

“This is a good thing as businesses need to think about being resilient and sustainable, and not just making short-term profits,” he said.

Meanwhile, Centre for Market Education CEO Dr Carmelo Ferlito (pic Below) said the current debate is unbalanced in favour of ESG targets without assessing if those targets undermine business competitiveness.

“The main corporate social responsibility for a firm is to make a profit.

“If the debate does not become more balanced, I see the risk of a scenario like the one predicted by Ayn Rand one century ago in her novel Atlas Shrugged, where ‘modern’ business people run their firms more to please the ethical judgement of intellectuals and politicians, rather than looking at their customers and at the economic sustainability of their projects,” Ferlito told StarBiz.

He said sustainability must be looked at in a more comprehensive way, as “something that is ecologically sustainable but is not economically sustainable is simply not sustainable”.

Ferlito said the topic of ESG needs to be split into two separate issues, where one is the market demand for ESG compliance, while the other is the government imposition of it.

He said if there is growing demand in the market among consumers for products that are produced by complying to ESG standards, then there will be no need for imposition, guidelines or government strategy or leadership regarding the issue.

“Businesses will have to adapt in order to meet their consumers’ preference. I believe that if the adoption of ESG targets would be left to the market, we may observe a more gradual process of change, so that those targets can be gradually developed in a process that takes into account economic sustainability (without which there is no sustainability at all),” said Ferlito.

Ferlito added that if governments and authorities were allowed to lead this process, then there was “the risk to overload businesses with unnecessary costs which ultimately will make firms go out of business, creating unemployment”.

Bursa Malaysia chairman Tan Sri Abdul Wahid Omar (pic below) had remarked yesterday that companies that choose to ignore sustainability or ESG considerations in their business will not be sustainable, as they will be deprived of both equity and debt financing to fund their projects.

Bursa's Abdul Wahid Omar

“They have to pay a higher insurance premium to underwrite some of their risks and will have difficulty to recruit the human capital talent necessary to drive their business.

“Nor will they be able to sell their products or be part of the global supply chain as customers become more discerning in buying only sustainable products in the future,” said Abdul Wahid in his speech at the 2022 ESG Corporate Summit themed “Driving Sustainability and Sustainable Transformation”.

The summit was jointly organised by The Economic Club of Kuala Lumpur or ECKL and the KSI Strategic Institute for Asia Pacific.

Abdul Wahid said the case for Malaysian companies to embed ESG and sustainability in their business strategy and operations was clear, apart from the necessity to comply with the Malaysian Code on Corporate Governance (MCCG).

The updated MCCG 2021 issued by the Securities Commission in April 2021 introduced best practices and guidance to strengthen board oversight and the integration of sustainability considerations in the strategies and operations of companies.

Abdul Wahid added that as a strong proponent of sustainability, Bursa Malaysia encouraged sustainable practices among market participants.

“We do this through ongoing guidance, advocacy and engagements within the marketplace, alongside our role as a frontline regulator and market operator,” he said.

Bursa Malaysia has also started collaborating with the Environment and Water Ministry and the Finance Ministry to create a voluntary carbon market.

“This is a significant nation-building project that will assist Malaysia in meeting its climate ambitions, while also creating an ecosystem that is transparent, rule-based and meets the needs of intended market participants,” said Abdul Wahid.

He also pointed out that the government has committed to phase out coal, including cancelling the earlier plan to build four coal-fired power plants totalling 2,800 megawatt in 2031, 2034 and 2037, and to increase the renewable energy mix from 17% currently to 31% by 2025 and to 40% by 2035.

This commitment was reinforced by the Malaysia Renewable Energy Roadmap or MyRER 2022-2035 by the Energy and Natural Resources Ministry in December 2021.

Abdul Wahid said ESG and sustainability issues were not new to corporate Malaysia and noted that in 2014, Bursa Malaysia had introduced the FTSE4Good Bursa Malaysia Index to recognise public-listed companies that had taken steps to improve their ESG practices and disclosures.

Since then, the number of constituents had tripled from 24 in 2014 to 80 stocks following the last review in December 2021.