Companies with good ESG practices more resilient during Covid-19 pandemic

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According to The Edge,  companies with good environmental, social and corporate governance (ESG) practices have been more resilient since the start of the Covid-19 pandemic. This is because investors’ growing concerns over damage to the environment have led them to put more value on the effective management of ESG risks.

Bursa Malaysia Bhd chief executive officer (CEO) Datuk Muhamad Umar Swift said while sustainable finance is still emerging in ASEAN capital markets, governments and regulators are making some meaningful efforts to promote and support the endeavor.

“The Covid-19 pandemic is widely seen to have given sustainability further impetus. Millennials and Gen Z are showing greater concern with respect to sustainability and changing expectations of businesses’ role in improving society and protecting the environment,” he said in his opening speech at the ASEAN: Beyond the Pandemic Crisis virtual conference.

Malaysia’s green roadmap

“Preliminary work has also commenced for an ASEAN taxonomy of sustainable finance. In Malaysia, we have seen the development of climate change and principles-based taxonomy by Bank Negara Malaysia (BNM) and the Securities Commission Malaysia’s (SC) SRI (Sustainable and Responsible Investment) road map for the Malaysian capital market.

“For Bursa, sustainability has always been a significant growth driver, with our approach having considerable influence on the ecosystem — for our public listed companies, investors and capital market intermediaries,” he said.

With several recent listings of companies involved in the renewable energy space, Bursa sees a potential growth area, given increasing priority by consumers and investors on the sustainability front, Umar said.

“These are some of the important steps that will help drive sustainability across the region. We are confident that the integration of sustainability best practices will see a successful transition to a genuinely sustainable economy for the ASEAN region,” he said.

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The 5 key drivers to the growth of ESG

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First of all, ESG is the acronym for Environmental, Social, and (Corporate) Governance.

The ‘Rethinking ESG in a post COVID-19 world’ publication has identifies the 5 keys for sustainability and how businesses can get ready to meet the sustainability challenges ahead.

The 5 key drivers to the growth of ESG:

  1. Investor expectations – Environmental and social factors are having a greater influence over a company’s future performance and valuation. Returns on socially responsible investment indices are outperforming their conventional index counterparts.
  2. Sustainability reporting – Global investors are now calling for mandatory inclusion of climate risk disclosures in financial accounts for use by companies, banks, and investors in providing information to stakeholders. Bank Negara Malaysia (BNM) and Securities Commission Malaysia are also pushing for the adoption of reporting standards as recommended by the Task Force on Climate-related Financial Disclosures (TCFD) among local financial institutions.
  3. Regulations – There has been an increasing need to address scrutiny and adverse public reaction over environmental and social concerns in several sectors, especially when they are subject to more stringent foreign regulations.
  4. Fiscal policies – Incentives to promote responsible business conducts to be sustainable. The Budget 2021 introduced Malaysia’s first sustainable bond, as well as the extension of the successful Green Technology Financing Scheme (GTFS) to encourage the private sector to participate in green technology.
  5. Customer behaviour – PwC’s Global Consumer Insights Survey 2020 research revealed a clear embrace of sustainability and a sense of civic duty. 52% of our respondents in Southeast Asia say they expect businesses to be accountable for their environmental impact. 52% of them also say they would avoid the use of plastic whenever possible.

ESGSource: CFA Institute

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