Investment Stewardship in Times of Heightened Sustainability Demands

Speaker: Dato’ Seri Dr. Awang Adek Hussin, Chairman, Securities Commission Malaysia
Location:  IIC-SIDC Corporate Governance Conference 2022
Delivered: 23 September 2022


Note: This is the speech as drafted and may differ from the delivered version

Highlights:

  • Over the last year, the SC has worked with the Ministry of Finance and IIC to review, update and enhance the Malaysian Code for Institutional Investors 2022 (MCII)
  • Sustainable investing has and will continue to impact the conduct of businesses
  • The IIC and MCII was established to encourage responsible ownership and active involvement of institutional investors, both key to market discipline
  • Malaysia was the first Southeast Asian country and the second in Asia and the emerging markets, to publish a code for institutional investors
  • The MCII now places an emphasis on transparency of stewardship efforts and outcomes
  • Some of Malaysia’s largest institutional investors are among the 38 signatories of the MCII, up from four signatories when it was first issued eight years ago
  • The MCII introduces the Stewardship Spotlight, where signatories describe their stewardship actions and outcomes when talking to investee companies, which includes board diversity and women’s participation on boards
  • As of September 2022, only 52 of the top 100 PLCs have reached the 30% goal. 350 PLCs (36.5%) have only one woman on their boards
  • Asset managers and owners must use their position as investment stewards to shape and influence their investee companies to improve their sustainability practices

Assalamualaikum warahmatullahi wabarakatuh and salam sejahtera.

  1. Terima kasih kepada Institutional Investors Council Malaysia (IIC) dan Securities Industries Development Corporation (SIDC) di atas jemputan untuk saya menyampaikan sepatah dua kata, dan yang lebih penting, untuk saya menyampaikan ucapan ribuan terima kasih kepada Yang Berhormat Senator Tengku Datuk Seri Utama Zafrul diatas kesudian beliau hadir bersama kita pada pagi ini tambahan lagi di SC, untuk melancarkan Kod Pelabur Institusi Malaysia 2022, the Malaysian Code for Institutional Investors 2022.

  2. The SC has had the privilege of working with the Ministry of Finance and the IIC over the last year to review, update and enhance the Malaysian Code for Institutional Investors 2022 or MCII. I would like to thank the teams for their dedication in ensuring the MCII is enhanced as intended under the PERKUKUH initiative.

  3. Today’s launch of the MCII 2022 follows the release of the Principles on Good Governance for GLICs or PGG, which is the first deliverable under PERKUKUH. MCII supplements the PGG by addressing the external aspects of governance through leadership. In contrast, the PGG is focused on internal governance.

  4. The MCII also supports the Malaysian Code on Corporate Governance. Signatories are expected to engage investee companies on the adoption of best practices, especially in cases of departures from the MCCG.

The shift towards sustainable investing will accelerate

Ladies and gentlemen,

  1. For many decades, long before the outbreak of the COVID-19 pandemic, investors have been voicing concerns about sustainability. However, it wasn’t until recently that they started putting their words into action. Today, we are seeing the “awakening” of conscious capitalism across the global investment landscape.

  2. And the numbers support this sea of change. Since last year, over 4,300 investors have become signatories to the Principles for Responsible Investment (PRI), representing a 29%1  increase. This amounts to over US dollars 121 trillion of assets under management, that have been committed to investments that integrate environmental, social and governance (or ESG) criteria.

    1Figures extracted from PRI Annual Report 2022 and 2021 – Enhance our global footprint.

  3. The shift to sustainable investing has and will continue to have a significant impact on the conduct of businesses. Investors are now more careful in identifying the true drivers of risk and return, in order to build a portfolio that is more resilient. The importance of integrating sustainability factors into investment decisions is now better understood.

  4. It calls for investments in assets or companies that can achieve sustainable returns over the long term. This is due to the growing belief that companies focused on sustainability are less risky, better positioned for the long term and well prepared for uncertainties.

  5. As a result, sustainable business practices are no longer a ‘nice to have’, but rather a ‘must have’. Corporate leaders are increasingly being held accountable for ESG performance.

