Launch of Khazanah Sustainability Framework and Targets

CLOSING ADDRESS

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

LAUNCH OF KHAZANAH SUSTAINABILITY FRAMEWORK AND TARGETS

10 JUNE 2022 | ODYSSEY HALL, MERCU UEM

SALUTATIONS

Bismillahhirahmannirrahim

Yang Berbahagia Dato’ Amirul Feisal Wan Zahir
Managing Director of Khazanah Nasional Berhad

Board members and senior representatives of Khazanah Nasional Berhad

Members of the media

Distinguished guests

Ladies and gentlemen

Assalammualaikum Warahmatullahi Wabarakatuh and a very good morning.

INTRODUCTION

1. First and foremost, I’d like to thank Yang Berbahagia Dato’ Amirul Feisal, Managing Director of Khazanah, for the honour of speaking at this morning’s event.
   
   
2. I’m delighted to see Khazanah, Malaysia’s Sovereign Wealth Fund, announcing its Sustainability framework and targets today. Together with the pledges made by the Government, this demonstrates Malaysia’s united stance and commitment to sustainability.

THE SUSTAINABILITY MEGATREND

Ladies and gentlemen,

3. The sustainability megatrend cannot and should not be overlooked. The world is at a crossroads. And, if we do not correct our course to avoid potential climate disasters and societal inequalities, we will have failed in our role as stewards for future generations.
   
   
4. This is not an issue that can be ignored. We are increasingly seeing the impact of extreme weather events in Malaysia, such as the recent floods that have impacted thousands of people’s livelihoods and damaged critical infrastructure.
   
   
5. Concerns about the welfare of factory and plantation workers have repeatedly made headlines in the press, tarnishing our international reputation. Both these issues have serious implications to Malaysia, its institutions, its businesses, and, most importantly, its people.
   
   
6. Today, the international investment community is increasingly focused on ESG-related risks and opportunities. Global funds, for example, do not shy away from divesting in companies with unsustainable practices, encouraging the latter to embrace ESG to ensure they do not lose access to capital.
   
   
7. We have seen more assets and funding are being allocated to businesses that have ESG practices, as well as companies that are riding the Sustainability tailwinds, such as Renewable Energy and Social Enterprises.
   
   
8. Bloomberg Intelligence estimates that global ESG assets will reach 41 trillion (US) dollars by the end of this year, and will grow to 53 trillion (US) dollars by 2025. This accounts for more than a third of total assets under management.
   
   
9. Capital markets regulators around the world are also increasingly supporting this shift, often requiring companies to disclose their ESG practices and strategies, and holding them accountable.
   
   
10. This rapid expansion is not only limited to developed markets. Southeast Asia has also seen an increase in investor interest in ESG, at times outpacing global averages.
    
    
11. According to a global investor study conducted by Schroders in 2021, 67% of Southeast Asian investors now prioritise social issues, higher compared to global averages of 57%, and 66% on environmental issues, compared to global averages of 55%.
    
    
12. This data clearly indicates that a whole-of-nation approach to sustainability is required. If our companies are to remain competitive, we must galvanise our efforts towards better ESG practices. This is how we, as a nation, move forward and deal with the uncertainties and risks that we face today.

GOVERNMENT’S COMMITMENTS IN ESG

Ladies and gentlemen,

13. It is critical that we work together and put our best foot forward in these trying times by embracing ESG to aid in our economic recovery.
    
    
14. The Government recognises this and has clearly stated our target in the Twelfth Malaysia Plan to revitalise the nation’s socio-economic development, with long-term sustainability and prosperity in mind.
    
    
15. Among key priorities outlined are reducing greenhouse gas emissions intensity to 45% of GDP by 2030. A Comprehensive National Energy Policy will provide long-term guidance on achieving Malaysia’s carbon neutrality goal, as well as a target for renewable energy to account for 31% of Malaysia's total energy capacity by 2025.
    
    
16. The Government has also reaffirmed its commitment to achieve carbon neutrality by 2050, and we urged all GLCs and GLICs to set medium-term and similar Net-Zero targets.
    
    
17. Our Prime Minister, Yang Amat Berhormat Dato’ Sri Ismail Sabri, has also announced a number of other social initiatives aimed at improving workers welfare.
    
    
18. These include the increase in minimum wage to 1,500 ringgit for all civil servants as well as staff of GLCs and GLICs. The Government has also urge all listed GLCs to achieve at least 30% women board representation by 2023.
    
    
19. In terms of social aspirations, the Twelfth Malaysia Plan envisions average monthly household incomes to reach 10,065 ringgit and the economic gap between central and Sabah-Sarawak regions to narrow, by 2025.
    
    
20. Collectively, these demonstrate Malaysia’s commitment to supporting long-term ESG aspirations and improving the environmental and socio-economic conditions for the 33 million of Malaysians.
    
    
21. There in, we must remind our selves that the relationship between the environment and the communities within them are symbiotic, with one being ever closely linked to the other.
    
    
22. It is my hope that the Government, through the Ministry of Finance (MoF), and all other Ministries and agencies, will equip Malaysia to accelerate the transition to a more sustainable economy.

ESG MEASURES UNDER BUDGET 2022 & OTHER STRATEGIES

Ladies and gentlemen,

23. To help drive and sustain this ambition, we have announced a number of sustainability-related initiatives that will be implemented and undertaken in Budget 2022.
    
