KUALA LUMPUR (March 31): The Employees Provident Fund (EPF) on Thursday (March 31) launched the EPF Sustainable Investment Policy and two supplementary policies to guide the fund in making better informed and holistic investment decisions by integrating environmental, social, and governance (ESG) considerations in its investment management processes.
In a statement, the EPF said the launch of the EPF Sustainable Investment Policy, besides the supplementary Priority Issues Policies and Priority Sector Policies, marks its evolution from an ethical to a sustainable investor in its pursuit to become fully ESG-compliant by 2030 and climate-neutral by 2050.
"The retirement fund believes that ESG issues are becoming more critical in business practices as they reflect the risks and opportunities of businesses, as well as the wider positive and negative impact on society," the EPF explained.
The EPF Sustainable Investment Policy is grounded on four key guiding principles to ensure consistency, predictability and transparency.
Meanwhile, the Priority Issues Policies and Priority Sector Policies act to supplement the main policy by defining the fund’s stance on three priority issues and six key sectors.
For the main policy, the EPF specified the four key guiding principles as follows:
- Integrating ESG in the EPF’s investment decision-making processes, providing a robust and comprehensive investment process that assesses an investment opportunity not only by the fund’s financial upside potential, but also its performance on key ESG factors;
- Taking an active leadership role in ensuring investments within the EPF’s portfolio transition towards ESG compliance, while continuously improving its sustainability standards through responsible voting practices, ESG monitoring, as well as active engagements with investee companies and external fund managers;
- Identifying relevant ESG priorities and targets for the EPF, benchmarking to local and global goals and taking into account the fund’s portfolio exposures. To accelerate these efforts, the EPF’s Sustainable Investment Centre is tasked to develop, implement, monitor and report the annual progress towards its committed sustainability goals;
- Recognising internal capability building as a key priority in the EPF’s sustainable investment approach to further its transition towards becoming a leader in sustainable investing. The EPF will conduct training and awareness programmes, develop internal sustainability advisory capabilities, and establish a change management office to instil a sustainability-charged top-to-bottom culture within the fund.
Meanwhile, the three-pronged Priority Issues Policies currently include two priority issues, namely climate change and workers’ well-being.
"These focus areas will be reviewed periodically to factor in the latest developments. To integrate these priority issues, the EPF has developed issue-specific ESG expectations in line with global standards, its mandate, national commitments and peer investors’ practice," the fund said without specifying the remaining key consideration for the supplementary policy.
On the other hand, the Priority Sector Policies cover six priority sectors, namely palm oil, oil and gas, mining, power generation, banking and construction.
According to the EPF, these sectors were chosen based on its exposure to these industries and the ESG risks inherent in them.
"Given the differences in materiality between these sectors, the EPF has developed sector-specific ESG expectations aligned with global standards, local commitments and nuances, and peer investors’ practice," the fund added.
Following the launch of the policies, the EPF said its portfolio managers will communicate its ESG expectations to its investee companies and external fund managers (EFMs).
"At the launch [ceremony], all of the EPF’s 16 EFMs signed the Sustainable Investment Pledge to solidify their commitment to include ESG considerations into their investment decision-making processes," the fund added.
Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz launched the EPF Sustainable Investment Policy, witnessed by EPF chairman Tan Sri Ahmad Badri Mohd Zahir, its chief executive officer Datuk Seri Amir Hamzah Azizan and senior representatives of the fund’s EFMs.
In his speech, Tengku Zafrul said that 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 revitalising Malaysia’s socio-economic development, with long-term sustainability and prosperity serving as the foundation for improving the rakyat’s (people's) well-being.
“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.
"Therefore, we fully support the EPF, Malaysia's largest institutional investor and pension fund, for completely embracing sustainable investing and reinforcing its commitment to ESG. The government believes that by institutionalising ESG policies in the EPF’s investments, the benefits will cascade down the value chain of Malaysia's capital markets, ultimately benefiting the rakyat,” according to Tengku Zafrul.
Ahmad Badri, meanwhile, said the EPF Sustainable Investment Policy forms part of the fund's overarching investment strategy endorsed by its investment panel.
He said the EPF will continue to engage its investee companies and EFMs to upgrade and align their ESG practices with the fund’s expectations as outlined in the Priority Issues Policies and Priority Sector Policies.
“Given the EPF’s position as the country’s premier retirement fund, it is crucial that it incorporates ESG factors in the evaluation of investee companies’ performance and business practices.
"By considering risks and opportunities beyond financial performance, the EPF will be well positioned to make better holistic investment decisions, thus safeguarding our members’ long-term returns and contribute to a wider sustainability ecosystem,” Ahmad Badri elaborated.