Malaysia has become the latest country to introduce a code and set of best practices to help guide institutional investors in their engagement with companies – with the incorporation of ESG a key part of the guidance.
The Malaysian Code for Institutional Investors was unveiled today (June 27) by the Securities Commission Malaysia and Minority Shareholder Watchdog Group, developed with the country’s largest institutional investors.
These include the RM597.02bn (€132bn) Employees Provident Fund, the mandatory private sector savings plan, and Permodalan Nasional Berhad, Malaysia’s biggest fund management company.
Also involved are Kumpulan Wang (KWPA), Malaysia’s second-biggest pension fund, the Social Security Organisation, Lembaga Tabung Angkatan Tentera (the Armed Forces Fund Board) and Lembaga Tabung Haji (the hajj pilgrims fund board). Amongst international investors, Hermes Fund Managers has declared that it has signed up.
The first Stewardship Code was launched by the UK in 2010 and the idea has been picked up globally, most recently in Japan.
The new six-point, comply or explain, code aims to set out broad principles of effective stewardship by institutional investors such as their disclosures of stewardship policies, monitoring of and engagement with investee companies and managing conflict of interests.
Starting from 2016, signatories are expected to report annually on their application of the principles of the Code. An institutional investor council will also be set up.The code encourages investors to report a summary of their engagements with companies “at least on an annual basis”.
Principle 5 stipulates that institutional investors should incorporate corporate governance and sustainability (ESG) considerations into the investment decision-making process.
“Our domestic institutions’ collective commitment to the Code sends a clear message to the market that corporate governance is something that goes beyond regulatory compliance. Rather, it is an active source of value creation for the company and its owners,” said Securities Commission Malaysia Chairman, Datuk Ranjit Ajit Singh.
“Active engagement taken collectively by institutional investors will usher in an ownership culture that ensures management prioritises the best interest of the company at all times,” he goes on to say in the preamble to the code.
The 25-page code was unveiled at an event which featured presentations by Paul Lee, Head of Investment Affairs of the UK’s National Association of Pension Funds, and Motoyuki Yufu, Director of Corporate Accounting and Disclosure Division of the Financial Services Agency Japan.
Principles of the Code:
1. Disclosing Policies
2. Monitoring Investee Companies
3. Engaging Investee Companies
4. Managing Conflicts of Interest
5. Incorporating Sustainability Considerations
6. Publishing Voting Policy