Malaysian national energy company Petronas and Indonesian counterpart Pertamina are on a watchlist for removal from JPMorgan’s emerging market bond index (EMBI) on environmental social governance (ESG) concerns, reported Reuters, citing a statement from the bank.
JPMorgan said that both national oil companies “are expected to exit the JESG suite at the June month-end rebalance” as their scores fell below a required threshold and they are no longer eligible for inclusion.
Reuters said that the bank uses outside firms to evaluate the ESG score required for inclusion in the index. Sustainalytics, one of them, said some of Petronas’ or its affiliates’ activities in “high-risk regions” may be viewed as a violation of a United Nations arms embargo, according to the bank’s statement.
The decline in score is also related to “ongoing exposure to multiple incidents related to human rights” and “the ongoing political situation in Myanmar.”
Pertamina’s score decline was partly due to a refinery fire in West Java that forced the evacuation of close to 1,000 people as well as discussions with the government regarding a settlement over historical oil spills where clean-up is ongoing, JPMorgan’s statement said.
“We value analysis from financial institutions that are carried out based on reliable data and information,” Reuters reported Pertamina spokeswoman Fajriyah Usman as saying.
“In February 2021, the global bonds issued by Pertamina were oversubscribed by up to 2.5 times, showing market interest and high levels of trust in the company,” she added.
Petronas currently has a 121 basis points weight in the index, while Pertamina’s stands at 49 bps.