Bursa Malaysia is hopeful that its environmental, social and corporate governance (ESG) index, which the bourse plans to launch by 2012, will be a catalyst to attract more socially responsible investment (SRI) funds into Malaysia.
“Bursa hopes the index will raise the profile of Malaysia’s listed companies that perform well on environmental, social and corporate governance indicators when compared to their peers,” Bursa Malaysia Bhd chief regulatory officer Selvarany Rasiah told StarBizWeek.
“The index will encourage the level and quality of disclosures on ESG issues in listed companies to rise and subsequently attract global SRI funds to invest in them,” she added.
Selvarany also said Bursa was hopeful that the index would encourage more listed companies to enhance their corporate governance and business sustainability practices.
Bursa is, however, not making it mandatory for companies to be part of the index.
“While it is not mandatory for all listed companies to be part of this index, we would certainly like to see our listed companies be able to meet the screening criteria for inclusion into the index. This essentially means that the companies that meet the criteria are adhering to high corporate governance and sustainability practices,” she said.
“Furthermore, this is certainly the index to be associated with if a listed company wants to be on the investment radar of SRI funds.”
Selvarany said there were plenty of benefits to be gained by being part of the index.
“Primarily, by being in the index, a listed company’s profile will be raised, and will serve as a differentiating factor for investors. Companies that are listed in the index will also benefit from exposure to SRI funds.”
Selvarany said the growing importance of SRI to fund managers and analysts couldn’t be ignored.
“Globally, there is an increasing focus on sustainable investment, with 784 signatories (comprising asset owners, investment managers and professional service partners) having signed up for the United Nation’s Principles for Responsible Investment, accounting for US$22 trillion as at July 2010.”
She said the ESG index would also provide an incentive for listed companies to pursue sustainable business practices through improved environmental and socially responsible operations, as well as enhanced corporate governance.
According to Selvarany, Bursa’s push for the index is underpinned by the fact that the local bourse is committed to maintaining a market of quality and integrity.
“Maintaining a sustainable business performance and the creation of long-term shareholder value are key elements of a quality market,” she said, adding that the index would set a new benchmark for improving governance and corporate sustainability practices and related disclosure among local listed companies.
“As awareness of ESG increases, it will be essential for companies to delve into their business practices and strive to improve them,” she said.
Selvarany said the index would not only strengthen and promote the success of environmentally sustainable, socially responsible businesses of listed companies but would also attract long-term local and international institutional and retail investors looking for exposure to socially responsible companies.
She noted that despite not having a sustainability index of its own, there was a high level of awareness among local listed companies towards sustainability practice.
“We have mandated disclosure on corporate governance practices since year 2001 and disclosure on corporate social responsibility in 2007.
“The foundation and building blocks are already in place. In fact, Malaysian companies have come out well in the ASR (Asia Sustainability Rating) ranking. It is then timely that we look into launching this index,” she said.
