what is ESG?
ESG in the broadest sense covers environmental, social and governance issues. But perception regarding details of the meaning and focus areas can vary. ESG investing often refers to “sustainable” or “responsible” investments, which seek positive returns and a long-term impact on society, and/or the environment and performance of a business.
Environmental
The ‘Environmental’ factors impacting a company include issues such as climate change, biodiversity, pollution abatement and decommissioning legacy assets. Environmental effects such as climate change are a critical challenge for business, generating physical risk and causing significant changes to ways of doing business and consideration of financial risk. The response to climate change also presents significant opportunities with new markets and technologies developing as part of the transition towards a climate-resilient, lower carbon economy.
Social
The ‘Social’ factors include human rights, customer welfare, labour relations, employee wellbeing and supply chain issues. These factors are increasingly relevant for investor relations, brand management and to minimise the risk of litigation and, when managed successfully, they can be a significant brand and business enabler.
Governance
The ‘Governance’ is integral to the success of every business and an area of focus for institutional investors. Governance factors relate to important management strategy and group structure, compliance, and financial transparency. They also play an important role in the implementation and monitoring of ‘Environmental’ and ‘Social’ factors.
Additionally, IHB also focuses on the nexus between its own actions and those of the 17 Sustainable Development Goals – which is a UNGC global initiative to enhance cooperation between the private sector in making our planet a more sustainable place to live. Malaysia is a signatory to this charter.
ESG focus
An additional prism that is utilised by IHB is that of ESG compliance and integration. IHB do not invest in businesses that are associated with tobacco, alcohol, sex, weapons, drugs, gambling, non-halal food or drinks. This list is clearly not exhaustive but represents a preliminary “Negative Screening”.
Once an investment opportunity is identified and meets the internal Investment Decision Making criteria, a more thorough ESG screening process is undertaken. To ensure the highest levels of governance and independence, the final screening is performed by an ESG Committee comprising the United Nations Global Compact (Malaysia). This verification then allows the UNGC to provide its visible support to IHB’s investment offering. The ESG committee is truly independent with no representation from IHB.