    
24. These initiatives require extensive collaboration and include the implementation of green technology tax incentives, as well as matching grants to further promote the use of sustainable raw materials and renewable energy by the country’s SMEs. This includes implementing specific financing measures such as a 1 billion ringgit Low Carbon Transition Facility, establishing a Voluntary Carbon Market by the end of 2022, and issuing Ringgit-denominated Sustainability Sukuk of up to 10 billion ringgit.
    
    
25. In addition to Budget 2022 measures, allow me to reiterate recurring broad-based strategies and measures that will support our longer- term ESG-based aspirations:
    
    
    1. Firstly, strengthening sustainability-related financing and investments, which complements the UN Sustainable Development Goals (SDGs) by coordinating initiatives and programmes that incorporate ESG elements. These include:
       
       
       • Firstly, as part of our overall effort to embrace the sustainability principle in public spending, the Government through MoF has tagged all programmes and projects under development expenditure to the SDGs in our annual budgets.
         
         
       • Secondly, MoF will implement the Voluntary Carbon Market in collaboration with the Ministry of Environment and Water and Bursa Malaysia, before transitioning to the Domestic Emissions Trading Scheme. Along with the announcement to establish the National GHG Centre to improve transparency in climate change data and reporting for the country, this will boost and attract low carbon investments.
         
         
       • Thirdly, in order to monitor and drive action towards meaningful change at the regulatory level, Bank Negara Malaysia and the Securities Commission have jointly issued the Task Force on Climate-related Financial Disclosures (TCFD) Application Guide for Malaysian Financial Institutions in March this year. Following the TCFD’s recommendations, Bursa Malaysia has proposed changes to its Listing Requirements aimed at improving sustainability disclosures for listed companies across all sectors.
         
         
    2. The MoF’s second main strategy is to empower SMEs in the area of ESG. Given the importance of the sector to the economy, developing the capacity of our SMEs is a key building block to achieving our ESG aspirations and our net- zero goal by 2050. Apart from targeted SME financing measures aimed at assisting and enabling SMEs to incorporate ESG principles into their operations, we have launched the Principles of Good Governance, which will be implemented by GLICs such as Khazanah. This will ensure that GLICs and the SMEs in their ecosystems are prepared to meet the growing demand of global markets.
       
       
    3. The third main strategy is to institutionalise ESG measures. One notable example is the establishment of the Malaysia Sustainable Development Goals Trust Fund (MySDG Fund) earlier this year in collaboration with the United Nations (UN). With an initial contribution of 20 million ringgit, this major funding collaboration demonstrates our strong commitment to incorporating SDG principles into Malaysia’s national development plans and policies, while also being transparent on the fund’s utilisation.
       
       
26. I am also pleased to share that our position for 2023 remains firm in terms of enabling the implementation of ESG-focused development projects and programmes. We have outlined a few key priorities in our recently announced Budget 2023 Pre-Budget Statement, including Malaysia’s strategic transition from the current recovery phase to longer-term reforms.
    
    
27. These include facilitating better income opportunities and improved holistic wellbeing in order to achieve Keluarga Malaysia’s vision of a more inclusive and sustainable development.
    
    
28. While these are promising foundations, it cannot be done in isolation. As mentioned by Dato’ Feisal, lasting and sustainable reforms can only be achieved by uniting the entire nation behind a common sustainability vision, with participation from all parties, including the private sector.
    
    
29. Having said that, the MoF is confident that both public and private sectors will play their respective roles and contribute to the success of Malaysia’s sustainability efforts and goals.
    
    
30. It is thus encouraging to see that Khazanah, as well as other GLCs such as EPF, TNB, CIMB, and PETRONAS, embrace the sustainability agenda by incorporating ESG into their core strategies and embedding it throughout their operations and CSR initiatives. This is really walking the talk on leadership in ESG and sustainability.
    
    
31. These GLCs contribute to the mainstreaming of ESG by serving as role models, catalysing change within their respective ecosystems, and encouraging the rest of Corporate Malaysia to consider how they behave and how their actions affect the communities and environment in which they operate.
    
    
32. To other corporates out there, and as the CEO of a regional banking group before, I can assure you that these efforts will not only allow your companies to be more responsible, but will also protect your company’s interests in creating value by mitigating potential ESG and regulatory risks.

CLOSING

Ladies and gentlemen,

33. On behalf of the Malaysian Government, I would like to congratulate Khazanah on the establishment of its sustainability framework and express my full support for its goal of “shaping an equitable and responsible transition”, while acknowledging the unique position of the companies under their care.
    
    
34. As stewards of some of the country’s largest corporations, which employ thousands of people and have an impact on millions more, a just transition is required to ensure that all stakeholder interests are met, and that any unintended consequences are mitigated.
    
    
35. I am also pleased to see that Khazanah’s goals are consistent with the nation’s objectives and the standards set by other leading global ESG practitioners.
    
    
36. Finally, it is my hope that Khazanah will continue to champion sustainability and act as a partner to its portfolio companies as we work to achieve Net Zero by 2050.
    
    
37. With that, dan dengan lafaz Bismillahirrahmanirrahim, I hereby launch Khazanah Nasional’s sustainability framework and targets.

Wabillahi taufiq wal hidayah Wassalamualaikum warahmatullahi wabarakatuh.