On numerous fronts, Singapore outcompetes its regional rival Malaysia. Infrastructure quality, the efficiency of government and business, quality of life, and as a safe place to raise children, to name but a few key indicators.
But in terms of the sustainability of their capital markets, Malaysia trumps Singapore in one important way—responsible investing.
Malaysian asset managers are more far confident than their Singaporean counterparts that responsible investments will outperform regular investments.
This is one finding from a survey by financial information firm Bloomberg that suggests that Singapore’s investment community is less inclined than Malaysia’s to consider environmental and social sustainability when allocating capital.
The study of asset managers in Singapore and Kuala Lumpur, conducted in August and April this year, found that while 67 per cent of Malaysia’s investment community believes that portfolios underpinned by environmental, social and governance (ESG) factors will perform as well as or better than regular investments, just 58 per cent of asset managers in Singapore were as bullish.
More importantly, while 72 per cent of Malaysian asset managers said they have incorporated ESG factors into their investment processes, 62 per cent of their Singapore counterparts said they have done the same.
The survey also found that a quarter of asset managers in Malaysia had developed their own internal ESG scoring models, compared with just 13 per cent in Singapore.
Investors across Asia are still playing a limited role in active ownership and responsible investment.
Ben McCarron, managing director, Asia Research & Engagement
The findings reinforce the Asian Corporate Governance Association’s (ACGA) 2018 Corporate Governance Watch report, which—out of 12 Asia Pacific markets—ranked Malaysia third and Singapore seventh for responsible investing progress.
How come Malaysia trumps Singapore on responsible investing?
“The poll results reflect what we are seeing based on client interactions,” said Maggie Ng, Bloomberg’s Southeast Asia head. “More Malaysian asset managers [than Singaporean] now understand the benefits of ESG investing and are starting to incorporate ESG factors into their investment processes.”
This is partly because Malaysia’s most influential investors have been quicker to embrace sustainable investing principles than their Singapore counterparts, Ng noted.
Large Malaysian asset owners such as Malaysia’s Employees’ Provident Fund (EPF), pension fund Kumpulan Wang Persaraan (KWAP), and Khazanah, Malaysia’s sovereign wealth fund, are signatories to the UN Principles for Responsible Investment, whereas Singapore’s big investors are not.
“By demonstrating their [the big asset owners’] commitment to sustainable finance, it is not surprising that asset managers in Malaysia have taken more interest in ESG investing and reporting,” Ng told Eco-Business, pointing out that Malaysia’s stock exchange introduced mandatory sustainability reporting a year before Singapore’s, in 2016.
Ben McCarron, founder and managing director of sustainable finance analysis firm Asia Research & Engagement, and a consultant for ACGA, noted that some of the largest Malaysian investors have now signed up to a stewardship code known as the Malaysian Code for Institutional Investors, which sets out investor responsibilities. However, Singapore has principles, instead of a sign-on code, leaving major Singapore investors without the same level of public commitment to a responsible investing framework.
He added that as Malaysia is a global centre for Islamic finance, Malaysian investors have long been familiar with the concept of using social factors to guide their investments, particularly what they cannot invest in.
On how Singapore could hasten progress in sustainable investing, McCarron said the city-state could start by making the responsible investment and corporate governance policies of its largest asset owners public.
Another way would be for the Central Provident Fund (CPF), Singapore’s mandatory savings scheme, to introduce minimum responsible investment standards for investments eligible under the CPF Investment Scheme, which allows members to invest their savings.
“Responsible investment often starts with a client pull or a regulatory push,” said McCarron. “The belief that it adds value often develops later as investors develop more sophisticated approaches to integrating ESG considerations into their investment processes.”
As further advanced as Malaysia is on responsible investing, both countries still lag major financial centres in Europe and the United States. “In general, investors across Asia are still playing a limited role in active ownership and responsible investment,” McCarron said.