Malaysia’s Top Pension Fund Sees ESG as ‘Vaccine for Any Crises’

(Bloomberg) -- Malaysia’s largest pension fund aims to make all its investments based on environmental, social and governance practices by 2030, betting a strategy based on holding sustainable assets can make it more resilient against future market upheavals.

“We believe that ESG is the vaccine for any crises,” Tunku Alizakri Raja Muhammad Alias, chief executive officer of the Employees Provident Fund, said in an interview with Bloomberg TV. “When we look back at 2020, and we look at assets that are ESG-compliant, we found that even at the height of Covid they deteriorated at a much lower rate than the other assets.”

Demand has been buoyant for stocks based on ESG factors, helped by the strategy’s relatively strong performance during the pandemic. For instance, a FTSE index of equities with significant involvement in environmental markets rose 37% in 2020, more than double the gain in the MSCI ACWI Index of global stocks.

The state pension fund’s aim to be ESG-compliant comes amid a resurgence of Covid infections in Malaysia, with factories belonging to glove makers including Top Glove Corp. being one of the major sources of new cases. The EPF owns a 4.9% stake in the world’s largest maker of latex gloves, whose shares soared more than 300% last year.

The surge in infections led Malaysia’s king to declare a state of emergency earlier this month, shortly before a lockdown for most of the country came into effect. Most of Malaysia’s new infections have been linked to migrant workers hailing from countries like Bangladesh, Nepal, Myanmar and Indonesia.

The emergency period, which could last until Aug. 1, is positive for the market, said Alizakri, who oversees about $233 billion in assets.

“From a market perspective, it actually brought a lot of certainty or normalcy in a very volatile market,” he said. “For us, we like this stability at this point in time.”

Excerpts from the interview:

• ESG assets have provided 5% to 7% return over the long term
• The pension fund is “hyper long-term” investor, with asset allocation spread out in equities, fixed income, real estate and cash
  • No massive shift in terms of strategic assets allocation
  • NOTE: Malaysia’s Top Pension Fund Sees Minimal Hit From Extra Outflows
• EPF is interested in performance but also keen to ensure consistency and sustainability of its assets over the next few years.

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