Opening Remarks at Kuala Lumpur Business Club
25 May 2021  |   By Datuk Syed Zaid Albar, Chairman, Securities Commission Malaysia
Opening Remarks
by
Datuk Syed Zaid Albar
Chairman, Securities Commission Malaysia
at the
Kuala Lumpur Business Club
Virtual Dialogue Session

The Malaysian Capital Market
Towards a More Sustainable Economy

25 May 2021

1. Thank you for the kind introduction, Faiz.
2. And, thank you for inviting me to this KLBC Dialogue. A very good evening to everyone and Selamat Hari Raya to all celebrating.
3. I can see some familiar faces on the screen, so maybe some of you will remember that I was a member of the KLBC in the early days and have attended several Fireside Chats.
4. One of those chats was between the then President of KLBC, Tengku Zafrul Aziz and our then Deputy Prime Minister, Tan Sri Muhyiddin Yassin. I remember you guys gave him a tough time.
5. I hope you will be kinder to me.
6. Allow me to begin by setting the context for what I hope will be a robust discussion on corporate citizenship. And what it means to be a corporate in today’s world of E, S, and G or ESG imperatives.
7. Historically, the primary function of a corporation was to generate profits, focusing solely on enhancing shareholder’s value. Success was measured purely by the bottom-line.
8. But things have changed. Over the last 20 years, global boardroom conversations on the purpose and responsibilities of a corporate citizen have evolved.
9. As the focus on profits shifted towards corporate citizenship, the corporate of the 21st century is expected to uphold standards and values that support the 3 Ps – people, planet and prosperity. Today’s corporate has to “prosper the society”, not just its shareholders.
10. The word everybody uses to describe this changed role, is a big one: SUSTAINABILITY. We all know of it and use it liberally. But how well do we understand it? The best companies produce sustainability reports. I know some of you have sustainability departments. Many of you even recognise that sustainability is more than just social and environmental commitments. It encompasses everything, including the G in ESG.
11. Given that this is a gathering of corporate leaders and captains, let’s view this transformation through the lens of a company.
12. In my opinion, the evolution of the corporate role, can be divided into three phases.
13. First, at the turn of this century, Malaysia and our neighbours emerged from the devastating Asian Financial Crisis (AFC) when a spate of corporate and accounting scandals rocked the world. Remember Enron? Many of you will remember that we too have had our fair share of Enron-inspired cases.
14. That was when corporate governance became mainstream. Boards and senior executives were held more accountable for their actions and inactions.
  a.

The thinking that supports the push to enforce good corporate governance is simple: good governance promotes responsible boards and therefore, shape good corporate citizens, preventing corruption, and mitigate excesses and overreach

