Malaysian companies lead the way in ESG practices among Asean peers

PETALING JAYA: Malaysian companies still hold favourable environmental, social and governance (ESG) metrics among their Asean peers, says Maybank Investment Banking Group (Maybank IBG).

Of the 475 companies covered by Sustainalytics in the Asean-six markets, only 177 companies or 37% satisfy the filters requirements such as the low and medium ESG risk score, no or minimal controversies and medium or strong management, said Maybank IBG in its latest sustainability research report.

Sustainalytics is a leading external ESG research and data provider that Maybank IBG has partnered with for ESG services.

“Juxtaposing the 177 filtered companies against the 201 Sustainalytics-covered companies that are also covered by Maybank IBG, only 86 (43%) of the latter satisfy all three filter requirements, which are deemed to be low or medium ESG risk companies,” it added.

Of the 86 stocks under Maybank IBG coverage, the single largest block of 31 (36% share) are listed in Malaysia, whereby plantation companies, which are a large weighting on the KL Composite Index do not feature as low or medium ESG risk, with key risks including rainforest destruction and poor working conditions, while according to the Roundtable on Sustainable Palm Oil (RSPO), only 19% of global palm oil is RSPO-certified.

For the Malaysian corporates, they appear to be progressing well in terms of integrated annual reporting (regulator push has helped), declaring net-zero and carbon neutral targets, as well as leveraging green financing options and increasing the number of women on boards.

“However, they appear to be lagging in terms of adopting the Task Force on Climate-related Financial Disclosures framework for reporting of climate-related risks and opportunities, as well as having their climate-related targets approved and validated by the science-based target initiative.

When considering relative performance versus the benchmark, Maybank IBG said Malaysia is a “positive outlier” in contrast to rest of Asean as 31 filtered Malaysian stocks outperformed (8.3%, 2.4%, 7.9% over one, three and five years) both in the MSCI Malaysia Index and overall Maybank IBG coverage returns of 5.8%,1.5% and 3.5%) respectively.

Interestingly, the number of Sustainalytics-covered stocks in Malaysia that satisfy the filters to be considered low or medium ESG risk companies is a larger basket of 42 companies, for which performance has been by far the best at 11.7%, 7.0% and 8.9% over one, three and five years period.

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