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Malaysia’s $30bn wealth fund to stand by carbon-emitting state companies

Malaysia’s $30bn sovereign wealth fund has ruled out divesting from the country’s fossil-fuel dependent state sector, despite this month setting out tough sustainability targets.

Amirul Feisal Wan Zahir, managing director of Khazanah Nasional, acknowledged that big holdings in the national airline and power company would present a challenge to the fund’s efforts to achieve net zero emissions across its portfolio in aggregate by 2050.

But Amirul Feisal told the Financial Times the fund would not sell out of investments on environmental grounds.

“It’s easier for some multinational funds to say: I will sell your company and I will abandon you,” he said. “We are not there to pull the rug from under their feet.”

This month, Khazanah became the latest sovereign wealth fund to commit to environmental, social and governance standards. The fund’s targets also include a goal to ensure 30 per cent of board members and senior leaders at its portfolio companies are held by women by 2025.

Across the world, oil-rich states like Malaysia are responding to pressure to divert their wealth into more sustainable and ethical investments. But large investors face growing scepticism about how much they are really doing to support the transition away from climate-changing fossil fuels.

Amirul Feisal said Khazanah would also not divest from companies that failed to meet its deadline for female representation, adding it would instead “put them to task”.

“I think, basically, that’s the only thing that we can do,” he said. “I think when we start questioning management, putting the heat under their feet a bit, then it gets done.”

Retaining its investments in national carrier Malaysia Airlines and state power company Tenaga Nasional Berhad, which generated 45 per cent of its electricity from coal last year, could make Khazanah’s net zero ambitions particularly difficult.

But Amirul Feisal said that because of the size of the fund’s substantial stakes in Malaysian businesses — typically “as high as 20 per cent” — Khazanah had a duty to influence change, rather than to sell.

Khazanah, whose chair is the Malaysian prime minister, has long had a strict mandate to support the country’s economy. In 2004, it was placed at the centre of Malaysia’s Government-Linked Corporations Transformation Programme to revitalise state-owned enterprises.

Governance in Malaysia’s state investment sector has come under scrutiny following the revelation in 2015 that millions of dollars were embezzled from government fund 1MDB, in a scandal that led to the conviction of former prime minister and Khazanah chair Najib Razak. Najib is appealing against the conviction.

Amirul Feisal said that Khazanah, which does not disclose all its investments, had prioritised good governance for several years. He pointed to steps the fund took to improve transparency across state-owned enterprises as part of the GLC Transformation Programme.

“It wasn’t captioned as ESG back then,” he said. But by improving governance we “improved performance, improved productivity, improved transparency. The whole Malaysian market actually benefited from that”.

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