KUALA LUMPUR: Local fund managers believe companies with environmental, social and governance (ESG) standards are most likely bound to succeed in delivering sustainable returns, amid the ongoing Covid-19 crisis.
Employees Provident Fund (EPF) chief executive officer Tunku Alizakri Raja Muhammad Alias said ESG is the best barometer for investors to determine potential investments.
"For EPF, we have moved away from logic structured stock-liked thinking by looking at the balance sheet, profit and loss. We believe ESG has distinct market client impact in term of profitability.
"Based on our investment portfolio, our top social stocks actually went down less than 10 per cent compared to the FBM KLCI, which went down more than 16 per cent," he said during a panel discussion at Invest Malaysia 2020 here today.
He said ESG stocks has its resilience as it is a definite 'need' to have, emphasising that EPF is looking into companies that embrace social aspects of their business and made into a real business.
"We look at investments that have positive ESG and helps the value of our investments in total.
Alizakri said fund managers and regulators should introduce a long-term plan on how to manage and balance on the needs of domestic and global exposure.
"It is a real good timing for us to get together as a group, all of the funds, together with all the relevant regulators. This is because our strategic asset allocation (SAA) has actually kept on saying that we need to be overseas.
"However, we have never been able to quite achieve that amount (overseas investment) as we are always playing catch up and as the years go by, that number is going to keep on going up," he said.
Retirement Fund Incorporated (KWAP) chief executive officer Syed Hamadah Syed Othman said the company would continue to invest in ESG companies as it could deliver sustainable benefit to shareholder and stakeholder, enhancing their returns.
"KWAP started ESG journey in 2014-2015. We have ESG mandate that we outsourced to our external fund managers. We also have ESG principal embedded into all of our investment proposal," he said.
Syed Hamadah said KWAP has also invested a lot in renewable energy, and energy-efficient building buildings, adding that KWAP is also a company that has invested in the United Kingdom which is involved in solar power.
Khazanah Nasional Bhd managing director Datuk Shahril Ridza Redzuan said the sovereign wealth fund has been the forefront in adopting the ESG standards as it was the first issuer of ESG bonds.
"I think the way for ESG is not just about investing in shares, I think other capital structures can be utilised," he said
Meanwhile, he said Khazanah job was to diversify the sources of income for the country. "We are much more focus on non-domestic.
We are very focus on global exposure, especially in the global industry or technology. We must diversify away from domestic," he added.
Alizakri said it is important for companies to be resilient in handling shock, citing that shock will be a norm moving forward.
"We have to take advantage of the new world order as being created with the bubbles. We need to position ourselves as the champion of that bubble in specific areas. For example, Malaysia is the centre of distribution and logistics in Southeast Asia.
"It is just a matter of putting all of this together as we have the strength. Proper marketing is needed to put it up," he said.
Syed Hamadah said Malaysia is among the first country to recover from the pandemic and succeeded in flattening the curve.
"Our healthcare system is world-class and it is accessible to everyone. We should take advantage of the fortunate situation that we have rising from the Covid-19," he said, adding that these are the advantages for Malaysia to attract foreign investors.
He was hoping that the capital market might reach beyond 1,600 points to position the company in a better footing by 2021.
"We remain committed in investing in domestic market. Anything beyond the domestic market is for the benefit of diversification and we have to adjust our investment risks.
"Currently, our exposure in the international market is less than 20 per cent. We have room to go further but each year we invest in the capital market around RM8 billion. Of the total, RM3 billion (new investment) and RM5 billion is for the reinvestment," he said.
Shahril said the country must focus in developing resilient companies with ESG compliance that can deliver more returns to shareholders.
Investing in re-skilling and upscaling local talent (young/old) would be beneficial for Malaysia to provide demand that was required in the market, Alizakri said.
"The unusual will be a usual thing moving forward. We will be looking at companies and sectors that accept the new reality and crisis is going to be a norm.
"Building up the resiliency and infrastructure are important to ensure long-term sustainability. The type of companies sector that can accept the changes, we would be interested in," he said.