Short Position – Green investment, workers accomodation, economy

Green investment classification

RECENTLY, the Securities Commission (SC) issued a consultation paper seeking public feedback on a principles-based Sustainable and Responsible Investment Taxonomy for the Malaysian capital market (SRI Taxonomy).

Many are still unfamiliar with the SRI concepts and why taxonomy or classification or definitions of the related issues are important.

Globally, the issues of climate change, reducing greenhouse gases, an increasing focus on green energy and the fair treatment of labour have become focus points among many organisations.

The idea is to work toward saving the planet and making it a better place. You can’t argue with that. And in fact, you cannot also pretend that this movement is not taking place. Because guess what, investment funds are increasingly embedding these standards into their criteria.

So if countries do not want to be left out of investment flow in the future, they ought to adopt and try to implement the new ‘green’ standards for all to follow. Firstly, all persons involved in economic activity should take a look at the consultation paper SC has laid out, which is available on their website.

The SC says that the proposed social component of the SRI Taxonomy provides broad-based guiding principles for the Malaysian capital market constituents in managing social risks as well as unlocking opportunities to enhance social standards.

In the area of treatment of workers for example, we have seen how this can hurt companies which are accused of mistreatment of their labour force.

If standards were created on how workers should be treated, then it would be easier for companies to work towards that and not be accused on any untoward behaviour, which in turn could hurt their business.

Another example of the importance of SRI taxonomy was recently given by a partner of law firm Pinset Masons.

He explained that In order to encourage capital seeking green investments to flow across national borders, there has to be a common understanding of what is green. Investors in Singapore for instance looking to deploy capital in projects in say, neighbouring Malaysia, need to know if Malaysia would have a similar approach to defining green, he explained.

Providing decent accommodation

HAVING a decent place to lay your head after a hard day’s work is probably among the rudimentary needs of a labourer.

However, it is common knowledge that this is not always available to them, particularly foreign workers.Reports have noted that most workers’ dormitories are crowded with poor sanitation and rarely meet minimum requirements.

When the amended Workers’ Minimum Standards of Housing and Amenities Act 1990 came into full force on Sept 1, 2020, business associations had asked for additional time for employers to comply with the regulation, citing the weak economic conditions and movement restrictions which made it difficult.

However, it was reported just this week that a total of 17,592 or 46.71% of 37,662 employers inspected by the Peninsular Malaysia Labour Department as of Nov 30 were found not complying with the Workers’ Minimum Standards of Housing and Amenities Act 1990 (Act 446).

That is a high percentage of non-compliant employers. And given that the number of employers inspected is only a fraction of the number of businesses in Malaysia, one can only imagine how many more do not meet the minimum standard.

Understandably, employers have been hard-pressed over the past two years as they coped with the various challenges and complications brought about by the pandemic.

But this shouldn’t be a justification for the poor treatment given to foreign workers.

Notably, issues related to the treatment of employees, including forced labour, worker accommodation and management of foreign workers, have come under heavy scrutiny in recent times as more non-compliant practices by companies are brought to light.

We have seen companies denied access to important markets and dropped from supply chains because they were deemed non-compliant in their treatment of workers.

Local companies will have to buck up on this front if they want to remain in the supply chains of major multinational companies that are committed to the environmental, social and governance agenda.

But more than just to meet minimum requirements, local companies ought to do better because workers deserve better living conditions.

Getting our act together

IT looks almost certain Malaysia is going to yet again experience another down year in terms of absolute returns.

The worry now is that this is no longer an anomaly as there is a repeated trend over the past few years that is only intermittently broken by an upward year.

The way things are shaping up is that there is a problem with the 30 largest stocks and the largest funds in the country, namely the Employees Provident Fund and Permodalan Nasional Bhd, have resorted to overseas investment income to bump up the returns it delivers to its members and unitholders.

Imagine if there was no foreign returns to rely on and the returns would have been atrocious. The issue going into next year is that does Malaysia have the necessary ingredients to make the best of the investing year ahead?

No one knows what will happen but going by what we know, and assuming nothing much is going to change, then investors will need to brace themselves for more disappointment.

Firstly the banks, which carry much weightage on the FBM KLCI, will be looking at the continuation of the moratorium.

What will lending momentum be and provisionings should conditions return to normal?

Then there is the construction sector. There is hope that much will return to normal with the large spending packages announced in Budget 2021, but overall work is sensitive to changes in sentiment and also the overall appetite of economic growth.

Plantations is another heavyweight sector within the FBM KLCI and here the grouping of stocks is again at the mercy of foreign investors who do appear to have moved away from environmental, social and governance issues that the sector is subjected to.

The glove stocks too feature prominently in the index and those stocks are no longer in favour like they were a year ago, so their performance will likely be not that meaningful even though they are still making good profit.

The problem then the index will be subjected to will be the Prosperity Tax, which will shave earnings growth next year, and also the taxes on trading, which will make buying and selling shares on Bursa Malaysia more expensive in 2022. There needs to be a lift in terms of how stocks on Bursa Malaysia are going to perform in 2022.

If it is much of the same then there needs to be a broad-based scheme to jolt some interest back into Malaysian stocks otherwise there is the continued risk of underperformance that is going to rub off any shine that remains on the universe of stocks.

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