Can Ethical Funds Save Malaysia?

By Daniel Chandranayagam

Malaysia, according to news reports, is fast losing its lustre as a place for foreign investors to dive in. Interestingly, ten middle-income emerging economies have been named: Mexico, South Korea, Turkey, Poland, Indonesia, Saudi Arabia, Taiwan, Iran, Argentina and Thailand; said to be the “new motor for the global economy”, according to Martin Walker, a senior director of US-based A.T. Kearney’s Global Business Council, in the Bangkok Post.

Columnist, Tan Siok Choo, in Malaysia’s the Sun newspaper opined on this:

What is notable about The Ten is Malaysia’s absence. That The Ten includes two neighbours, Indonesia and Thailand, as well as three Muslim countries – Turkey, Saudi Arabia and Iran – underscores the fact that for foreign analysts, Malaysia is now off their radar screen.

The question then is how is Malaysia going to make itself attractive to foreign investors? While Prime Minister Mr. Najib Tun Razak recently visited Hong Kong to woo investors, it can be said that compared to other emerging markets, Malaysia fares worse than neighbours Thailand and Indonesia, while compared to other Islamic nations, Malaysia seems to be lagging behind.

Can Malaysia seek investors of ethical funds?

A quick answer to that is – not in a long shot.

While Malaysia’s National Bourse, Bursa Malaysia, has made it mandatory for public-listed companies to report on their corporate social responsibility (CSR) activities, the actual CSR of corporates need to be far more in line with international standards to get the attention of foreign investors. According to the UN Global Compact, Malaysia Network website, there are only 31 listed corporations and one chamber of commerce, the EU-Malaysia Chamber, compared to the 855 corporations listed on the Bursa’s Main Market and the hundred odd corporations on the ACE Market (Second Board).

In fact, out of the 31 listed corporations, less than ten are public companies, which begs the question if Malaysian public listed companies are not interested in corporate social responsibility or if they believe that Bursa Malaysia’s compliance requirement is sufficient?

When it comes to corporate social responsibility, many have said that this goes beyond compliance. In which case, Malaysian public listed companies need to pull their socks up and begin to really invest in doing good.

Tragically, some public companies list paying towards the employees provident fund (a form of superannuation) and SOCSO (Social Security Organization) as forms of corporate social responsibility in their annual report (or other form of CSR reporting). How much confidence would an ethical investor have in such an initiative?

In addition, the fight against corruption needs to be strong and bold by businesses. Money filtering away from the top down, unethical loans to directors and similar “usual” Malaysian business practice needs to be rethought and halted.

So while other countries with healthier business practices (Indonesia, for example, has its own sustainable and responsible investment index) might begin to reap rewards from clean business, Malaysia either needs to clean up its act or seek the usual form of investments outside of ethical investments.