There is a high level of appetite for investments aligned with environmental, social and governance (ESG) standards for Malaysian pension fund Kumpulan Wang Persaraan (KWAP) and Permodalan Nasional Berhad (PNB) — the government-owned asset manager for all Malaysians, and the fund manager of the country's Bumiputera community, respectively.
Both institutions see a large and well-assorted spread of ESG-related investment strategies and megatrends, the audience heard at AsianInvestor’s Malaysia Global Investment Forum in Kuala Lumpur on November 7.
“All of these ESG-related megatrends each have their own complete value chain that we can focus on separately. Notwithstanding that, we are also looking at other investment opportunities once they are availed to us,” said Nazaiful Affendi Zainal Abidin, senior director of portfolio strategy and research department at KWAP.
Beyond obvious ESG-aligned megatrends like renewable energy and energy transition, Malaysia’s federal employees’ pension fund also sees clear ESG elements in the megatrend of digitalisation. Technology is enabling new opportunities within areas like education and financial inclusion.
“These sectors have certain social elements to them. When we talk about balancing returns with coming out with these social impacts, then it is quite important for us to know exactly what we are targeting,” Abidin said.
KWAP’s total assets under management (AUM) was MYR184.5 billion ($38.5 billion) as of July 2023.
PNB works following the narrative that the world needs to decouple carbon emissions from growth, especially to achieve net-zero ambitions by 2050 globally.
That narrative is entrenched in PNB’s climate investing strategy, where the asset manager is looking at several green sectors, including those that are not yet ripe for investing.
“As we evaluate green thematic sectors, we recognise that value chains of these sectors are still being developed and they need regulations to drive the ecosystem forward.” said Dinagaran Chandra, head of ESG investments at PNB.
"These sectors still need enablers and demand to pick up organically over time before they become investable market segments. However, new green investment opportunities are rapidly emerging," he added.
While these green sectors mature, PNB is targeting renewable energy production facilities that match the asset manager's risk-returns expectations and investment horizons.
“The cost of solar and wind has reduced 90% in the last 10 years, and today renewable energy is cost-competitive to fossil fuels, even without subsidies. There are many opportunities there,” Chandra said.
As a logical extension of renewable energy production, PNB also looks at investments into grid modernisation.
“If many countries want to scale up renewable energy penetration in the grid, they greatly need to modernise their grids. That also requires infrastructure investments, so that is one thematic bucket for us,” Chandra said.
As many multinational corporations demand green leases, PNB notes that the demand for green office spaces is also on the rise in different markets. While some demand is created organically, interest is also driven by regulations that countries are putting in place to decarbonise emissions from buildings.
PNB's AUM amounted to RMY341.6 billion as of end-2022.
KWAP’s Abidin also pointed out that the pension fund doesn’t need to look further than its own purpose to locate another ESG-aligned investment opportunity in the “silver economy”, referring to the demographic megatrend of people living longer — albeit with needs to cater to their senior years.
“The silver economy is a huge sector that we are focusing on, and has huge potential in Malaysia. In fact, it is already an estimated MYR25 million market by 2025,” Abidin said.
Another megatrend is food security. KWAP is looking to invest in companies that can enhance secure food production, with an ambition to tap into related technology and apply “smart farming”.
PNB is looking into greener agriculture production, and the asset manager also sees opportunities within green transport and electric vehicles (EV).
“EV sales are starting to outpace ICE (internal combustion engine) vehicles, and that is another significant opportunity. And let’s not forget about the EV charging infrastructure providers who also need to scale up as EV vehicle sales pick up,” Chandra said.
PNB is also looking at carbon capture capitalisation and hydrolysation. For now, however, these two market segments require a lot more ecosystem building before there are enough opportunities that match the asset managers’ risk-return objectives, Chandra explained.