The Covid-19 pandemic has thrown the spotlight on the importance of long-term sustainability and the need for companies to focus on becoming part of the solution to global social and environmental woes. While the environmental, social and governance (ESG) movement is hardly new — having been around since the mid-2000s — the pandemic has elevated it to a strategic priority.
This has seen the emergence of greener, more responsible organisational and investment practices as investors, consumers and employees seek a bigger role in driving real-world outcomes that go beyond short-term profit.
Corporations that understand and embrace this change will be able to withstand external challenges. Among those that have gone beyond chanting ESG as a mantra and actually incorporating it into their business practices is Principal Asset Management Berhad.
Along with Principal Islamic Asset Management Sdn Bhd, Principal Asset Management has been a United Nations Principles for Responsible Investment (UNPRI) signatory since December 2019. A proponent of responsible investment, the UNPRI promotes sustainable investment and supports its signatories in incorporating ESG factors into their investment and ownership decisions.
Principal Asset Management CEO Munirah Khairuddin said being part of the UN-supported network is consistent with the company’s brand purpose.
“We want to foster a world in which financial security is accessible to all while doing right by our customers, communities and the planet. Our mission is ever more relevant in these times, when people are reeling from the impact of Covid-19.”
Providing financial security
As countries including Malaysia enter the endemic phase, people are emerging vulnerable from the pandemic — grappling with pay cuts and income and job losses, their savings and retirement plans upended. Already struggling before the outbreak, many households are finding their financial challenges amplified, and this needs to be addressed to make way for an equitable economic recovery.
This is why the company firmly believes in helping Malaysians take the first step into financial planning — so that they can be better prepared for such impact. Placing financial inclusivity as one of its top priorities to enable more Malaysians to have access to affordable investment solutions, the company lowered the barriers of entry for the young and the underserved, and ensured that its investment solutions — both conventional and Islamic — are accessible to all through digital innovation.
For instance, one of its latest offerings, the Shariah-compliant Principal e-Cash Fund, is available in the mainstream e-Wallet space through its partnership with Touch ‘n Go Group, with a minimum initial investment of RM10. With the solution and relevant information at their fingertips, customers can make financial decisions via a secured platform, with the assurance that their savings and investments are being managed by experienced fund managers.
Munirah said, “Our collaboration with Touch ‘n Go Group means a great deal to us because we’re able to bring more innovative solutions focused on affordability, savings and investments, and inclusivity while making investments easy to understand, and helping customers on their investment journeys. Our purpose is to provide all Malaysians with an opportunity to be a step closer to reaching their financial security.”
Another concern is the pandemic’s impact on retirement security. Even prior to the outbreak, the Employees Provident Fund has been sounding the alarm — the EPF estimates that the minimum retirement savings needed per worker after retirement is RM240,000 based on the calculation of RM1,000 per month for 20 years. The EPF reported that half of contributors above the age of 54 have savings of below RM50,000, which means Malaysians are not saving enough for retirement.
This is where Principal Asset Management sees itself playing an important role of helping more people build their nest egg by offering the Private Retirement Scheme (PRS) to complement the mandatory retirement savings. The company provides affordable PRS funds with an initial investment of just RM100, and a regular savings plan that allows investors to autodebit any amount into their PRS account.
While Covid-19 may have brought about much turbulence, it has also highlighted one thing — funds operating with ESG principles have been gaining interest among investors, owing to rising concerns on climate change and its impact on humans and the planet.
S&P Global Market Intelligence analysed 17 ESG-themed exchange-traded funds and unit trusts with over US$250 million in assets and found that 14 had outperformed the Standard & Poor’s 500 index from 2020 through July 31, 2021.
Conscious investing pays off and Principal Asset Management understands this well, screening funds and mandates using ESG factors and incorporating them into its investment analysis and decision-making processes to protect the long-term best interest of its 1.5 million clients.
Just recently, it also launched the Principal Global Sustainable Growth Fund, enabling investors in Malaysia to invest in an ESG-focused capital growth fund. Qualified as a Sustainable and Responsible Investment (SRI) fund by the Securities Commission Malaysia, the fund’s holdings are subject to the ESG integration methodology that is in accordance with the UNPRI. Its launch reflects Principal Asset Management’s commitment to respond to the growing awareness of sustainability issues as investors seek more responsible and impactful options.
Accessing the power of its people
At the core of a strong ESG agenda is a corporation’s employees, who are critical enablers of a sustainability mandate. As a workforce strategy, ESG keeps staff engaged and productive, instils a sense of purpose, and attracts and retains talent.
At Principal Asset Management, this means a plethora of initiatives, including its Global Inclusion Connect programme and Diversity & Inclusion programmes. The success of such programmes is showcased across Asia, where half of its leadership roles are filled by women, while about 30% of local member companies’ board of directors are female.
To build up its employees, the company has a variety of career development resources to ensure its workforce is future-ready. ESG metrics are also weaved into its compensation programmes with a general incentive plan that provides transparency in remunerations and business objectives.
To further inculcate a culture of purpose, the company encourages its employees to be involved in its efforts to bring positive change to communities as well. For one, it has a financial literacy programme, where its staff reach out to youths via campaigns and roadshows to guide them on how to save for the future.
Other community-based relief efforts include aiding medical frontliners, individuals and families in need. For instance, when Covid-19 first struck, Principal Asset Management stepped up with the Giving Chain initiative by supporting local businesses through the purchase of meals, which were distributed to Hospital KL medical personnel, International Islamic University of Malaysia students and underprivileged families in Sabah and Kuala Lumpur. The company also contributed facemasks and hand sanitisers to families affected by the flash flood in Johor, Pahang and Terengganu in January this year.
Embedding sustainable practices
One of the most important things that Covid-19 has highlighted is the importance of putting the earth first. The pandemic is a reminder of humanity’s impact on planetary health, placing ESG principles front and centre as corporations are forced to face the fact that profit maximisation is no guarantee of business continuity.
That is why Principal Asset Management is doubling down on delivering on its environmental commitments under its Corporate Environmental Policy. It seeks to cut its environmental impact by reducing its carbon footprint, incorporating responsible water management practices, minimising waste, recycling and engaging suppliers with sustainability initiatives.
The company also prides itself on being ethical. It places good governance and integrity at the heart of its business, strengthening the practice of these virtues via training opportunities through PRI Academy certification, ESG providers and conferences.
As for its investee companies, Principal Asset Management does not seek to exclude those that do not do that well in an ESG assessment. In general, companies with better ESG ratings have shown higher returns, lower volatility and therefore lower risks during challenging times. To the company, this is an opportunity to engage these companies and advocate adoption of the best practices so they can improve both their ratings and business performance.
“Gone are the days when corporations saw ESG as just a good-to-have or an aspiration,” says Munirah. “Today, it is an integral part of the business and, for Principal Asset Management, this is the only way to go.”