Giant Malaysian LP mulls ESG data convergence sign-up

Malaysia’s largest state-backed investment company, Permodalan Nasional Berhad, is considering signing up to the ESG Data Convergence Initiative as it tries to shift its circa 341.6 billion ringgit ($73.49 billion; €67.33 billion) of assets towards a 2050 net-zero target.

Though ESG and impact investing initiatives have traditionally been low on LPs’ list of priorities in Asia, PNB unveiled an ESG and sustainability plans in April 2022 that included a commitment to achieving net zero across the institution by 2025 and a net-zero portfolio by 2050.

PNB’s Sustainability Framework covers 10 corporate-wide sustainability goals, which include having 40 percent women in leadership roles by 2025 and setting aside a total of 10 billion ringgit to be invested into green and transition assets by 2030.

In April 2023, the institution also committed to the United Nations Global Compact, making it the first government-linked investment company in Malaysia to be part of the world’s largest corporate sustainability initiative. As of 23 August, a total of 247 companies in Malaysia had signed up for the initiative.

PNB is in the process of baselining the carbon emissions of its portfolios, including private equity investments, and ESG evaluation criteria will be considered in any new commitments.

“We reported 12 million tons of overall portfolio emissions, and when you look at sources of those emissions, it’s mostly our domestic investments,” Rick Ramli, chief investment officer for private and strategic investments at PNB, said. PNB’s domestic public and private investments include majority shareholdings in palm oil producer Sime Darby Plantation Berhad; automotive manufacturing company UMW Holdings Berhad; and oil and gas company Velesto Energy, among others. The top 12 strategic holdings account for about 80 percent of the overall portfolio emissions.

Baselining the private markets portfolio is more challenging than public equities, as access to emissions information is still not standardised across firms and regions, Ramli noted. “Private equity is less consistent, the standards are a bit different depending on whether you’re in the US or Europe and so on,” he added. “We’re trying to sign up for the Data Conversion Initiative, which a lot of LPs around the world have signed up for in order to get access to private equity investment emissions and how LPs report and to also standardise the GPs’ reports.”

While the standardisation of ESG reporting and universal access to information in private equity investments remains a work in progress, PNB is starting to measure current and upcoming investments against its sustainability framework.

“Whether it’s a direct or fund investment, we will start assessing two things,” Ramli said. “Firstly, we’ll assess the carbon impact: if I make this investment, is it higher, does it increase my average intensity or is it below my average intensity? We will also assess the funds, and also direct investments in terms of an ESG assessment.”