  b. In March 2000, the Malaysian Code on Corporate Governance (MCCG) was introduced. This was an important launchpad for corporate reforms and initiatives to strengthen investor/shareholder’s empowerment. Emerging from the Asian financial crisis, the High Level Committee designing the MCCG focused on four main areas – the board, directors’ remuneration, accountability to shareholders and the audit process.
15. The second phase was in the 2010s, when companies and corporate captains, globally, began pivoting towards a more purposeful corporate leadership.
  a. This meant taking into account both the sustainability and longevity of their businesses, and the impact on a wider constituency of stakeholders, such as suppliers, partners, employees and the community at large
  b. In 2011, the UN Guiding Principles on Business and Human Rights articulated the role of the corporate in respecting human rights. In 2019, the US Business Roundtable issued a statement on ‘stakeholder capitalism’ , promising to pay closer attention to the needs of other stakeholders.
16. Almost at the same time, the third phase of this change in corporate responsibility started. It moved swiftly from CSR and the notion of corporate philanthropy, to conversations about climate change and transitioning towards a net-zero economy.
17. Today, we are living with real time climate-related risks for both businesses and governments
  a. As you all know, Larry Fink (CEO of Blackrock) deemed the transition to a low-carbon economy as “a tectonic shift” that offers a “historic investment opportunity”
  b. Governments across the world are pivoting towards this shift with promises to “build back better” their economies.
18. The pandemic, if anything, has exposed the fragility of our modern world. Like the Covid-19 virus, climate crisis knows no boundaries or borders.
19. Yes, we are at an inflection point.
20. It is clear. We need a reset. Klaus Schwab of WEF said, “The pandemic presents us with a rare but narrow opportunity to reflect, reimagine and reset our world.” We need a system that works for everyone - not just for this generation but for future generations as well.
21. We need to reframe sustainability that covers responsibility, accountability, ethics, governance, innovation I could go on. But in a nutshell, it is about respect and responsibility. Respect and responsibility for the planet and all its people.
22. From a capital market standpoint, we need to think long and hard around how the market can support this transition. We need to ask ourselves-
  a. How can the capital market be more relevant to new, small and large businesses? And to all investors – not just the affluent and high net worth segment
  b. Can the capital market remain true to its underlying purpose to support the real economy, but also drive the sustainability agenda?
  c. How can we foster an environment that offers growth opportunities beyond the single-minded pursuit of short term profit? And how can we gain acceptance that managing emerging market risks and driving the sustainability of our market’s growth are shared responsibilities?
  d. Lastly, we also need to ask ourselves how do we prepare and be ready for the evolution of new business models and market structures that will emerge and shape the new operating landscape.
23. We will try to answer some of these questions in the Capital Market Master Plan 3 or CMP3, which is scheduled to be released later this year. The CMP3 will focus on the next development phase of Malaysia’s capital market, spanning the next five years.
24. But today, let’s focus on some of the immediate issues and challenges that confront us.
25. Recently, we have seen discussions on ESG focusing on the “E” and “S” elements. What we have to understand is that the “G”, or Good Governance, underscores corporate responsibility in Environmental stewardship and social responsibility.
26. In fact, the bar is rising as companies are now assessed on how they handle environmental and social issues connected to their businesses
  a. Global regulators have acknowledged that there is a need to retool the financial system to address climate change and sustainability disclosure.
  b. As a member of one of IOSCO’s Sustainability Task Force, I can attest to the coordinated effort to improve the comparability of sustainability-related disclosures of issuers, asset managers, credit rating agencies, ESG ratings and ESG data providers. Having a consistent and standardised sustainability disclosure is important to enhance the comparability of ESG information, to avoid fragmentation and greenwashing.
  c. In the recent revisions to the MCCG, the SC highlighted that companies and boards must also address future sustainability risks and prospects. MCCG 2021 also focused on accelerating gender diversity, getting the right mix of people at all levels, especially on boards.
  d. In keeping with the times, the SC has prioritised sustainable and responsible investments or SRI. SRI will play an important role in ensuring the sustainable growth of the economy. Of course, this includes Islamic social finance with its emphasis on socially-beneficial outcomes that will aid economic recovery.
27. Friends and colleagues. We are told that fortune favours the brave. I would add that it also favours those who are well-prepared.
28. The path before us is an uncertain one and we must not underestimate the scale of the challenge, so I urge all of you to ready for the tasks ahead and be prepared to play the long game. This may sound like a cliché, but I truly believe that we should treat uncertainty as an opportunity – the opportunity to adapt and adopt better, more efficient, more sustainable practices and processes
  a. Corporates need to embrace technology and innovation. Leverage digital tools. Social media and online apps have created a whole new global market place that is growing exponentially.
  b. Having said that, we must also be aware that all new things come with new risks – in this case, the threat of cyber-attacks. The breach by hackers on Colonial Pipeline not only led to the shutdown of a major US oil pipeline but caused havoc for US consumers. So while you embrace technology, change, innovation, do so mindfully.
  c. Also, thanks to social media, the sharing of news, especially negative and sometimes false news, is ubiquitous. Anybody with a smartphone can supply “the news”. If negative information is leaked out on your company, the court of public opinion can be a tough and cruel judge. But none of us can avoid it anymore. Companies need to be prepared. You need to adapt and adopt to this new reality.
29. And while we are on the subject of the risks percolating around us, it would be remiss of me not to highlight the work that the SC is doing in addressing the ongoing pandemic and developments surrounding it.
  a. We will focus on maintaining market integrity, as our key priority is protecting investors. We are keeping an eye on market movements and foreign flows. We are always vigilant against misconduct and unlicensed activities.
  b. There are also ongoing efforts to facilitate market innovation and grow the breadth of SRI and Islamic products.
30. Finally, I would like draw upon the butterfly effect in chaos theory. The decisions you make and the actions you take today will have wide-ranging consequences. These consequences will be felt far into the future, on the environment, global economies and the people within and around your organisation, the communities and ecosystems within which you operate. It’s a new world out there. To build back better, we must work together. I would be happy to hear your views on how we can navigate these looming challenges and norms that are encircling us.
31. Thank you.
   
Ends.
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