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Our virtues must trigger us into being more sustainable

April 2023

Our virtues must trigger us into being more sustainable

Koh Huat Soon

 

Regional Head of Research

World Earth Day which falls on the 22nd April reminds us to pause and reflect that the sustainability of life on earth is at risk.

The environmental destruction that is occurring is predominantly anthropogenic – a term to suggest that human exploitation of earth’s natural resources is the cause. And this blind exploitation is motivated by commercial interest in pursuit of profit.

Economic theory suggests that perfectly functioning markets allocate resources efficiently in the production of goods and services. But from an environmental cost perspective, the market is imperfect as the cost of production does not adequately capture the full extent of the cost of damage to the environment caused by the commercial activity.

This is because society has for far too long, underappreciated the overlooked service of nature to the extent of undervaluing the costs of those depleting natural services caused by production of the goods they consume. This gap needs to be addressed.

Someone has to pay for the waste that is discharged to the air and waterways that degrades the natural environment which leads to poorer health.

Someone has to pay for the natural disasters due to global warming contributed by land clearing for farming and agriculture which also impacts biodiversity and disrupts the ecological balance that could lead to breakout of diseases

These are examples of ‘tragedy of the commons’, an economic concept describing how a shared or ‘public’ resource such as common land, atmosphere and the oceans are damaged by individuals and companies acting in their own greedy interests. Many businesses are not concerned and get away with these externalities.

But we as ESG investors are concerned because we know that unregulated negative externalities artificially inflate profits by failing to account for the full cost of production. If left unaddressed, businesses that are unprepared will be exposed to regulatory shocks when regulators introduce laws that oblige them to internalise these open access costs.

Properly costing the price of nature, such as pricing the cost of carbon emission, serves a greater purpose than just creating better economic efficiency. Pricier goods that better capture environmental costs make consumers and economic agents exercise more care in purchasing decisions that leads to more responsible approach to the production and consumption of goods and services. It forces greedy businesses that are motivated purely by profits to get in the line and operationalise in ways that minimises damage to the environment. It will drive businesses to lessen employment of resources that are environmentally damaging and motivate them to invest in carbon capture mechanisms.

The entire commercial-consumption ecosystem needs to be disciplined by proper regulation and proper alignment of market forces.

Market-based pricing mechanisms are a good way of disciplining businesses to become more environmentally responsible but they are still in early stages of development in Malaysia. As a global participant towards achieving net zero by 2050, Malaysia through the Bursa Malaysia has recently launched a Voluntary Carbon Market that would provide a platform to trade carbon credits. It has yet to introduce a carbon tax but has introduced tax incentives to encourage the development of green technologies including investments in carbon capture as well as promoting electric vehicles.

While these are steps in the right direction, it will take time to make a real impact and we cannot wait for policies alone to deliver the necessary change.

The time to act is now and as asset managers, we have the power to influence regulators, investee companies and even the consuming public to become more environmentally responsible

With the growth of Sustainability investments, Maybank Asset Management Group is playing its part by increasingly directing funds to invest in ESG responsible entities. We exercise our stewardship role by engaging with companies on ESG matters and becoming a public advocate of Sustainability by contributing to public education platforms including ESG themed seminars.

In promoting sustainability to our investee companies, we never lose sight of the importance of consistently delivering superior long term returns in the funds we manage. The pursuit of ESG in businesses is not in conflict with, but instead, is a condition for achieving long term sustainable profits in our view. Indeed, highly successful visionary companies do both – they deliver consistent superior long-term profits AND contribute to the good of societies. These two hallmarks must exist in a company’s raison d’etre to be highly successful in the long haul.

As World Earth Day approaches, it may be worthwhile to reflect this: Every animal on earth instinctively develops an equilibrium with the surrounding environment but humans tend not to. We destroy our environment like viruses destroy host cells. Plants and animals have been driven to extinction as the planet’s forests are destroyed. Appreciate that the trees growing in Malaysia’s rainforest and those in the Amazon have incredible nature-given value that is not recognized, which is far beyond its worth in the log market.

Humans as the highest life form on earth have the ability to adapt our environment to our desires instead of, as should be the case, our having to adapt to it. Let us not forget that humans are a species with a conscience, capable of self-criticism and reflection. Can we trigger these virtues into action?

Contacts

Michele Wong
Head of Markting Communications

Maybank Asset Management Sdn Bhd
michele.wong@maybank.com
+603-22997 7835
Level 12, Tower C, Dataran Maybank 1 Jalan Maarof, 59000 Kuala Lumpur

Koh Huat Soon
Regional Head of Research

Maybank Asset Management Sdn Bhd
huatsoon.koh@maybank.com
Level 12, Tower C, Dataran Maybank 1 Jalan Maarof, 59000 Kuala Lumpur