KUALA LUMPUR (Dec 22): Bursa Malaysia Bhd has launched the Environmental, Social and Governance Index (ESG) with goals to maintain high standards of corporate governance in the marketplace.

In a press statement today, the stock exchange said the FTSE4Good Bursa Malaysia (F4GBM) Index was developed in collaboration with Financial Times Stock Exchange (FTSE) as part of the globally benchmarked FTSE4Good Index Series and is aligned with other leading global ESG frameworks such as the global reporting initiative and the carbon disclosure project.

The F4GBM Index is used to measure the performance of companies demonstrating strong Environmental, Social and Governance practices.

“Constituents of the new index must meet internationally benchmarked criteria that measure such things as efforts in environmental conservation, the impact of social responsibility initiatives on the community and the practice of good governance through responsible and ethical decision making,” said Bursa.

Bursa Malaysia chief executive officer Datuk Tajuddin Atan said that investors, shareholders, and clients are expecting greater responsibility and transparency from companies and their investments.

“F4GBM will be the reference point and benchmark that companies can aspire to in efforts to step-up the standards in stakeholder value creation,” he added.

FTSE chief executive officer Mark Makepeace said there was growing momentum from investors wanting to apply ESG into investment decisions.

“We are therefore delighted to collaborate with Bursa Malaysia again to launch this pioneering index and associated ESG Ratings which further builds on the successful partnership between the Exchange and FTSE.”

There have been a number of studies looking at Socially Responsible Investment (SRI) funds and indices to test how they perform against the broader market, Bursa noted, adding that one of the most comprehensive studies considered 20 separate academic cases which showed evidence of a positive relationship between ESG factors and portfolio performance in half of these, with seven reporting a neutral effect and three a negative association.

The index is the latest step in the sustainability roadmap of the stock exchange that includes its commitment to maintain high standards of corporate governance in the marketplace and was made possible with funding from the capital market development fund.