An effective ecosystem is key to delivering our sustainability goals

Ladies and gentlemen,

  1. Not all institutional investors are the same. They come in a variety of forms and sizes. They have different organisational and governance structures. They also don’t invest in the same asset classes because they have a wide variety of goals, strategies and timeframes for their investments. As a result, no single stakeholder can drive the process of implementing positive outcomes. It needs the collaboration and engagement of all parties.

  2. This was one of the key motivations that led the SC to recognise the formation of the Institutional Investors Council Malaysia as a strategic initiative in the SC’s Corporate Governance Blueprint ten years ago.

  3. The IIC was established a year after the first edition of the MCII was published in 2014. Its mission was to promote responsible ownership and the active involvement of institutional investors - both of which are critical components of market discipline. In fact, it is worth mentioning that Malaysia was the first Southeast Asian country and the second in Asia and the emerging markets, to publish a code for institutional investors.

  4. Recognising the importance of a well-functioning ecosystem, the SC also established the Institute of Corporate Directors Malaysia in 2018 to meet the training and professional development needs of directors. This was done to fill the gaps that we have identified. The efforts of all these stakeholders are coordinated through the Corporate Governance Council, which was formed in 2020, and is chaired by the SC.

  5. The effectiveness of the MCII hinges on its adoption by the market, in both form and spirit, much like the Malaysian Code on Corporate Governance. It is important to note that the MCII now places an emphasis on transparency of stewardship efforts and outcomes.

  6. We have made a lot of progress in terms of signatories. When the MCII was first issued eight years ago, there were only four signatories. Now there are 38 signatories, which include some of the country’s largest institutional investors.

Visibility of institutional investors’ opinions and positions is critical to shaping corporate and investor behaviour

Ladies and gentlemen,

  1. Without doubt, institutional investors play a critical and influential role in the capital market. Their increasing holdings, over the last several decades, come with increasing expectation in relation to their responsibility to act, as stewards of the companies in which they hold shares in.

  2. We have seen how Blackrock CEO’s annual public letters to portfolio companies have worked. Studies indicate that these letters are effective in persuading companies to make changes. Blackrock wields considerable power over companies of all sizes, and its expectations are clearly stated through these letters.

  3. Likewise, the MCII is on the right track with the introduction of the Stewardship Spotlight, which highlights key focus issues for signatories, when talking to investee companies, as well as the recommended voting decisions on these matters.

  4. The signatories to the MCII are expected to publish a Stewardship Statement detailing their stewardship actions and outcomes. By reading this statement, stakeholders may judge for themselves whether asset owners and managers are taking their stewardship obligations seriously.

  5. I am also encouraged to see that board diversity, including women’s participation on boards, is in the Stewardship Spotlight, as it should be. Following Budget 2022, all listed companies are required to have at least one-woman director on their boards. However, listed firms should not stop at one woman director for compliance reasons, but strive towards the 30% target.

  6. As of September 2022, only 52 of the top 100 listed companies have reached the 30% target, and 350 listed companies, representing 36.5% of listed companies, have only one-woman director on their boards. The SC will continue to keep a keen eye on these figures.

Closing

Ladies and gentlemen,

  1. Before I conclude, I urge all of you not to lose sight of the importance of governance. I believe that governance will remain fundamental, because it serves as a mechanism for providing strategic direction and oversight, while being transparent and accountable to stakeholders.

  2. We hope that IIC-SIDC continues with this CG Conference, bringing together asset owners, asset managers and corporates to discuss pressing issues and chart a course towards a more positive and sustainable future.

Thank you.
SC AFFILIATES
RELATED SITES
about the SC
The Securities Commission Malaysia (SC) was established on 1 March 1993 under the Securities Commission Act 1993 (SCA). We are a self-funded statutory body entrusted with the responsibility to regulate and develop the Malaysian capital market.

General Line: +603-6204 8000
General Email: [email protected]
© Copyright Securities Commission Malaysia.  Contact Us   |    Disclaimer   |   The site is best viewed using Microsoft Edge and Google Chrome with minimum resolution of 1280x1024
Ooops!
Generic Popup