KUALA LUMPUR: The domestic electric vehicle-related, solar and renewable energy sectors are the key broad themes in the current market landscape in the coming years in terms environmental, social and governance (ESG) investing.
Noting that these are the perspective of a digital broker and clients who are mainly below 40 and tech-savvy, Rakuten Trade Sdn Bhd head of equity sales Vincent Lau said ESG is one of the key factors of growing importance in investment decision-making for institutional investors like the Employees Provident Fund (EPF) which has a Sustainable Investment Policy.
"Permodalan Nasional Bhd (PNB) plans to invest RM10 billion in green transition assets and FTSE4Good Bursa Malaysia Index for the list of ESG-centric listed companies.
"At the end of the day, profitability is the key determining factor. Hence, after identifying profitable companies, we look at their ESG values. For a start, one may refer to FTSE4Good Bursa Malaysia Index for the list of companies that meet ESG standards," he told The New Straits Times.
He said it is important to have healthy retail participation to ensure a balanced and vibrant market.
Retail investors have remained net buyers year-to-date, buying more than they sell in the market, Lau noted.
Responsible investing has become increasingly important in recent years and more so in the digital age, thanks in part to the growing prominence of ESG values in the way companies conduct business.
As the buzz around ESG grows, responsible investing is not taking a back seat here in Malaysia.
Trading based on ESG values or by being socially responsible could yield lower returns on investment but the 'feel good' factor will be high.
Chief executive officer Kazumasa Mise said 'responsible investing' is not an entirely new concept as it has been gaining traction in recent times, thanks in part to rising global issues like the pandemic and rapid climate change.
He was responding when asked how important is 'responsible investing' for investors below 40 and tech-savvy, given that 80 per cent of Rakuten Trade's retail investors are in this group with less than three years of experience.
According to Invesco, global ESG assets under management (AUM) are expected to triple between 2020 to 2025 with the key contributor expected to come from Asia.
"There are companies that have been consistently embracing sustainability over the past decade and it is these early adopters of ESG values that are now becoming more clearly defined.
"Retail investors, albeit a smaller demographic, have been committed to investing in companies based on their values and how the businesses they invest in impact society and the environment," he said.
He said undeniably, there is a new generation of traders who are interested in a company's ESG values instead of only looking at financial performance, sometimes even avoiding stocks that may show a good return on investment (ROI).
"As this is a generation whose lifestyle is typically driven by values and societal impact, it is unsurprising that it has extended to their investment approach," Kazumasa said.
When asked about challenges for retail investors when it comes to responsible investing, Kazumasa said managing expectations of ROI would be the main issue.
"When an investor is trading in stocks that have high ESG values, one can certainly expect to feel good about making socially responsible choices.
"But one needs to also keep in mind the company's earnings are still very important factors that could impact your returns tremendously.
"As such, many investors may find it challenging to find a balance between profitability and good ESG values," he said.
He said younger retail investors can also be trend-driven when they should focus on asset allocation instead.
As one does not need a large capital to start trading, the right strategy is key especially as equity trading is not an avenue for making a quick ringgit, Kazumasa said.
When asked if younger investors even consider ESG-based investments, Kazumasa said ESG is far from being a short-lived fad, and businesses will become more socially conscious over time as many are facing the consequences of merely focusing on profits without looking at the bigger picture.
He said the social and environmental impact of businesses can no longer be avoided.
"We advise though to practice smart investing decisions and advise novice or younger traders to make education a priority when it comes to any kind of investing. Take the time to do research before making a trade," Kazumasa said.
He said ESG share trading made up 6.32 per cent of all Rakuten Trades since we launched the service in January 2022.
"This suggests that there is growing interest in ESG stocks among our clients.
"We saw that a majority of these traders were between 25 – 35 years of age with less than three years of trading experience.
"This investing approach is popular among millennial retail investors, who make up the majority of our clients.
"In support of this, we have added nine ESG-themed Exchange-Traded Funds (ETF) based on requests made by our clients since launching our US trading service," Kazumasa said.