Malaysia’s $30 billion sovereign wealth fund has ruled out divestment from the country’s fossil fuel-dependent public sector, although this month set strict sustainability targets.
Amirul Feisal Wan Zahir, managing director of Khazanah Nasional, acknowledged that large stakes in the national airline and power company would pose a challenge to the fund’s efforts to achieve net-zero emissions across its portfolio of products. 2050.
But Amirul Feisal told the Financial Times that the fund would not sell its investments for environmental reasons.
“It’s easier for some multinational funds to say, I’ll sell your business and I’ll let you go,” he said. “We’re not here to pull the rug out 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 target to ensure that 30% of board members and senior management of its portfolio companies are held by women by 2025.
Around the world, oil-rich states like Malaysia are reacting to pressure to divert their wealth into more sustainable and ethical investments. But big investors face growing skepticism about what they are actually doing to support the transition away from climate-altering fossil fuels.
Amirul Feisal said Khazanah would also not divest from companies that do not meet its female representation deadline, adding that he would “put them to work instead”.
“I think basically that’s the only thing we can do,” he said. “I think when we start to question the direction, put some heat under their feet, then it gets done.”
Retaining investments in flag carrier Malaysia Airlines and state-owned power utility Tenaga Nasional Berhad, which generated 45% 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 holdings in Malaysian companies – typically “up to 20%” – Khazanah had a duty to influence change, rather than sell.
Khazanah, whose chairman is Malaysia’s prime minister, has long had a strict mandate to support the country’s economy. In 2004, he was placed at the center of Malaysia’s Government Linked Companies Transformation Program to revitalize state-owned enterprises.
The governance of Malaysia’s public investment sector came under intense scrutiny after it was revealed in 2015 that millions of dollars had been misappropriated from the government’s 1MDB fund, in a scandal that led to the conviction of the former Prime Minister and President of Khazanah, Najib Razak. Najib is appealing the conviction.
Amirul Feisal said Khazanah, which does not disclose all of its investments, had prioritized good governance for several years. He highlighted steps taken by the fund to improve transparency in state-owned enterprises as part of the GLC’s transformation agenda.
“It wasn’t subtitled ESG at the time,” he said. But by improving governance, we “have improved performance, improved productivity, improved transparency. The entire Malaysian market actually benefited from this.”