Friday 29 Mar 2024
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This article first appeared in The Edge Malaysia Weekly on March 20, 2023 - March 26, 2023

Amundi, one of the largest fund houses in Europe with about US$2 trillion of assets under management, wants to engage with Malaysian public-listed companies (PLCs) to better understand their sustainability plans and practices and invest in them over the long term.

Caroline Le Meaux, Amundi’s global head of ESG research, engagement and voting, tells ESG in an exclusive interview that PLCs need to understand that requests for sustainability information are not meant to burden them. It is done to ensure the PLCs are preparing for a more sustainable future that the world is moving towards.

“Our engagement is not about collecting data for the sake of it, but more about understanding them and pushing them in the right direction in their sustainability journey,” she says during a recent visit to Kuala Lumpur.

“We want to know your future path as the world transitions to a low carbon economy. If you are not catching up with the trend, at some point in time, we might have to exclude you from our portfolios. As a fund manager, we are forward looking.”

Le Meaux notes that many corporations, especially those in emerging markets, are less receptive to the idea of sustainability. It is understandable as sustainability reporting requires extra effort and cost. This can be a particularly onerous task for smaller companies.

She says the so-called “ESG premium” could take years to realise, while the consequence of not being ESG-compliant could appear relatively fast. Companies that fail to comply with regulations, are involved in controversial issues or do not meet investors’ sustainability expectations could see their share price battered quickly.

However, the trend will not be reversed. The overall journey can be smoothened if each party understands the importance of sustainability and has an open mind to collaborate, she adds.

As one of the biggest fund houses globally, Amundi aims to achieve a win-win situation with the companies it engages with. Instead of sending a list of requests for companies to tick the boxes, the firm wants to emphasise engagement, says Le Meaux.

“For instance, we don’t just suggest that they do certain things. We tell them the best examples in the industry and the things these leaders are trying to do. The companies we engage with will benefit from learning from the best examples,” she adds.

Amundi will explain to them the long-term benefits of planning for and implementing sustainability practices, such as gaining global market share, especially from international companies in developed markets. Their cash flow could improve on the back of higher revenues and profits as they grow their business internationally.

“With good ESG credentials, it will also be easier for us to invest in those companies. We want companies to know that we are not their enemy. We want to assist them in creating value by telling them what they can do,” says Le Meaux.

Compile sustainability data in CSV format

The regulators and exchanges play an important role in the world’s journey towards sustainability, especially in standardising sustainability reporting, says Le Meaux.

She understands that companies are overwhelmed by ESG questionnaires and engagement requests sent out by fund houses and rating agencies, as each of them has their own requirements. Many companies do not have the time and personnel to respond to each of them.

“It is true that companies are receiving a lot of these requests. It is a problem that all fund houses are facing,” she says.

“Ultimately, it goes back to regulations. If the local regulators can come out with a standardised disclosure format, with all the necessary information laid out, we won’t have to ask for it as we would have it all already. This would save us a lot of time and work.”

Le Meaux says regulators in some countries are already working on this. It is a very challenging task as it requires a lot of adjustments to be made by businesses.

“The best outcome is that every company adheres to the same reporting framework. It is a very painful process, especially for individual companies. But in the bigger picture, it is the best way to address the problems we are facing,” she says.

“Investors need information. We are always comparing [a company to another]. We compare a Malaysian company to its peers in Indonesia or Thailand, or even in Europe. The more standardised information we have, the better it is.”

Without a standardised reporting framework, fund houses like Amundi have to pick up relevant information from companies’ annual reports by reading them one by one in a PDF format. It is inefficient and could lead to miscommunication.

“Sometimes, we talk to companies and ask them why they didn’t disclose this or that. They would say they did. Then we would find out that one figure [we are looking for] is on page 56, while another figure is on page 23. We may not find them as we are also under pressure, given our time frame,” says Le Meaux.

“What companies can do is to help put those sustainability-related numbers together and save them in a CSV format, instead of putting them in a nice PDF format. And they have to do this consistently over the years.”

She adds that doing this would make the companies look better in the eyes of investors.

Climate strategy, biodiversity loss and capex allocation

What are the things Amundi would like to see the most in local companies? Le Meaux says it has to be a climate strategy.

“This is a thing that they need to have. The first thing they need to really assess is their Scope 1, Scope 2 and Scope 3 carbon emissions. The Scope 3 emissions include [the emissions of] the value chain, which is very important.”

Companies will then need to disclose the findings of their assessments and set targets and strategies to reduce carbon emissions. Discussions need to happen at the board level, she says.

“Malaysian companies should do the same for biodiversity. They should assess the risk, their [business] dependence on biodiversity, the impact [of biodiversity] on their companies, the opportunities they can act upon and more.”

Biodiversity loss is high on the list of Amundi’s priorities. “Companies really need to understand their [business] dependence on biodiversity losses, especially in Malaysia. It is accelerating and the economic impact is going to be huge,” says Le Meaux.

Capital expenditure (capex) is another important element that Amundi has its eyes on. The firm wants to see how companies’ capex can help put their business on a more sustainable path.

Is there an ideal percentage of how much a company should allocate its capex to sustainability purposes? Will Amundi invest in companies that allocate a meaningful amount of funds in sustainability but are suffering from losses over the shorter term?

Le Meaux says there isn’t a magical number for this and there shouldn’t be. But the firm does want to have visibility on how the allocated capex can help companies meet their goals in their transition to a low carbon and sustainable economy.

She adds that profitability is pertinent to the sustainability of a firm. “We shouldn’t view capex in a way that a part of it is allocated purely for business, while another is purely for sustainability purposes.

“You shouldn’t make it different because funds shouldn’t be allocated for sustainability just for the sake of it. It should help businesses transition to a low carbon economy and grow sustainably.”

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