“Existing constituents that do not meet the enhanced climate requirements have been given a grace period till December, 2022, to comply. “Failing which, these public-listed companies (PLCs) risk being deleted from the FTSE4Good Bursa Malaysia index,’’ said Bursa Malaysia.
IT is a positive sign that 10 companies qualified for the FTSE4Good Bursa Malaysia index despite being evaluated under enhanced requirements related to climate change.
But it also puts the spotlight on existing companies on the index – whether they also meet these enhanced requirements.
“Existing constituents that do not meet the enhanced climate requirements have been given a grace period till December, 2022, to comply.
“Failing which, these public-listed companies (PLCs) risk being deleted from the FTSE4Good Bursa Malaysia index,’’ said Bursa Malaysia.
A handful of companies in this category have been prioritised in Bursa Malaysia’s engagements and training programmes.
In June 2021, Bursa Malaysia’s index partner, FTSE Russell, announced the enhancement to the climate change theme, one of the five themes under the environmental pillar.
Under this enhanced theme, FTSE Russell also introduced a minimum score of three out of five in carbon intensive sectors and one in other sectors, enabling a PLC to qualify for, or retain its membership in the index.
In the June 2022 review of the FTSE4Good Bursa Malaysia index, the inclusion of these 10 companies demonstrates that our PLCs are committed towards putting in a greater effort to manage climate risks, said Bursa Malaysia.
The FTSE 4Good rating model has remained relatively unchanged since the launch of the FTSE4Good Bursa Malaysia index in 2014.
It takes into account a company’s environmental, social and governance (ESG) risk exposure, based on its line of business and the disclosed actions it has taken to address and mitigate the pertinent risks.
Bursa Malaysia is supportive of this new requirement, which is also aligned to the nation’s aim to better address the risks of climate change.
A prime example is Bank Negara’s climate change and principles-based taxonomy, which is geared towards driving corporates to decarbonise their operations and move to more environment-friendly avenues.
“By raising corporate standards on these issues, only companies that take heed and manage climate risks seriously will be eligible to be included into the index,’’ said Bursa Malaysia.
Since its inception, FTSE4Good has made regular, incremental enhancements to methodologies and standards as a response to global trends and priorities.
Climate change has continued to move up investors’ agenda and the task force on climate-related financial disclosures (TCFD) has been a catalyst in this change.
The role of the TCFD, which was created in 2015 by the Basel-based Financial Stability Board, is to develop consistent climate-related financial risk disclosures for use by companies, banks and investors.The FTSE4Good Bursa Malaysia requirements are aligned to those for the FTSE4Good Emerging Markets, that is, the same requirements are applied for all emerging markets under the FTSE4Good index series.
There are currently 87 constituents on the FTSE4Good Bursa Malaysia index, compared to 24 in 2014; in 2015, there were 34 companies that qualified, 2016 (42), 2017 (44), 2018 (56), 2019 (69), 2020 (75), 2021 (79).
To encourage better ESG practices and disclosures, the exchange has organised awareness and capacity building programmes such as webinars and technical workshops on best climate disclosure practices.
To help PLCs improve their FTSE4Good ESG ratings, Bursa Malaysia’s index and data arm, Bursa Data Business, has also launched a programme to help interested PLCs formulate a response to high-impact ESG matters.
Due to the growing focus on ESG, local asset owners are actively integrating ESG considerations into their investment strategies.
Bursa Malaysia is collaborating with the Institutional Investors Council of Malaysia to encourage wider usage of underlying FTSE4Good ESG data.
Value proposition
Creating a strong value proposition for PLCs to improve their ESG performance, Bursa Malaysia is collaborating with Malaysian-based commercial banks which are using FTSE4Good ESG data to structure their sustainability-linked financial product offerings.
PLCs can obtain the required profiling to attract ESG-conscious investors, by being a constituent of the globally-benchmarked FTSE-4Good Bursa Malaysia index.
FTSE4Good assessment is conducted for all companies that are in the FTSE Bursa Malaysia Emas index.
PLCs that fulfil the requirements for index inclusion will be added into the FTSE4Good Bursa Malaysia index.
Under the requirements, companies must:
> Obtain a minimum ESG score of 2.9 out of five,
> Address all material ESG risks,
> Meet the enhanced climate change requirements,
> Pass additional screens, that is, product exclusions for tobacco, weapons and companies on monitor for controversies are not eligible to be included into the index.
Underscoring the importance of ESG, the Employees Provident Fund (EPF) is formalising a stewardship policy that, among other things, addresses the level of engagement and actions taken on investee companies that fail to comply with ESG standards.
The EPF has begun its transition into a sustainable investor, targeting to have a fully ESG-compliant portfolio by 2030 and a climate change portfolio by 2050.
The momentum is gathering on ESG considerations, especially in investing.
While the pressure is on companies to strive to comply, all hands must clap to make the world a safer, better and happier place to live in.
Yap Leng Kuen is a former StarBiz editor. The views expressed here are the writer’s own.
