Integrating environmental, social and governance (ESG) factors into corporate structures and businesses is fast becoming part of companies’ survival kit. Studies show that companies with high ESG ratings are more likely to have lower risk levels and performances that are highly correlated with investment value. This appeals to institutional investors, asset managers, financial institutions and other stakeholders, underscoring the relevance of ESG rating practices. According to Bloomberg Intelligence, global ESG assets may surpass US$41 trillion by 2022 and US$50 trillion by 2025, making up one-third of projected total global assets under management.
To support the global movement toward sustainability, RAM Sustainability launched R1ESGo ratings in February 2021. RAM Sustainability is a wholly-owned subsidiary of RAM Holdings focusing on sustainability ratings and ESG analytic services. R1ESGo is an acronym for RAM One Earth Shared Goals.
R1ESGo can help investors make the right investment choices aligned to their ESG or sustainable development goals investment mandates using a consistent rating framework. The R1ESGo rating considers the relevance, impact and materiality of sector-specific sustainability issues and risks, as well as the evaluation of management, mitigation strategies and control of inherent industry ESG risks. It also considers factors that may affect an entity’s reputation, financial or business profile, as depicted in Figure 1.
R1ESGo and Maqasid Shariah
Promoting sustainable and inclusive economic development is integral to the higher intents and objectives of the Shariah (Maqasid Shariah) which preserve the five essentials of mankind: faith, life, intellect, lineage and wealth. The positive outcomes of attaining Maqasid Shariah include the following:
• Fulfilling basic human rights
• Optimizing natural resources consumption
• Promoting economic well-being and social justice
• Alleviating poverty and income disparities
• Adopting permissible and productive activities, and
• Rejecting prohibited and harmful activities.
These outcomes are consistent with the ESG benchmarking adopted by R1ESGo. Both Maqasid Shariah and ESG are aimed at creating long-term values and impacts that drive balanced and sustainable socioeconomic development. Under these noble concepts, businesses assume greater responsibilities beyond short-term profits and account for the needs of stakeholders which include the community and the environment. Figure 2 summarizes the key common values that Maqasid Shariah and ESG share.
The R1ESGo ratings’ approach and methodology, which are based on values similar to those promulgated by Maqasid Shariah, are key to facilitating the growth of the Islamic finance industry in Malaysia as envisaged in the Value-based Intermediation concept introduced by Bank Negara Malaysia (BNM) in 2017 and Securities Commission Malaysia (SC)’s Sustainable and Responsible Investment Roadmap for the Malaysian Capital Market, launched in 2019.
In doing so, R1ESGo perfectly positions itself within the sustainable and inclusive national agenda as enshrined in the government’s 12th Malaysia Plan (2021–25) and Shared Prosperity Vision 2030, the SC’s Capital Market Masterplan 3 (2021–25) and BNM’s Financial Sector Blueprint (2022–26).
As of the end of February 2022, R1ESGo covered 102 listed companies across diverse sectors from primary to services industries. RAM remains committed to playing its role in the journey toward a more sustainable future.
Siew Suet Ming is the chief rating officer at RAM Ratings. She can be contacted at [email protected].