When it comes down to doing business in a sustainable manner, public listed companies have a wealth of resources to assist them in disclosing their ESG fundamentals.
As the stock exchange for the country, Bursa Malaysia released several guidelines in this regard. However, for companies to benchmark their ESG performance, the exchange collaborated with FTSE Russell to launch the FTSE4Good Bursa Malaysia Index in 2014.
This index serves as a benchmark for ESG performance, listing companies that demonstrate strong ESG practices. As a whole, the FTSE4Good index Series is generated by the globally recognised FTSE Group and is regularly used by large, mainstream institutional investors looking to meet an ESG mandate.
Many companies use their inclusion in the index to show their ESG commitment.
Bursa Malaysia intelligence director Wong Chiun Chiek explained that, “FTSE4Good Bursa Malaysia is a score that Bursa Malaysia – in working with partner FTSE Russell – is giving every listed company to measure, to make the company aware, by ESG performance, if their adoption or reporting is it good or bad.”
It stands as a marker in the landscape of sustainable investment within emerging markets and serves as a performance benchmark and as a powerful driver of ESG adoption among Malaysian listed companies.
Methodology
The index itself offers ESG ratings across approximately 260 companies listed on the Bursa Malaysia Main Markets.
That provides investors a transparent and credible tool to identify and invest in companies demonstrating strong sustainability practices, while simultaneously encouraging businesses to prioritise ESG integration within their operations. It uses precise rules and a focus on data to minimise subjectivity, while providing clear defined rules for constructing the indices and assessing companies.
FTSE Russell's methodology examines the exposure of these companies to a wide range of significant ESG risks, categorised into 14 ESG themes and supported by over 300 detailed quantitative and qualitative indicators. The analysis looks at the specific risks faced by individual companies, which serves as a foundation for evaluating how they manage them.
The index typically uses the overall rating from FTSE Russell’s ESG Ratings and data model to select companies for inclusion. The ESG Ratings is presented in three levels; first an overall rating that can be further categories in three of the ESG pillars: environment, social and governance.
Each pillar is then sub-categorised to produce a total of 14 themes, which are further divided into 300 individual indicator assessments that can be applied to each company’s unique ESG risk exposures.
The analysts over at FTSE Russell can identify the level of ESG risk encountered by companies from 0 to 3 and evaluate this against detailed indicators to determine whether companies have disclosed the measures taken to mitigate these risks.
The companies are then awarded with an exposure score that shows their individual risk levels under 14 ESG themes. The analysts will then assess the disclosed actions these companies have taken to reduce their risks, giving them a performance score on a scale of 0 to 5. Both the exposure and performance scores are then calculated to form an exposure weighted ESG rating.
The reliability of the index is supported by its rigorous and transparent construction, which adheres to globally recognised ESG standards. For that, FTSE Russell employs a comprehensive research and assessment process to evaluate companies based on a wide range of ESG criteria.
Its methodology is transparent with the index and ratings available to users, so they can determine how a company is assessed. These ESG ratings are based on publicly available data.
The index is overseen by an independent external committee comprising experts within the investment community, business, NGOs, unions and academia.
Importance of being included
FTSE4Good Bursa Malaysia Index is more than just an investment vehicle, It plays a role in promoting ESG awareness and adoption within the Malaysian corporate sector.
It acts as a benchmark, encouraging companies to improve their ESG performance to attract investment and enhance their reputation, by strengthening their ESG policies, implementing better practices, and enhancing transparency in their reporting.
The index also facilitates greater transparency and disclosure as the detailed ESG assessments conducted by FTSE Russell – while confidential for individual companies – contribute to a broader understanding of ESG risks and opportunities within the Malaysian market.
There is also an understanding that because the index is sourced from ready reports from the companies themselves, there may be elements of greenwashing involved.
However, the index takes into account that publicly available information is usually reliable. Furthermore if companies were to greenwash data, they may face scrutiny from international NGOs.
The FTSE4Good Bursa Malaysia Index also attracts international sustainable investment flows as global investors that are increasingly incorporating ESG factors into their investment strategies, seek opportunities that demonstrate a sustainable commitment.
It assures foreign investors that Malaysian listed companies take sustainability seriously, leading to increased foreign direct investment and contributing to the growth of the Malaysian economy while promoting sustainable development.
