The importance of good governance and that governance failure can have a wide-reaching impact beyond financial losses.
In his opening address at The IIC-SIDC Corporate Governance Conference 2024 today (Mac 5) Securities Commission Malaysia Chairman Dato’ Seri Dr. Awang Adek Hussin said that the industry expects institutional investors to play a greater role in driving responsible and sustainable value creation in companies.
Indeed, this year of the dragon is an auspicious year for the IIC, as the Council will be celebrating its 10th anniversary in June. The Council has come a long way since its inception in 2014, in line with the recommendations of the SC’s 5-year Corporate Governance Blueprint.
The ‘Countdown to 2030: Investing Towards Sustainable Development in Malaysia’ theme of this conference is on-point. For many countries, companies, and investors, it is a critical milestone in their sustainability pathways. Malaysia is committed to cutting 45% of carbon intensity against our GDP by 2030.
Globally, trillions of dollars have flowed into funds that tout their ESG credits. With the amounts rising, there is also growing concern about greenwashing, greenhushing and green bleaching.
He explained as of 31 December 2023, there were 68 SRI funds with a total size of RM7.7 billion in Malaysia. IOSCO highlighted that greenwashing remains a fundamental market conduct concern that poses risks to both investor protection and market integrity.
Investors, with the legal rights accorded to them, are in the best position to hold boards and management accountable for their plans, commitments, or lack of progress.
In 2023, close to 70% of PLCs reported that the performance evaluations of the board and senior management included an assessment of how well they were managing the company’s sustainability risks and opportunities.
The Advisory Committee on Sustainability Reporting issued a consultation paper inviting feedback on the use of the ISSB disclosure standards in Malaysia and the development of an assurance framework. The SC encourages feedback from the public on this matter.
Total assets under the control of the GLICs in Malaysia are estimated to be worth RM1.87 trillion, making GLICs among the main pillars of the country’s socio-economic development, he said.
As stated, the Main and ACE Market IPO approval period have been shortened to three months to attract quality companies and investors.
IOSCO, the grouping of securities regulators of which the SC is a part of, highlighted that greenwashing remains a fundamental market conduct concern that poses risks to both investor protection and market integrity.
Taken more broadly, greenwashing can undermine the fundamental trust in sustainable finance. If investors lose trust, the financing required for a just transition can be dissipated.
The G is critical in ESG
“At the end of the day, it all boils down to good governance. A plan or commitment without the right governance framework to back it up is not credible. We ought to remind ourselves that governance failure vis-a-vis sustainability can have a wider reaching impact beyond financial losses. Failure to govern E and S could potentially lead to irreversible damage to the environment and human life,” Awang Adek said.
A corporate governance advocate said when an investor evaluates what a company says it does for E and S, they should evaluate the company’s G first. If the G is problematic, they should discount what the company says about E and S because it is likely greenwashing.
Investors, with the legal rights accorded to them, are in the best position to hold boards and management accountable for their plans, commitments, progress, or lack thereof. It can be as simple as evaluating whether the board’s composition is aligned with the company’s strategy and how they are rewarded.
In 2023, close to 70% of PLCs reported that the performance evaluations of the board and senior management included an assessment of how well they were managing the company’s sustainability risks and opportunities.
“From a policy maker standpoint, we continue to enable stewardship by investors through among others, ensuring that there is reliable and comparable information on material sustainability matters.”
Raising the bar on stewardship
Businesses can be the greatest force for change, and that includes their owners and investors. Collectively, the total assets under the control of the GLICs in Malaysia are estimated to be worth RM1.87 trillion, making GLICs among the main pillars of the country’s socio-economic development.
“We also expect to see a broadening of investment options and indirectly investors’ sphere of influence. As announced last week, the approval period for initial public offerings (IPOs) on both the Main Market and the ACE Market has also been shortened to three months, to attract quality companies to list and quality investors to participate.
“The Malaysian Code for Institutional Investors reflects the stewardship principles and practices of Malaysia’s asset owners and managers. As with any Code the value can only be derived through effective implementation of the recommendations.
“With the initiatives pursued by the IIC to support and scale up the stewardship of its members, we look forward to seeing an even more active and impactful role of institutional investors in driving responsible and sustainable value creation in companies.” he added.
The IIC-SIDC Corporate Governance Conference 2024 was also attended by Dato’ Seri Amir Hamzah, Minister of Finance II.
