Economists laud Environmental, Social and Governance measures in Budget 2021

PETALING JAYA: The government’s push to position Malaysia as a sustainable finance hub is welcomed by economists, as it gains traction among a growing pool of conscious institutional investors who see Environmental, Social and Governance (ESG) practices as a useful measure to assess a company’s performance.

AmBank Research chief economist and Economic Action Council member Anthony Dass attributed the rise of sustainable investing to the realisation by investors and companies of the need to act responsibly to create a positive lasting impact on the community and the environment.

Sustainable investing will become part of the “new normal” over time as companies recognise that investing in ESG is the right thing to do, he said, adding, however, that the real incentive comes from evolving stakeholder expectations.

“Customers, employees, suppliers, investors and the communities in which companies operate are likely to place even greater pressure on companies through their consumption choices, preferences regarding the organisations they want to work for and with, and calls for greater transparency on ESG,” Dass told SunBiz.

The initiatives outlined in Budget 2021, he opined, would nudge the private sector, particularly the manufacturing and services industries, to align their values and leverage their investments to benefit the environment and society by participating in green technology.

“Such a move would contribute to the demand for various institutions to make ESG performance and sustainable investments part of their long-term strategy in the coming years,” the chief economist explained.

Sunway University Business School professor of economics Dr Yeah Kim Leng expects the tax exemption extension for socially responsible financing and launch of Green Technology Financing Scheme 3.0 (GTFS3.0) under Budget 2021 to create a more compelling case for issuers and investors by lowering transaction costs and widening access to a ready pool of ESG investors and willing financiers.

He pointed out that the tax incentives will make it more attractive for issuers compared conventional financing.

“Additionally, corporate issuers and investors will be able to enhance their reputation and broaden their market appeal by embracing sustainable financing,” said Yeah.

“The tax incentives will attract a larger pool of corporate issuers, financiers, intermediaries and investors committed to sustainability principles.”

Together with the green financing thrust spearheaded by Bank Negara Malaysia and Bursa Malaysia, the economics professor noted that Malaysia has the potential to be a leading sustainable financial hub in the region given its large and varied resource-based sector that needs to be managed sustainably.

Similarly, MIDF Research’s head of research Imran Yassin applauds the efforts made in the ESG space in the budget.

He believes that Malaysia has the potential to be a sustainable financial hub especially in tandem with the promotion of Islamic finance, which fits perfectly with the ESG principles.

“However, at what level, remains to be seen. Nevertheless, we also believe that it is in the interest of companies to adopt more ESG principles as it is gaining more attention from investors,” said Imran.

Under Budget 2021, the government will establish the Malaysia-Sustainable Development Goals Trust Fund through a cooperation with the United Nations with an initial allocation of RM20 million, which will coordinate financing from various public and private sources,

The budget also includes an extension of the existing tax exemption for sustainable and responsible investment (SRI) green sukuk grant which is extended to all types of sukuk and bonds until 2025.

In addition, it has introduced GTFS3.0 with an allocation of RM2 billion for two years up to 2022 which will be guaranteed by Danajamin to encourage the issuance of SRI sukuk.

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