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| Source: SC. Panel on SRI at WCMS 2018. |
Sustainable and responsible investments (SRI) equal better value and returns for companies and investors, according to experts in a panel at the World Capital Markets Symposium 2018 (WCMS 2018) in Kuala Lumpur. The idea that SRI would equal to lower value and returns is now proven to be a myth, said panellists who cited experience and studies at the symposium organised by the Securities Commission Malaysia (SC) together with Capital Markets Malaysia.
“I don’t want to convince my competitors of this, but our experience has been that integrating ESG helps improve financials… it does pay. It is consistent; the vast majority of the research that has looked at this question has found that there’s lower volatility,” said Steve Waygood, Chief Responsible Investment Officer, AVIVA, who is responsible for integrating environmental social and corporate governance (ESG) issues across all asset classes and regions of £320 billion of assets under management (AUM).
Praising the progress made by Malaysia and other proponents of the sustainability agenda, he said that a lot of progress has been made locally and internationally in terms of green bonds and other SRI-related investments. “The good news is Malaysia has been a leader, and is close to top in the emerging markets, ahead of Toronto, Nasdaq and other stock exchanges. You are leading the pack,” he said, citing a study ranking the world exchanges on the extent to which the world’s publicly traded companies are disclosing its sustainability indicators.
George Kell, Chairman, Arabesque and Founder, UN Global Compact said that ESG integration is a global trend and has been happening longer in corporates, driven by factors such as changing technology, rise of transparency, governance changes and values of younger investors and that the case of returns being lower with SRI has been debunked as myth.
“There is indeed a strong correlation of ESG at the corporate level. There’s now empirical evidence over many years, that good sustainable performance is positively correlated with financial performance,
“I salute the Securities Commission Malaysia for 25 years of really good stewardship, on latest guidance for sustainable investing. You are really putting the country on a good course towards the future. Malaysia is on the leading edge on this front,” said Kell.
He added that Malaysia’s leadership in Islamic finance helps it push the SRI agenda given the identical values shared between both segments. With Islamic funds being recognised as part of the SRI universe, Malaysia is currently the largest SRI funds market in Asia (excluding Japan). It has 30% share of the region’s US$52 billion fund assets. In December 2017, SC introduced the SRI Funds Guidelines and the SRI Sukuk framework was introduced in 2014. The world’s first green sukuk was issued in Malaysia.
Datuk Dr Mohd Daud Bakar, Founder and Executive Chairman, Amanie Group, said that the mindset about sustainability should extend beyond the environment to humanity as well. “Sustainability has no religion, have no race, no home address. It belongs to all of us. As much as we talk about sustainability of the environment, green mountains, blue ocean, we can’t forget about humans,” he said, citing issues of migration and globalisation and the need to put in place the right financial infrastructure.
A Deutsche Bank study, Sustainable investing: Establishing Long-Term Value and Performance, found that companies identified as having high corporate social responsibility (CSR) or environmental, social and governance (ESG) rankings historically have had strong correlations with superior risk-adjusted securities returns. The study reviewed 100 academic studies, essentially analysing 56 research papers, 2 literature reviews and 4 meta-studies.
Barclays Research found that a positive ESG tilt resulted in a small but steady performance advantage when investigating the link between ESG and corporate bond performance. ESG attributes did not significantly affect the price of corporate bonds. When applying separate tilts to E, S and G scores, the positive effect was strongest for a positive tilt towards the governance factor, and weakest for social scores. Issuers with high governance scores experienced lower incidence of downgrades by credit rating agencies.
Meanwhile, an analysis of findings based on the Thomson Reuters ESG dataset concludes that ESG may be too costly to ignore. Reviews of companies with ESG scores that declared bankruptcy suggests that an investor who only held stocks with above-average ranks on both environmental and social scores would have avoided 15 of the 17 bankruptcies seen since 2008. ESG also signalled future volatility and stock price declines.
The SC’s World Capital Markets Symposium has attracted thought leaders and Nobel laureates since 2009. These luminaries have shaped discussions on issues such as risks, socioeconomic development and digital innovation.
Datuk Dr Mohd Daud Bakar, Founder and Executive Chairman, Amanie Group, said that the mindset about sustainability should extend beyond the environment to humanity as well. “Sustainability has no religion, have no race, no home address. It belongs to all of us. As much as we talk about sustainability of the environment, green mountains, blue ocean, we can’t forget about humans,” he said, citing issues of migration and globalisation and the need to put in place the right financial infrastructure.
A Deutsche Bank study, Sustainable investing: Establishing Long-Term Value and Performance, found that companies identified as having high corporate social responsibility (CSR) or environmental, social and governance (ESG) rankings historically have had strong correlations with superior risk-adjusted securities returns. The study reviewed 100 academic studies, essentially analysing 56 research papers, 2 literature reviews and 4 meta-studies.
Barclays Research found that a positive ESG tilt resulted in a small but steady performance advantage when investigating the link between ESG and corporate bond performance. ESG attributes did not significantly affect the price of corporate bonds. When applying separate tilts to E, S and G scores, the positive effect was strongest for a positive tilt towards the governance factor, and weakest for social scores. Issuers with high governance scores experienced lower incidence of downgrades by credit rating agencies.
Meanwhile, an analysis of findings based on the Thomson Reuters ESG dataset concludes that ESG may be too costly to ignore. Reviews of companies with ESG scores that declared bankruptcy suggests that an investor who only held stocks with above-average ranks on both environmental and social scores would have avoided 15 of the 17 bankruptcies seen since 2008. ESG also signalled future volatility and stock price declines.
The SC’s World Capital Markets Symposium has attracted thought leaders and Nobel laureates since 2009. These luminaries have shaped discussions on issues such as risks, socioeconomic development and digital innovation.