EPF to Offer Sustainable Savings Option by Year-End
Are You Hiring?
Find candidates in 72 Hours with 5+ million talents in Maukerja Malaysia & Ricebowl using Instant Job Ads.
Hire Now
The Employees Provident Fund (EPF) will launch an alternative savings option according to environmental, social and governance (ESG) factors, providing members with the choice of managing their savings based on their personal values.
This move aligns with the retirement fund's commitment to sustainability, said its chief strategy officer Nurhisham Hussein at a roundtable forum hosted by The Edge and BNP Paribas last month.
He disclosed that the savings option, which will be launched by the end of the year, will enable its 15.2 million members "to allocate their funds to a sustainability fund".
A sustainable choice
Nurhisham said that this savings option is the first step, and EPF will include more options in the future. The purpose is for EPF members to put their savings into what they believe in.
He explained that EPF is doing this to provide a choice for its members for more sustainable options, and he believes it is necessary to have that option.
There isn't much information on the portfolio structure since the sustainable fund option is still in the preliminary planning phase.
Regardless, the option is in tandem with EPF's Sustainable Investment Policy (SIP) which guides the fund in making holistic and informed investment decisions by incorporating ESG considerations in its investment management processes.
Along with the supplementary Priority Sector Policies and Priority Issues Policies, the SIP marks EPF's evolution from an ethical to a sustainable investor in its goal to become entirely ESG-compliant by 2030 and climate-neutral by 2050.
Current EPF savings options
As of now, EPF members can choose to have their retirement fund handled based on a conventional or shariah portfolio.
On March 2, EPF declared a dividend rate of 6.1% for Simpanan Konvensional, with RM50.45 billion in total payout, and 5.65% for Simpanan Shariah, with RM6.27 billion in total payout. The total disbursement for 2021 is RM56.72 billion.
The returns for Simpanan Shariah trailed narrowly behind the Simpanan Konvensional portfolio partly due to shariah assets not being invested in any of the international conventional banking systems, including insurance firms.
Nurhisham said if the member cares about ESG, they can choose the new option. Currently, for most EPF members, the focus is still on returns. However, as the members' demographic changes, the focus will change too.
He was commenting on the increased demand for sustainable investment options, which are being pushed, in part, by millennials and Gen Zs who prefer to invest according to personal values.
Over 67% of EPF members are millennials and Gen Zs
Based on a 2019 EPF demographics breakdown, over 5.1 million of its total 7.6 million members were millennials and Gen Zs between the ages of 16 and 40.
Regarding the notable growth of the sustainable investing world, especially since the pandemic struck, Nurhisham cautioned that businesses risk failure if they proceed to ignore increasing concerns about sustainability.
"There is this question of whether sustainable investments actually provide superior returns, but from what we see, if you are not ESG-compliant, you are not going to be able to provide returns at all.
"They [investee companies] will simply not get the capital and [investors] will not get their returns. People just won't invest in you," he asserted.
This trend will not just affect public listed companies, Nurhisham added, but private markets as well.
"[The sentiment] is filtering down to the entire financial ecosystem and if you're not on board, from an investment perspective, there isn't going to be any foreign interest, and your business isn't going to be able to function because you will have no access to capital.
"At EPF, our target is that we need to be 100% ESG-compliant by 2030. So, every proposal that goes to the investment panel also has to have that ESG assessment. There are instances where we turn something down because the ESG risk is too high.
"We are also currently going through our investment universe and doing that assessment for existing investments. ESG is not going to be a feature anymore — it's going to be part of the system. And if you're not on board, you're going to be left out," he reiterated.
Source: The Edge Markets