Launch of EPF Sustainable Investment Policy

OPENING ADDRESS

YB SENATOR TENGKU DATUK SERI UTAMA ZAFRUL BIN TENGKU ABDUL AZIZ
MINISTER OF FINANCE MALAYSIA

LAUNCH OF EPF SUSTAINABLE INVESTMENT POLICY

MAJESTIC HOTEL, KUALA LUMPUR | 31 MARCH 2022

Bismillahirrahmanirahim

Assalamualaikum Warahmatullahi Wabarakatuh and Salam Keluarga Malaysia

Yang Berbahagia Tan Sri Ahmad Badri Mohd Zahir
Chairman of the Employees Provident Fund (EPF) Board

Yang Berbahagia Datuk Seri Amir Hamzah Azizan
Chief Executive Officer of the EPF

Distinguished delegates, guests and speakers,

1. It is an honour for me to be here today as we commemorate a significant milestone not only for the EPF, but also for Malaysia, as the country’s largest institutional investor takes a giant leap forward in sustainability. I am truly proud that a comprehensive set of madein-Malaysia sustainability policies will be launched today.
   
   

CONTEXT SETTING: THREATS OF CLIMATE CHANGE

Ladies and Gentlemen,

2. The world as we know it is rapidly changing in all aspects, including social, political, economic, and most clearly, environmental. The pressing need to conduct business and invest in a sustainable manner is no longer mere rhetoric. Climate change, for example, will have a more devastating impact on tropical countries like Malaysia, as rising temperatures and unpredictable rainfall are expected.
   
   
3. In addition, the Centre for Governance and Political Studies conducted a digital simulation of how the country will be affected by global warming over the next 30 years, which revealed that nine major states will be significantly impacted and part of the land will be below sea level by 2050. These include Port Klang, parts of Shah Alam, Teluk Intan, and Kuala Selangor, while KLIA is expected to be on the sea coast. According to studies, the Asian population will be the most affected by rising sea levels on a global scale.
   
   
4. On the social front, Malaysia is facing increased scrutiny of its labour practices, particularly the treatment of foreign labour by corporate Malaysia. These issues have a tangible adverse impact not only on business profitability, but also on the nation’s reputation as a whole. As a result, it is undeniable that sustainable or ESG investing is becoming increasingly important, and is no longer limited to developed countries.
   
   
5. According to Bloomberg Intelligence, global ESG assets are on track to exceed 53 trillion US dollars by 2025, accounting for more than a third of the projected total assets under management of 140.5 trillion US dollars. The rush into ESG assets is unsurprising given their long term expected outperformance. On an annualised three, five and 10- year returns1 , for example, the MSCI Malaysia ESG Leaders index clearly outperformed the MSCI Malaysia Index.
   
   

SUSTAINABILITY IN MALAYSIA

Ladies and Gentlemen,

6. For Malaysia to achieve sustainable growth, it is critical for the country’s economic recovery to be anchored on ESG factors. This focus underpins the 12th Malaysia Plan’s goal of revitalizing Malaysia’s socioeconomic development, with long-term sustainability and prosperity serving as the foundation for improving the Rakyat’s wellbeing.
   
   
7. In 2015, at the United Nations Climate Change Conference in Paris, the Malaysian Government announced its target of carbon neutrality by 2050, supported by initiatives such as the sustainable low carbon pathway, no new capacity for coal-fired power plants, and our target of renewable energy sources accounting for 31 percent of total installed capacity.
   
   
8. As part of Budget 2022, the Government announced various sustainability initiatives, including the establishment of a Voluntary Carbon Market (VCM) by our stock exchange, matching grants to encourage SMEs to use sustainable raw materials and renewable energy through BNM’s Low Carbon Transition Facility, and the issuance of a Ringgit-denominated Sustainability Sukuk of up to 10 billion ringgit.
   
   
9. In the midst of the COVID-19 pandemic’s uncertainty, Malaysia must also continue to attract high quality investments from both foreign and domestic companies. In Budget 2022, the Government introduced green technology tax incentives to encourage additional investment and even expanded the scope to include Rainwater Harvesting Systems (RHS)
   
   
10. Despite the challenging global economic environment, the Malaysian Investment Development Authority, or MIDA, has approved close to 900 (889) green technology projects with investments totalling 3.7 billion ringgit in 2021. This is a promising sign for Malaysia's potential high investment flows and interest in green technology.
    
    

EPF’S ROLE AND CONTRIBUTION TOWARDS ENSURING SUSTAINABILITY

Ladies and Gentlemen,

11.  No government can do all of the heavy lifting in transitioning to a climate-resilient and sustainable economy on its own. As we are racing against time to mitigate the effects of climate change or other future shocks, institutional investors can and must assist the government in mainstreaming the sustainability agenda across as many sectors and industries as soon as possible.
    
    
12. MOF has already begun budget-tagging specific measures to ensure that various ministries spend in accordance with our sustainability expectations. To maintain the momentum of this mainstreaming process, institutional investors must share key data on how each industry in their ecosystem has ‘shaped up’ in terms of sustainability. This will enable future policies to be tweaked accordingly to improve Malaysia’s climate adaptation and crisis mitigation strategies as quickly as possible.
    
    
13. To that end, we fully support the EPF, Malaysia's largest institutional investor and pension fund, for completely embracing sustainable investing and reinforcing its commitment to ESG.
    
    
14. Driven by its commitment to two overarching sustainable investment goals of ESG compliance by 2030 and a climate neutral portfolio by 2050, the EPF’s Sustainable Investment Policy, Priority Issues Policies, and Priority Sector Policies, are all steps in the right direction towards achieving its sustainable investment ambitions. This is in addition to laying the foundations for more climate-resilient and socially responsible practices, as well as sound corporate governance, among its investee companies.
    
    
15. While we strive for higher standards by aligning policies with global standards or frameworks, its principles and approach must be tailored to national objectives, as well as local needs and requirements. This is to ensure a fair and equitable transition that recognises each country’s unique characteristics, strengths and challenges in achieving those objectives.
    
    
16. Furthermore, as global scrutiny on labour standards gradually increases, we are confident that the EPF’s Workers’ Wellbeing Policy will further strengthen labour practices among Malaysian corporates, while also serving as a testament to the country’s commitment to strive for better workers’ wellbeing.
    
    
17. The Government believes that by institutionalising ESG policies in EPF’s investments, the benefits will cascade down the value chain of Malaysia's capital markets, ultimately benefitting the Rakyat.
    
    
18. In fact, today’s pledges by all 16 of the EPF’s External Fund Managers to incorporate ESG considerations into their investment decision-making and to collaborate with the EPF to promote the ESG agenda serve as a great starting point.

CLOSING

Ladies and gentlemen,

19. On behalf of the Ministry of Finance and the Government, I would like to congratulate the EPF on its commitment to embed sustainability into its investment decision-making. This will clearly lay the groundwork for improving the Rakyat’s socio-economic well-being and the nation’s adaptive capacity to the risks of climate change.
    
    
20. I am certain EPF’s leadership on and commitment to sustainability will inspire and pave the way for more institutional investors to follow their footsteps towards sustainable development in Malaysia.
    
    
21. On that note, I wish the EPF every success and I hereby officially launch their Sustainable Investment Policies.

Wabillahi taufiq wal hidayah Wassalamualaikum warahmatullahi wabarakatuh.

YB Senator Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz
Minister of Finance Malaysia
31 Mac 2022