In a world where ESG (Environmental, Social, and Governance) considerations are becoming increasingly important in the realm of investments, retail investors are not left behind. They too can actively participate in the ESG movement, aligning their investment choices with their values and contributing to a more sustainable and responsible financial landscape.
Malaysia's strong commitment to ESG (Environmental, Social, and Governance) principles, driven by governmental initiatives, institutional support, and global trends, has created an ideal environment for sustainable investing. Early endorsements from major funds such as the Employees Provident Fund (EPF) and Khazanah Nasional have laid the foundation for a robust ESG ecosystem. Regulatory bodies like Bursa Malaysia and the Securities Commission have furthered ESG adoption through the issuance of guidance notes and taxonomies, expanding investment options and accessibility. These developments have heightened ESG awareness. Today, we will explore what these changes meant for investors and how retail investors can actively engage in the evolving ESG landscape.
Regarding the role of retail investors in the active participation of ESG initiatives, this article explicates it into three key aspects:
- Investing in ESG-Focused Companies: Retail investors can make a substantial contribution by choosing to invest in companies that prioritise ESG principles. By allocating their funds to such companies, they play a vital role in supporting sustainable practices, responsible governance, and positive social impact.
- Voicing Out as Shareholders: Retail investors can leverage their position as shareholders to advocate for ESG-related policies and practices within the companies they invest in. They can participate in shareholder meetings, vote on ESG resolutions, and engage in dialogues with company management to promote responsible behavior.
- Non-Financial Support for ESG-Related Companies: This extends to advocating for ESG initiatives, raising awareness about responsible business practices, and participating in efforts that promote sustainability, such as volunteering for environmental causes or engaging in community outreach programs.
Identifying ESG Issues that Aligns with the Investor’s Values
ESG covers a wide range of issues, including climate change, gender diversity, human rights, and ethical business practices. It’s crucial for investors to start by assessing their priorities.
For instance, if the foremost concern for an investor is combatting the pressing issue of climate change, they can support renewable energy initiatives, conservation efforts, and the adoption of sustainable practices. Those passionate about social justice can focus on addressing racial inequality by funding initiatives that promote diversity and equality, thus working to dismantle systemic barriers.
By identifying the ESG issues that matter most, aligning the issues with their personal values then allocating their time and financial resources towards them, retail investors can amplify their positive influence and actively contribute to the development of a fairer, more sustainable, and compassionate global community.
Investing in ESG-Focused Companies
Investing in ESG-focused companies allows investors to prioritise their values and show support for responsible initiatives. This financial commitment sends a clear signal to the business world that there is a demand for eco-friendly and socially conscious practices.
Investors can choose to independently research and invest directly in companies or funds that match their ESG criteria. This hands-on approach means tailoring specific ESG benchmarks, digging deep into company practices, and picking investments in line with their beliefs. The goal is an actively managed portfolio reflecting ESG priorities.
One streamlined method for retail investors is using ESG ratings from trusted firms like MSCI, Sustainalytics, and Bloomberg. These organisations rate companies on different ESG metrics, simplifying the investment decision process.
For enthusiasts of Malaysian-based ETFs, there are options such as the BIMB ESG Sukuk Fund, Public e-Islamic Sustainable Millennial Fund, and the Maybank Global Sustainable Equity-I Fund. These offerings allow for alignment with ESG principles and cater to varied investment preferences. Additionally, numerous ESG-centric ETFs and mutual funds, both locally and internationally, have pre-screened companies for ESG compliance. Investors should seek out funds that not only resonate with their values but also fit their risk profile.
Voicing Out as Shareholders
Besides solely investing, retail investors can also lend their voice and time to support ESG principles. This kind of engagement can take various forms, from the grassroots to the boardroom.
Engaging with companies through participation in shareholder meetings is a powerful way for investors to make an impact. By attending these gatherings or casting proxy votes, investors can express their concerns or champion specific ESG initiatives. For instance, they might encourage a company they have backed to transition to eco-friendly packaging or adopt strategies to reduce their carbon emissions.
Similarly, if an investor is keen on bolstering gender diversity, they can leverage their influence to advocate for a more significant representation of women in board roles. Beyond just board representation, they might also get involved in mentorship programs aimed at uplifting and guiding emerging female leaders. This hands-on involvement can directly further the cause of gender equality in the corporate landscape. Shareholder activism can lead to positive changes in corporate behavior.
Non-Financial Support for ESG-Related Companies
Beyond financial investments, retail investors can also engage with ESG efforts by supporting these companies in non-monetary ways. They could spread awareness about ESG principles through social media, blogs, forums, or community groups, encouraging others to consider the environmental and social impact.
Furthermore, retail investors can actively contribute to the missions of ESG-related companies by engaging in volunteer work or participating in community outreach programs that align with their shared values. Many ESG-focused organisations offer opportunities for individuals to get involved in various activities. This can include volunteering for environmental cleanup projects, supporting local community initiatives, or participating in mentorship programs that promote social inclusion and diversity.
By volunteering their time and efforts in these initiatives, investors extend the reach and impact of the ESG-related companies they support, fostering a deeper connection.
Retail investors have considerable power to support ESG efforts both through where they choose to allocate their capital and how they choose to engage with companies and communities. Their financial backing helps ESG-focused companies to grow and prosper, while their advocacy and volunteer work can amplify the impact of these companies' ESG initiatives and inspire broader changes in corporate behavior and societal norms.
* Some financial products and services may not be classified as Shariah-compliant. Please research carefully before making any financial decisions
References
P. (n.d.). ESG Deals Creation and Impact Investing in Malaysia. PwC.
Malaysia to Launch ESG Framework in 2023. (n.d.). Lexology.
Budget 2024: The future of ESG in Malaysia. (2023, October 31). The Star.
4 Things That You Should Know About ESG In Malaysia - Smart Investor Malaysia. (2022, October 31). Smart Investor Malaysia.
Looking Holistically at ESG and Realistically at How Malaysia can Improve Implementation - Strateq Group. (2023, June 14). Strateq Group - Innovation Driven Solutions.
Push from government-led ESG initiatives. (2022, October 11). The Star.
