AS ESG (environment, social and government) rating gains deeper awareness, the FTSE4Good Bursa Malaysia (F4GBM) index could become more prominent over time with increasing focus and scrutiny by asset managers on the ESG practices of their investee companies.
The index probably boasts the largest coverage in terms of ESG ratings of Malaysian listed companies, according to CGS-CIMB Research.
“Also, the methodology used by FTSE Russell to determine ESG practices in F4GBM is based on global standards,” justified head of research Ivy Ng Lee Fang in a strategy note.
“We believe that the increased public disclosure of companies’ ESG rankings among their peers since June 2020 has allowed investors to track ESG scores of companies and to follow the index more closely.”
As of end-June, Malaysia’s weightage in the FTSE4Good Emerging Market (F4GEM) index stood at 2.72% which is higher than its index weight of 1.71% in the FTSE Emerging Market (FEM) index.
This suggests that Malaysian companies fared better in their ESG scores relative to some of its peers in the FEM index.
The country’s weightage in FTSE4Good Asean5 index as of end-June was 21.5%, behind Singapore (26.44%) and Thailand (29.23%) but ahead of Indonesia (11.93%) and the Philippines (10.87%).
There are currently 76 constituents in the F4GBM index following the latest June semi-annual review, a significant increase from 24 members when the index was launched in 2014.
This suggests that more Malaysian-listed companies are improving their ESG transparency and scores which is a positive sign. In fact, the F4GBM index outperformed FBM Emas in two (2017 and 2018) of the past five years.
“Year-to-date (June 30), the F4GBM registered a negative return of -5.6%, underperforming the FBM Emas (-5.1%) but outperforming the FBM KLCI (-5.8%),” observed CGS-CIMB Research.
“This could be because Malaysia is still in the early stages of adopting ESG and given the underperformance of banks and utilities which have a high weightage in the F4GBM in some years.”
Currently, there are 22 out of the 30 FBM KLCI component stocks in the F4GBM index. Of the eight FBM KLCI stocks that did not qualify for the F4GBM Index, three – Nestle (M) Bhd, Top Glove Corp Bhd and Dialog Group Bhd – were among the top 25% ranked listed companies in ESG ratings in the FBM Emas.
“We suspect the exclusion of Top Glove and Nestle could be due to controversies while Dialog’s exclusion could be due to it not meeting the minimum climate change score threshold,” opined CGS-CIMB Research.
“Genting Bhd and IHH Healthcare Bhd appeared to have the lowest ESG ratings among FBM KLCI constituents which we suspect could be due to poor ESG disclosures.”
Other FBM KLCI members that are not part of the F4GBM index are MR DIY Group (M) Bhd (recently listed), Hap Seng Consolidated Bhd and Press Metal Aluminium Holdings Bhd. – July 13, 2021
