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The new wave of climate action is expected to reshape the fundamentals of finance, as climate risk is expected to become increasingly intertwined with investment risk5. Various parties have been calling for the mainstreaming of the transition to a net-zero economy, while others have advocated for a private financial system to support the re-engineering of economies for net-zero emissions under the COP26 Private Finance Hub. In this new era, the shift in capital allocation to sustainable businesses could see a renewed pace as climate risks are increasingly priced in by the markets, and investments into climate transition could become a key driver towards the achievement of net-zero emission commitments.
Financial regulators around the world, including Malaysia, have embarked on efforts around sustainable finance standards for investment products, taxonomies and disclosures as well as facilitative development policies to catalyse the growth in sustainable finance. It is expected that greater focus will be seen in the areas of transition finance, sustainability data, reporting standards and transparency.
2.1.2 THE RISE OF THE STAKEHOLDER ECONOMY
Besides climate change, the pandemic also brought attention to systemic inequalities, such as income, ethnic and gender inequalities as well as disparities between countries. At the same time, some businesses stepped up during this period of great social stress to contribute to the communities around them. During the pandemic, businesses were seen to repurpose manufacturing lines to produce personal protective equipment, redeploy airline crews to support the healthcare system and convert hotels into quarantine facilities.
Against this backdrop are growing calls for businesses to evolve from the traditional shareholder capitalism model of profit-making towards the more sustainable and socially inclusive stakeholder capitalism model – one which positions private corporations as trustees of society and the environment, instead of serving only their shareholders. Stakeholder capitalism is quickly gaining ground, due in large part to the realisation that shareholder capitalism is not sustainable and is in need of a meaningful reset to serve the needs of all stakeholders.
Central to the shift to a stakeholder economy is CG6. CG can be instrumental in defining the role of stakeholders within a corporation and to ensure that decision-making incorporates the best interests of all stakeholders – including customers, employees, regulators, local communities and shareholders. CG also involves establishing mechanisms to align the goals of a company’s executive team with those of owners and other stakeholders. This, together with regulations, will shape businesses that deliver both profits and purpose in society.
Malaysia has pledged to reduce its carbon emission intensity by 45% by 2030, relative to its 2005 levels, with a number of policies and initiatives implemented to redirect the country towards further decarbonisation.
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Fundamental Reshaping of Finance, Larry Fink’s letter to CEOs, 2020.
Business Leaders: The Shift to Stakeholder Capitalism Is Up to Us, World Economic Forum, January 2020.
CAPITAL MARKET MASTERPLAN 3
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