KUALA LUMPUR: Amid the ease of some global headwinds, the environmental, social, and corporate governance (ESG) space could regain focus as investment managers place more emphasis on long-term ESG investing in the second half of 2023 (2H 2023).
Hong Leong Investment Bank (HLIB) Research said, during the past year, red-hot inflation, sizeable interest rate hikes, energy and food insecurity, as well as the banking turmoil created wild swings and volatility in the market, resulting in investment managers placing more emphasis on managing short-term portfolio risks.
Moving into 2H 2023, it said the renewable energy (RE) space is seeing unprecedented rapid development and news flow as the government provides more clarity on how it plans to achieve net-zero carbon goals while also actively working to bring in more foreign direct investments (FDIs) to develop the RE industry.
The RE and energy transition will be a space to watch in capitalising on the investment opportunities and managing transition risks, it said in a note.
“We also anticipate an increase in shareholders scrutiny for public listed companies (PLCs), as leading public institutional investors are publishing their proxy voting decisions ahead of annual general meetings.
“For private funds, we anticipate increasing investment in building in-house ESG expertise given increasing stakeholder pressure from asset owners, as well as the need for technical expertise to analyse the increasingly complex and rapidly evolving ESG standards,” HLIB opined.
Starting from 2023, it shared that the Employees’ Provident Fund (EPF) will publicly disclose its proxy voting decisions prior to general meetings and similarly, Permodalan Nasional Bhd (PNB) has also been publishing its voting decisions up to five days prior to general meetings.
This is consequential given that both EPF and PNB are the largest institutional fund managers in Malaysia and they are universal owners of the public equity in the domestic market, effectively owning a slice of the overall domestic economy, HLIB said.
To this end, it said voting decisions and the reasoning behind certain voting decisions published ahead of general meetings allow institutional funds to communicate their views on various issues, allowing investee companies an opportunity to engage with the funds prior to the general meetings.
“With this development, we expect that there will be more media coverage on proxy voting especially surrounding issues and resolutions that were voted against that are controversial. With increasing shareholders scrutiny, we expect companies to step up in strengthening their ESG practices,” HLIB shared.
In the past, before ESG investing gathered steam in Malaysia, private institutional investors tended to kick the “ESG can” down the road as adopting ESG investing requires a whole new set of expertise that were unfamiliar to conventional investing, it said.
It is helpful to recall that the underlying principle behind ESG investing is essentially incorporating ESG factors into investment decisions to create long-term investment returns.
With some of the global headwinds subsiding, there is now less noise to filter through and investment managers could once again refocus on long-term ESG investing, the investment bank said.
“For our ESG top picks, we take a long-term perspective in identifying stocks that could potentially outperform their peers in selected ESG themes and considerations.
“Our top ESG picks are Sunway Bhd with a ‘Buy’ call and target price of RM2.65 per share for its commitment to building a sustainable business.
“It is one of the first PLCs in Malaysia to implement measures such as internal carbon pricing, green lease and setting science-based targets initiative-aligned targets,” it added. – BERNAMA
