Malaysia's $30 Billion Wealth Fund Will Support Carbon-Emitting State Companies

Published on: 26 June 2022
by KnowESG

Despite adopting strong sustainability standards earlier this month, Malaysia's $30 billion sovereign wealth fund has ruled out divesting from the country's fossil-fuel-dependent state sector.

Amirul Feisal Wan Zahir, managing director of Khazanah Nasional, acknowledged that the fund's large stakes in the national airline and power utility will complicate efforts to achieve net-zero emissions across its portfolio by 2050.

However, Amirul Feisal told the Financial Times that the fund would not sell its stakes due to environmental concerns.

It’s easier for some multinational funds to say: I will sell your company and I will abandon you,” he said. “We are not there to pull the rug from under their feet.”

Khazanah became the latest sovereign wealth fund to commit to environmental, social, and governance principles earlier this month. The fund's aims also include a goal of having 30% of its portfolio businesses' board members and senior leaders be women by 2025.

Oil-rich countries around the world, such as Malaysia, are reacting to pressure to spend their resources on more sustainable and ethical ventures. However, large investors are increasingly being questioned about how much they are doing to promote the transition away from climate-changing fossil fuels.

Khazanah, according to Amirul Feisal, would not divest from companies that fail to meet its deadline for female representation, but instead "bring them to the task."

“I think that’s the only thing that we can do,” he said. “I think when we start questioning management, putting the heat under their feet a bit, then it gets done.”

Maintaining its assets in Malaysia Airlines and Tenaga Nasional Berhad, which generated 45% of its electricity from coal last year, might make Khazanah's net-zero objectives extremely challenging.

However, Amirul Feisal stated that because of the fund's significant investments in Malaysian enterprises—generally "as high as 20%"—Khazanah had a duty to influence reform rather than sell.

The Malaysian prime minister chairs Khazanah, which has always had a specific mandate to assist the country's economy. It was positioned at the heart of Malaysia's Government-Linked Corporations Transformation Programme in 2004 to revitalise state-owned enterprises.

Following the revelation in 2015 that millions of dollars were embezzled from government fund 1MDB, which led to the conviction of former Prime Minister and Khazanah chair Najib Razak, governance in Malaysia's public investment sector has come under scrutiny. Najib is appealing his conviction.

Amirul Feisal stated that for numerous years, Khazanah, which does not reveal all of its interests, has prioritised excellent governance. He cited initiatives taken by the fund as part of the GLC Transformation Programme to increase transparency among state-owned firms.

“It wasn’t captioned as ESG back then,” he said. But by improving governance, we “improved performance, improved productivity, and improved transparency. The whole Malaysian market benefited from that”.

Source: Financial Times

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