Sustainable and ethical investing has gained significant traction in Malaysia, a country with rich biodiversity and a growing awareness of social issues. This reflects a global shift towards investments that not only yield financial returns but also contribute positively to society and the environment.
Here are some of the key principles, strategies and regulatory frameworks that shape sustainable and ethical investing in Malaysia.
1. Environmental, social and governance (ESG) criteria
ESG criteria lie at the heart of sustainable and ethical investing, helping investors evaluate companies based on their environmental stewardship, social responsibility, and governance practices.
In Malaysia, ESG criteria consider how a company performs in relation to green practices, conservation and the environment. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities in which it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.
These factors are crucial as they can significantly affect the financial outcomes of investments and the long-term sustainability of businesses.
2. Sustainable development goals
The United Nations’ sustainable development goals (SDGs) are integral to guiding investors towards achieving broader global targets such as poverty reduction, clean energy, and gender equality.
In Malaysia, investors are increasingly using SDGs to assess the impact of their investments, and contribute to global and local development objectives.
This alignment not only helps in mitigating risks but also in identifying investment opportunities that could lead to substantial social and environmental impacts.
3. Ethical and faith-based investing
In Malaysia, where a significant portion of the population adheres to Islamic principles, ethical and faith-based investing has a profound influence. This requires compliance with shariah law, which prohibits investments in alcohol, gambling, and other sectors considered harmful to society.
The integration of these ethical guidelines ensures that investments adhere to one’s moral and religious values, promoting a holistic approach to wealth generation and management.
Integrating ESG into investment
ESG integration is becoming increasingly popular among institutional investors who recognise that these factors materially affect the performance of their investment portfolios.
By analysing a firm’s ESG commitment, investors can identify those that are better managed, less risky, and are more likely to succeed in the long term.
That said, integrating ESG factors into a portfolio requires a deep understanding of the criteria and how they can impact investment risks and returns. It involves assessing a company’s or fund’s adherence to ESG principles, and considering how these factors may influence financial performance over time.
Given the complexity and the evolving nature of ESG metrics and standards, investors may find it beneficial to seek the guidance of a financial adviser who specialises in sustainable investing.
Impact investing
Impact investing is targeted at generating specific positive social or environmental effects in addition to financial gains. In Malaysia, this strategy is often applied in sectors like renewable energy, sustainable agriculture, and affordable housing.
Impact investments are particularly appealing in regions where government support aligns with sustainable-development goals, providing additional incentives for investors.
Negative and positive screening
Negative screening involves excluding investments in companies or sectors that do not meet certain ethical thresholds. Conversely, positive screening seeks out companies that actively contribute to good social or environmental outcomes.
Malaysian investors are increasingly employing these strategies to ensure their investments align with ethical standards and sustainability goals.
Thematic investing
This focuses on specific themes or sectors that are likely to benefit from long-term global shifts, such as climate-change mitigation or sustainable agriculture.
In Malaysia, there is a growing interest in themes such as green technology and sustainable infrastructure, which are seen as pivotal to the country’s economic and environmental sustainability.
Regulatory frameworks and initiatives
- Security commission guidelines
The Securities Commission has set guidelines for sustainable and responsible investment (SRI) funds, which are designed to promote the growth of ethical and sustainable investment options.
These guidelines ensure that funds marketed as SRI meet certain criteria regarding ESG and ethical considerations.
- Tax incentives and support
The government offers various tax incentives and financial support to encourage sustainable and ethical investing. These are crucial for reducing the financial risk associated with such investments, and for attracting both local and international investors.
Overall, the future of sustainable and ethical investing in Malaysia looks promising, and with increasing awareness and support from both the government and the private sector, these strategies are expected to grow further.
Investors are, therefore, encouraged to consider sustainable and ethical principles in their financial decisions, not only to generate returns but to contribute to a sustainable future for all.
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